Reference no: EM132770876

An auditor is applying statistical sampling for attributes to the testing of extensions of 1000 line items on sales invoices. A deviation is defined as an extension mistake on a line (i.e. line #39 quantity of 10 and unit price of $100 is calculated as $900).

The auditor decides to use a 10% Risk of Overreliance, a Tolerable Deviation Rate of 6%, and an expected population deviation rate of 2%.

Assume the following deviation condition exists in the population (the auditor would not know this):

Line          # Amount of deviation overstated (understated)

39                    $ (100)

114                      226

196                       (330)

202                        900

220                        700

226                         28

291                          1126

347                          226

410                      (400)

526                      550

600                      100

674                      150

798                     (500)

840                       350

890                      925

906                      (820)

Required

Problem a. Calculate the sample size.

Problem b. Take ONE sample using random selection. Regardless of your answer to part "a", use a sample size of 100 lines. If you select a line number listed in the preceding deviation table, assume that a deviation is found.

Problem c. Quantitatively evaluate your sample results. [Use the "sample decision rule".]

Problem d. Assume that your sample contains so many deviations that you as the auditor conclude that controls are not acceptable. Develop a "population decision rule", as suggested in class. Use the population decision rule to conclude that controls would be acceptable in this case.

Problem e. Strictly as an overall Test of Controls, would the dollar amount of the deviations you found change the evaluation of your results? Why or why not?