The auditors wish to test the valuation of accounts receivable in the audit of Kaplan Corporation. The client has $1,000,000 of total recorded receivables, composed of 2,000 accounts.
The auditors have decided to use structured nonstatistical sampling and have determined the following:
Tolerable misstatement $50,000
Assessment of inherent and control risk Moderate
Risk related to other substantive procedures Moderate
a. Calculate the required sample size.
b. Assume that the auditors have tested the sample and discovered three misstatements:
Book Value . Audited Value
$100 ........ $ 90
512 ........ 600
900 ........ 520

The remainder of the sample had an average value (book and audited) of $501.00. Use the ratio estimation method to calculate the projected misstatement of the population.
c. Use the results obtained in (b) to come to a conclusion about whether to “accept” or “reject” the population.