Your audit of Italian Hospital Group (IHG) includes examining whether accounts receivable is misstated. As part of your procedures, you decide to use stratified sampling. The accounts receivable subsidiary ledger shows the following accounts, separated by strata:
The auditor decides that internal controls are relatively weak, so the tolerable misstatement is $25,000 (about 3% of the population). As a result, all five accounts in the first stratum will be separately examined. Based on the risk of incorrect acceptance, the auditor determines the appropriate confidence factor to use is 2.4.
a. Which strata should be selected for use in the sampling procedures?
b. Following your answer to part (a), calculate the required sample size for selected strata based on the following non-statistical formula to determine sample size:
c. If the auditor had instead determined that the internal controls are relatively strong and that the tolerable misstatement is $75,000 and the appropriate confidence factor is 1.7, how does that change the sampling and sample size?
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