15-11
15–28 (continued)
billing date for timeliness of billing. (Timing)
3. Trace entries into perpetual inventory records to determine
e. The test performed in part c. cannot be used to test for occurrence
of sales because the auditor already knows that inventory was
shipped for these sales. To test for occurrence of sales, the sales
15–29 a. It would be appropriate to use attributes sampling for all audit
procedures except audit procedures 1 and 2. Procedure 1 involves
recalculation of just one month’s sales journal’s mathematical
b. The appropriate sampling unit for audit procedures 3–7 is a sales
c. The attributes for testing are as follows:
AUDIT
PROCEDURE
ATTRIBUTE
3
The date that credit approval is documented on the
sales order and precedes the date on the shipping
document.
4
Entries in the sales journal have been shipped as
evidenced by the existence of a related shipping
document.
5
Evidence that prices used to calculate the sales
amount on the invoice were matched to the approved
price list.
6
The calculation of the sales amount on the sales
invoice is mathematically accurate.
7
Entry in the sales journal matches entry in accounts
receivable master file.
15-12
15–29 (continued)
d. The sample sizes for each attribute are as follows:
AUDIT
PROCEDURE
TEST OF
CONTROL OR
SUBSTANTIVE
TEST OF
TRANSACTIONS
SAMPLE SIZE
SAMPLE
SIZE
TER
EPER
3
T of C
6%
1.0%
78
4
ST of T
5%
0.5%
93
5
T of C
6%
1.0%
78
6
ST of T
5%
0.5%
93
7
ST of T
5%
0.5%
93
point to remember is that the sample sizes chosen should reflect
the changes in the four factors (ARO, TER, EPER, and population
decisions:
SAMPLE SIZE EXPLANATION
1. 90 Given
2. > Column 1 Decrease in ARO
3. > Column 2 Decrease in TER
b. Using the attributes sampling table in Table 15–8, the sample
sizes for columns 1–7 are:
1. 88
2. 127
15–30 (continued)
6. 18
7. 149
c.
CHANGE IN
FACTORS
EFFECT ON
SAMPLE SIZE
ILLUSTRATION IN
PART a. or b.
1. Increase in ARO.
Decrease
Compare columns 4 and 1
2. Increase in TER.
Decrease
Compare columns 3 and 2
(population sizes are not
consistent, but this has
little effect on sample
size)
3. Increase in EPER.
Increase
Compare columns 6 and 5
4. Increase in
population size.
No effect or slight
increase
Compare columns 4 and 2
e. The greatest effect on the sample size is the difference between
TER and EPER. For columns 3 and 7, the differences between the
TER and EPER were 3% and 2% respectively. Those two also had
Population size has the least effect on sample size. The
difference in population size in columns 2 and 4 was 99,000 items,
f. The sample size is referred to as the initial sample size because it
15-14
15–31 a.
SER
TER–SER
ALLOWANCE FOR SAMPLING
RISK SUFFICIENT?
1.
2%
3%
Probably*
2.
2%
3%
No (due to smaller sample size)*
3.
2%
3%
Yes
4.
2%
3%
Probably*
5.
2%
3%
No (due to small sample size)
6.
10%
NA
No (SER exceeds TER)
7.
0%
5%
Yes
8.
0%
5%
No due to small sample size
* Students’ answers as to whether the calculated allowance for
sampling risk is sufficient will vary, depending on their judgment.
b. Using the attributes sampling table in Table 15–9, the CUERs for
columns 1–8 are:
1. 4.6%
2. 6.2%
3. 4.0%
c.
CHANGE IN
FACTORS
EFFECT ON
CUER
ILLUSTRATIONS IN PART
a. or b.
1
Decrease in ARO
Increase
Compare columns 3 and 4
2
Decrease in
population size
No effect or
minor decrease
Compare columns 1 and 4
15-15
15-31 (continued)
CHANGE IN
FACTORS
EFFECT ON
CUER
ILLUSTRATIONS IN
PART a. or b.
3
Decrease in
sample size
Increase
Compare columns 4 and 5
(both sample exception
rates are 2%)
4
Decrease in the
number of
exceptions in the
sample
Decrease
Compare columns 6 and 7
even though the population in column 1 was 10 times larger.
e. The CUER represents the results of the actual sample whereas
the TER represents what the auditor will allow. They must be
15–32 a. The sample sizes and CUERs are shown in the following table:
and
b.
