Sampling Problem 1
You are going to be the lead auditor to test controls over Account receivable(AR), to determine credit authorization. Jordan & Jordan requires that the manager approve all credit sales prior to shipping orders. Credit approvals is demonstrated by initials of the manager on each invoice. The balance in AR consists of 850 invoices. Also, the sales journal indicates that another 34 invoices were generated due to cash sales. After considering the design of AR internal controls it has been determined that a 95 % confidence level, and 5 % tolerable rate should be used. It is expected that the population deviation is 1.5 %
After selecting your sample, it was found the following:
A) Four invoices did not have the manager's approval
B) One invoice had the assistant manager's initial
C) You were unable to find the 2 invoices
Required
A) Calculate the appropriate sample size.
B) Determine the upper deviation rate
C) Evaluate the results
Sampling Problem 2
You have been selected by the in charge auditor to develop and execute a sampling plan to determine if the internal controls over shipping goods can be set at below maximum. After reviewing the internal control questionnaire, you are concerned that the controls are not functioning as intended. You wish to set the confidence level very conservatively and therefore chose a confidence level of 85%.
A deviation has been defined as a lack of supporting documents accompanying shipping authorization. You calculated a sample size of 181, using an estimated population deviation rate of 6% and a tolerable deviation rate of 4%. This is the first time you have been assigned to perform variables sampling and you are concerned that since there are over 3000 shipping authorization documents the sample size may be too small and so you increase the sample size to 300. You select sampling with replacement.
You select a random start at shipping document number 307 and select a sampling interval of 50. You pick the first 20 documents at each interval. For example, at document number 357 you select 20 and then at document 407 you select another 20 consecutive shipping documents. You continue this until you have the necessary 300 sample.Partial results of the sample are given below:
Document number Issue
457 Unable to locate the document
468 Shipping document did not have supporting documentation
509 No authorization on shipping document
515 Shipping document did not have supporting documentation
807 Unable to read the shipping document due to faint type appears to have gotten wet)
812 Shipping document did not have supporting documentation
813 The supporting documentation was different from that shown on the shipping document
Since you were unable to locate document 457 and you selected sampling with replacement you choose another sampling item and found no issue. Document 509, while not having authorization did not concern you since you are sampling for lack of documentation. Document 807 was unreadable and you determined it to be a deviation. You considered document 813 to be a deviation.
You have concluded that the deviation rate was only 5%, below the 6% anticipated and assess the internal control risk as low to moderate.
Required: Identify each wrong assumption, application or statement in the above scenario.
Statistical Sampling Controls:
