Because there is no discernible relationship between the absolute amount of differences (i.e., audited value v. recorded book value) and recorded book value for 50 preliminary sample items, an auditor decides to use difference estimation in the audit of accounts receivable. The following data are known:

Required: 

Assume difference estimation is applied and total recorded book value is $500,000. Determine:
1. Sample size.
2. Total projected monetary difference.
3. Estimated population value.
4. Achieved allowance for sampling risk.
5. Precision interval.

Transcribed Image Text:

Population size Estimated population standard deviation Acceptable risk of incorrect rejection Desired allowance for sampling risk 2,500 $20 = .05 $10,000 After sample size is calculated and the sampling units are selected and examined, the following summary data are available: Total recorded value for all sampling units Total audited value for all sampling units Net difference (i.e., between recorded and audited amounts) for all sampling units Squared differences for all sampling units Estimated population standard deviation = $65,220 = $64,970 - $250 $215,000 = $48.53