You work for the internal audit department of Logistics Corp. You have completed a study of the internal controls over purchases and inventory and have decided that the key controls over authorization and existence of payables are a copy of the receiving report attached to all invoices prior to payment. (1,000 purchase invoices are expected to be paid this year for a total purchase value of $12 million).

The next step is to test to see if the control is operating as described. You have decided to do an attribute sample for this purpose using the following criteria

The acceptable risk of over-reliance on the control at 5%

tolerable deviation rate should be set at 8%.

The expected population deviation rate is 3%

You find three paid invoices without receiving reports

Required

Discuss (as per the illustrations done in class) the steps that are required to perform an attribute sample and provide a conclusion whether conclude whether you can rely on the key control that receiving reports are attached to all invoice prior to payment. As part of your steps, provide a brief discussion of how you would have arrived at the factors to determine sample size

Required:

Prepared in good form a working paper and conclude whether the auditor can rely on the control of completeness of sales and receivables. Your working paper should include the sampling steps identified in the textbook for tests of controls. Each step should clearly specify how it relates to the facts in the question above.