Problem

Interpreting sampling documentation

Min-Li is auditing RRR Services Inc. and has designed the following tests:

Test A

1. Select 150 cancelled cheques (8 percent of the total number of cheques) at random from the purchases journal for the year.

2. Ignore any cheques with a recorded value of less than $1,000.

3. Examine the cancelled cheques to verify if they have been approved by the accounting supervisor (indicated by her initials on the cheque).

4. Compare the percentage of cheques (of the sample) that lacks the accounting supervisor's initials to a pre-determined percentage of 5 percent.

Test B

1. Select 150 cancelled cheques (8 percent of the total number of cheques) at random from the purchases journal for the year.

2. Compare the amount of each cheque to the amount recorded in the purchases journal.

3. Total the net overstatement or understatement for all cheques examined and project this amount to obtain an estimate for the population.

4. Compare the population estimate from step 3 to a predetermined amount of $8,000.

Required

(a) Identify the attribute being tested in the test of controls.

(b) Can the results in Test B be used to project a value for the population? Explain your answer.

(c) Can the results in Test A be used to project a value for the population of cancelled cheques for the year? Explain your answer.

(d) Explain sampling risk in substantive testing (in one or two sentences).