An auditor is applying statistical sampling for attributes to the testing of extensions of 1000 line items on sales invoices. A deviation is defined…

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

       202                                                900

       220                                                700

       240                                                950

       291                                             1126

       347                                               226

       410                                              (400)

       526                                                550

       600                                              1000

       674                                                150

       798                                               (500)

       840                                                350

       890                                                925

       906                                               (820)

Required

a. Calculate the sample size.

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.

c. Quantitatively evaluate your sample results. [Use the “sample decision rule”.]

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.

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?







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