@TXNYC – below is the problem i was referring to. I cannot understand the difference between those three questions and how to reach differentiate and remember the method of coming up with an answer.
In auditing receivables, Schmidt, CPA, will use statistical sampling to evaluate whether there was proper authorization for shipping the goods and to determine whether the resulting receivables are fairly stated. Schmidt has determined the following.
Accounts receivable balance = $500,000
Number of customer balances included = 212
Parameters for test of controls
Risk of assessing control risk too low = 5%
Tolerable deviation rate = 6%
Expected deviation rate = 2%
Allowance for sampling risk 3%
Sample size = 75 customer invoices
Audit procedure: inspect invoice for proper authorization (credit check, available goods, etc.)
Parameters for substantive tests
Acceptable level of risk = 5%
Assessed level of inherent and control risk: Low
Tolerable misstatement = $2,000
Sample size = 50 (outstanding) customer invoices
Audit procedure: Send confirmations for each invoice
Each question below is independent of the others. For each question, double-click on the shaded cells and select your answer from the list provided.
1. In evaluating the confirmations associated with each invoice, Schmidt discovers that there is an avg. overstatement error of $10 per account. What will be the projected error in the population?
2. In evaluating the confirmations associated with each invoice, Schmidt discovers that there is an avg overstatement error of 1% per account. what will Schmidt's point estimate be for the true population value?
3. Schmidt is considering using a PPS sampling plan with a sampling interval of $3000. After sending confirmations, Schmidt discovers that an account balance of $1500 is overstated by $150 and an account balance of $4000 is overstated by $400. Based on these two errors only, what will be the total projected error in accounts receivable?
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