ACTUAL
SAMPLE
SIZE
INITIAL
SAMPLE
SIZE FROM
TABLE 15–8
SER
CUER FROM
TABLE 15–9
TER
1
100
127
2.0%
6.2%
6.0%
2
100
93
4.0
9.0
5.0
3
20
18
5.0
18.1
20.0
4
100
99
0.0
3.0
3.0
5
60
65
1.7
6.4
8.0
6
60
60
13.3
20.8
15.0
a. The auditor selected a sample size smaller than that determined
15-16
15–32 (continued)
table is the increased likelihood of having the CUER exceed the
TER. If a larger sample size is selected, the result may be a sample
b. The SER and CUER are shown in columns 4 and 5 in the
c. The population results are unacceptable for populations 1, 2, and
6. In each of those cases, the CUER exceeds TER.
The auditor’s options are to change TER or ARO, increase
sample size, or perform other substantive tests to determine
whether there are actually material misstatements in the population.
d. Analysis of exceptions is necessary even when the population is
acceptable because the auditor wants to determine the nature and
e.
TERM
NATURE OF TERM
1. Estimated population exception
rate
Nonstatistical estimate made
by auditor
2. Tolerable exception rate
Audit decision
3. Acceptable risk of overreliance
Audit decision
4. Actual sample size
Audit decision (determined by
other audit decisions)
5. Actual number of exceptions
in the sample
Sample result
6. Sample exception rate
Sample result
7. Computed upper exception
rate
Statistical conclusion about
the population
15-17
Copyright © 2017 Pearson Education, Inc.
15–33 a. Based on the given ARO of 5% (confidence level of 95%), a
CUER of 7.92% indicates the auditor can conclude that the
exception rate in the population is no greater than 7.92% with a
5% risk of the exception rate exceeding 7.92%. Stated differently,
the auditor is 95% confident that the population exception rate
does not exceed 7.92%.
b. Given that Annie established a tolerable exception rate (TER) of
if she believes that the sample tested was not
representative of the population and that exceptions are
not expected in the expanded sample.
3. Revise assessed control risk upward. This is likely to
increase substantive procedures. Revising assessed
additional substantive procedures are possible.
4. Disclose the information to management. This action
covered by the temporary employee. In expanding the sample, she
could test additional transactions occurring outside the time period,
and assuming zero exceptions are identified in the expanded
sample and the CUER is less than TER, she could conclude
each.
15-18
15–34 a. The following shows which are exceptions and why:
INVOICE
NUMBER
EXCEPTION?
TYPE OF EXCEPTION
5028
No
Error was detected and corrected by
client.
6791
No
Sales invoice was voided.
6810
Yes
Proof of shipment not presented.
7364
No
Credit collection problem; should be
noted for review of allowance for
doubtful accounts.
7625
Yes
Duplicate sales invoice not properly
filed.
8431
Yes
Invoices not recorded by proper date;
represents potential cutoff problem.
8528
Yes
Customer orders not included in
invoice package to verify compliance
with the order.
8566
Yes
Error in pricing. No internal
verification.
8780
Yes
Duplicate sales invoice not properly
filed.
9169
Yes
Credit not authorized.
9974
Yes
Internal verification of price extensions
and postings of sales invoices was
not included.
results of the test.
c. The SER assuming a 5% ARO for each attribute and a sample
15-19
15–34 (continued)
INVOICE
NUMBER
DESCRIPTION OF ATTRIBUTE
NUMBER OF
EXCEPTIONS
SER
6810
Shipping document not located
1
.67%
7625
8528
8780
Duplicate sales invoice/
customer order not located
3
2.00%
8431
Invoice date improper
1
.67%
8566
Price extensions and postings
incorrect
1
.67%
8566
9974
Price extensions and postings
not internally verified
2
1.33%
9169
Credit not authorized
1
.67%
d.
INVOICE
NUMBER
TER–SER
ALLOWANCE FOR
SAMPLING RISK
SUFFICIENT?
6810
5.33%
Yes
7625
8780
8528
4.0%
Probably*
8431
5.33%
Yes
8566
5.33%
Yes
8566
9974
4.67%
Probably*
9169
5.33%
Yes
* Students’ answers will most likely vary for this attribute.
e. For each exception, the auditor should check with the controller to