You are planning to conduct an audit of Greystone Company’s financial statements. As part of the audit, you will select a random sample of accounts receivable in order to estimate the proportion of Greystone’s accounts receivable that are at least 3 months overdue.
a. How many accounts should you plan to sample if you want to build a 95% confidence interval estimate that has a margin of error no larger than + .025. Assume you have no previous experience with the company’s books and no time to examine a pilot sample of accounts.
b. How would the recommended sample size in part a change if your prior experience with the company suggests that the proportion of accounts receivable that are at least three months overdue is about .06?