Upper Limit on Misstatements Calculation: Monetary Unit Sampling. Carson Allister is performing an MUS application in the audit of Bird Company’s accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a sample size of 75 items and a sampling interval of$25,000. After examining the sample items, the following misstatements were identified: Item Recorded Balance Audited Value 1 $35,000 $28,000 2 10,000 8,000 3 6,000 3,000 Required:a. Calculate the upper limit on misstatements for Bird Company’s accounts receivable.b. Provide a brief description of the meaning of the upper limit on misstatements calculatedin part (a).c. What would Allister’s conclusion be with respect to the fairness of Bird’s accountsreceivable balance?
Upper Limit on Misstatements Calculation: Monetary Unit Sampling. Carson Allister is performing an MUS application in the audit of Bird Company’s accounts receivable. Based on the acceptable level of the risk of incorrect acceptance of 5 percent and a tolerable misstatement of $120,000, Allister has calculated a
$25,000. After examining the sample items, the following misstatements were identified:
| Item | Recorded Balance | Audited Value |
| 1 | $35,000 | $28,000 |
| 2 | 10,000 | 8,000 |
| 3 | 6,000 | 3,000 |
Required:
a. Calculate the upper limit on misstatements for Bird Company’s accounts receivable.
b. Provide a brief description of the meaning of the upper limit on misstatements calculated
in part (a).
c. What would Allister’s conclusion be with respect to the fairness of Bird’s accounts
receivable balance?
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