Data Analytics Case

Edwards has decided to use monetary unit sampling (MUS) in the audit of a clients accounts receivable balance. Few, if any, misstatements of the account balance are expected.

Required:

1. Identify the advantages of using MUS over classical variables sampling.

2. Calculate the sampling interval and the sample size Edwards should use given the following information:

Tolerable misstatement	$ 50,000
Risk of incorrect acceptance	5%
Estimated misstatement	$ 15,000
Recorded amount of accounts receivable	$3,000,000

What is the effect on sample size of changing the risk of incorrect acceptance to 1%?

3. Using the 5% Risk of incorrect acceptance, calculate the total projected misstatement if the following three errors were discovered in MUS:

Misstatement	Book Value	Audited Value
1	$ 400	$ 320
2	500	0
3	15,000	12,500

4. Calculate basic precision and incremental allowance.
5. Calculate the upper limit on misstatements.
6. Will you accept or reject the account as materially correct?