Hill has decided to use probability-proportional-to-size (PPS) sampling, sometimes called dollar-unit sampling, in the audit of a client’s accounts receivable balances. Hill plans to use the following PPS sampling table:
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Table |
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Reliability Factors for Overstatements |
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Number of overstatements |
Risk of incorrect acceptance |
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|
1% |
5% |
10% |
15% |
20% |
|
|
0 |
4.61 |
3.00 |
2.31 |
1.90 |
1.61 |
|
1 |
6.64 |
4.75 |
3.89 |
3.38 |
3.00 |
|
2 |
8.41 |
6.30 |
5.33 |
4.72 |
4.28 |
|
3 |
10.05 |
7.76 |
6.69 |
6.02 |
5.52 |
|
4 |
11.61 |
9.16 |
8.00 |
7.27 |
6.73 |
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Additional information |
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Tolerable misstatements |
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|
(net of effect of expected misstatements) |
$ 24,000 |
|
Risk of incorrect acceptance |
20% |
|
Number of misstatements |
1 |
|
Recorded amount of accounts receivable |
$240,000 |
|
Number of accounts |
360 |