sales invoices are adequately supported by the appropriate shipping documentatio
ID: 2575986 • Letter: S
Question
sales invoices are adequately supported by the appropriate shipping documentation. The auditor expects a 2% error rate and has set 5% as the tolerable deviation rate. The risk of assessing control risk too low is 5%. A sample of 160 sales invoices was randomly selected and audited for the attributes of interest. The auditor found 4 misstatements (no shipping documents to support the sales invoice) in the sample. REQUIRED: (1)What sample size should the auditor have used to conduct this test? Based on the results of the audit of the sample selected, calculate the expected deviation rate in the population Calculate the achieved upper limit of the deviation rate at the 5% risk of assessing control risk too low. Assume that the auditor used the sample size calculated in (1) above. Assess the meaning of your results in (3) above. If the results are unsatisfactory, indicate how this would affect the audit Indicate some additional procedures that the auditor might use if the sample results are unsatisfactory. (2) (3) (4) (5)Explanation / Answer
1) We should use Table 1 for finding sample size as the risk of assessing control risk too low is 5%. The tolerable deviation rate is 5% and the expected deviation rate (expected error rate) is 2%, The sample size in table 1 for given tolerable rate of 5% and expected deviation rate of 2% is 181. Thus the auditor should have used sample size of 181 of sales invoices to conduct this test.
2) Expected Deviation Rate based on the actual result = no. of misstatements/sample size = (4/160)*100 = 2.5%
3) For calculating the achieved upper limit of deviation rate we will use Table 3. The required sample size is 181 sales invoices and actual no. of deviation is 4. Thus in table 3 the value of Achieved Upper limit of deviation for the given data is 4.6.
4) The above result indicate that upper limit of deviation in the given case is 4.6% which is less than tolerable deviation rate of 5% but exceeds the error rate of 2%. The unsatisfactory results leads to change in audit plan of auditor and change in nature, time and extent of audit procedures to be performed.
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