SCA Is Auditing a Client's Accounts Receivable Balance Recorded at $10

question 15

Multiple Choice

SCA is auditing a client's accounts receivable balance recorded at $10 million using MUS.The following parameters have been established for this account: -Tolerable misstatement = $500,000
-Expected misstatement = $100,000
-Risk of incorrect acceptance = 10 percent
Which of the following statements would not be true with respect to the sample size in this situation?

• A)The correct sample size is 69 customer accounts.
• B)Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant)will reduce the sample size by 331 accounts.
• C)If SCA wishes to reduce its exposure to the risk of incorrect acceptance to 5 percent (holding all other factors constant),sample size will be increased by 24 accounts.
• D)Increasing expected misstatement to $200,000 (holding all other factors constant)will increase the sample size to 115 customer accounts.

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Definitions:

Payable

Refers to an amount of money that a company owes to its creditors or suppliers, to be paid at a later date.

Accounts Receivable

Money owed to a business by its customers for goods or services delivered on credit.

Indirect Method

Indirect Method is a way of reporting cash flows from operating activities in the cash flow statement by starting with net income and adjusting for non-cash transactions and changes in working capital.

Operating Activities

Activities that involve the primary, day-to-day operations of a business, such as sales, supply chain management, and general administrative tasks.