F.52 General Attributes Sampling. Frazier
Holyfield, a new staff accountant, is evaluating important controls over the
revenue cycle and, more specifically, assessing the operating effectiveness of
the control that all shipments made to customers by Top Rank, Inc., have been
properly invoiced.
Required:
Comment on the following actions that Holyfield performed.
You should evaluate each action independently of any other actions.
a.
Holyfield decided to inspect documentary evidence that all
shipments made by Top Rank have been invoiced by matching shipping documents
with invoices. Accordingly, she has identified the population from which she
intends to sample as all sales invoices. Top Rank has a computerized list of
invoiced sales that she can use to select the appropriate sample.
b.
Because Holyfield plans to place a high degree of reliance on
this particular control, she assesses the risk of overreliance at 5 percent. In
previous years, a 10 percent level was used, but consultation with the
engagement manager (Mike Evander) and partner (Donna Arum) indicate that a
higher degree of reliance is planned in the current audit.
c.
Frazier assessed the expected population deviation rate at 1
percent. While the rate of deviation from prior audits has approximated 2
percent, Top Rank has made several improvements in its processing of sales
invoices; as a result, she believes that a lower expected population deviation
rate is appropriate.
d.
Based on the risk of overreliance (5 percent), the expected
population deviation rate (1 percent), and the tolerable rate of deviation (4
percent), Frazier uses sampling tables to calculate a sample size of 156. She
then increases the sample size to 175 because the population of sales invoices
is extremely large (more than 30,000 sales invoices are processed per year).
e.
Based on her tests of controls, Holyfield determined a sample
rate of deviation of 2 percent. Using this rate of deviation, along with the
appropriate risk of overreliance, she determined an allowance for sampling risk
of 2.5 percent. Because the sum of these two (4.5 percent) is less than the
risk of overreliance, Holyfield concluded that the control is operating effectively
and decided to rely on this control as planned to reduce the scope of her
substantive procedures.
F.63 Sample Size
Determination. For each of the following independent cases, use AICPA sample
size tables to identify the missing value(s).
|
|
|
Control |
|
|
|
|
1 |
2 |
3 |
4 |
|
Risk
of overreliance |
5.0% |
5.0% |
10.0% |
(d) |
|
Expected
population deviation rate |
1.25% |
2.5% |
(c) |
1.25% |
|
Tolerable
rate of deviation |
7.0% |
(b) |
6.0% |
6.0% |
|
Sample
size |
(a) |
68 |
153 |
78 |
F.68 Sample Results Evaluation.
Required:
For each of the following independent cases, use AICPA sample
size and sample evaluation tables to identify the missing value(s).
|
|
|
Control |
|
|
|
|
1 |
2 |
3 |
4 |
|
Sample
size |
30 |
(d) |
200 |
50 |
|
Number
of deviations |
2 |
4 |
(g) |
2 |
|
Sample
rate of deviation |
(a) |
(e) |
2.5% |
(i) |
|
Risk
of overreliance |
5.0% |
5.0% |
10.0% |
(j) |
|
Upper
limit rate of deviation |
(b) |
12.6% |
(h) |
(k) |
|
Allowance
for sampling risk |
(c) |
(f) |
2.1% |
8.1% |