An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines the
Variability in the Dollar Amounts of Inventory Items
Risk of Incorrect Rejection
Four factors are considered in determining the sample size for mean-per-unit estimation. Those factors include (1) the population size, (2) an estimate of population variation (the standard deviation), (3) the risk of incorrect rejection (its complement is the confidence level), and (4) the tolerable misstatement (the desired allowance for sampling risk is a percentage thereof, and this percentage is a function of the risk of incorrect rejection and the allowable risk of incorrect acceptance).