Assignment

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)
81                                                  150
202                                                 900
220                                                 700
240                                                 950
291                                               (300)
526                                              (1126)
600                                               1000
798                                                 500
840                                                 350
890                                                 925
906                                                (820)
908                                              (1200)
971                                                 200

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.