Question

15-38 (Objectives 15-4, 15-5, 15-7) For the audit of Carbald Supply Company, Carole Wever, CPA, is conducting a test of sales for 9 months of the year ended December 31, 2019. Included among her audit procedures are the following:

1. Electronically re-add the sales journal and trace the balance to the general ledger.
2. Review all sales transactions for reasonableness.
3. Select a sample of recorded sales from the sales journal and trace the customer name and amounts to sales invoices and the related shipping document.
4. Select a sample of shipping document numbers and perform the following tests:
   1. Trace the shipping document to the related duplicate sales invoice.
   2. Examine the sales invoice and agree to shipping document, shipping order, and customer order.
   3. Verify that the customer is included in the customer master file and sale does not exceed authorized credit limit.
   4. Examine sales file for evidence of internal verification of quantity, price, extensions, and invoice total, and trace the balance to the accounts receivable master file.
   5. Compare the price on the sales invoice with the approved price list and the quantity with the shipping document.
   6. Trace the balance on the sales invoice to the sales journal and accounts receivable master file for customer name, amount, and date.

Required

• For which of these procedures can audit sampling for exceptions be conveniently used?
• Considering the audit procedures Wever developed, what is the most appropriate sampling unit for conducting most of the audit sampling tests?
• Complete the sampling datasheet following using attributes or nonstatistical sampling.
  • For all tests of controls, assume a TER rate of 5 percent and an EPER of 1 percent.
  • For all substantive tests of transactions, use a 4 percent TER and a 0 percent EPER.
  • Use a 10 percent ARO for all tests.
  • Determine the sample size for each attribute (hint: use table 15-8 to determine the sample size for each attribute).

For the first two requirements, do not just give one-word or one-sentence answers. Please explain and give evidence of your answers.

DESCRIPTION OF ATTRIBUTES	EPER	TER	ARO	INITIAL SAMPLE SIZE
A sales invoice exists for the shipping document selected. (tests of controls)
Shipping document agrees with related duplicate sales invoice. (substantive tests)
The sales invoice agrees with the shipping document, shipping order, and customer order. (tests of controls)
The customer is included in the master file and does not exceed authorized credit limits. (tests of controls)
The sales invoice has internal verification of computations. (tests of controls)
The sales invoice has the same price and quantity as approved price list and shipping document. (substantive tests)
Customer name, amount and date agrees between sales invoice and sales journal and subsidiary ledger. (substantive tests)

Answer 1

Answer :

a.

Audit sampling could be conveniently used for procedures 3 and 4 since each is to be performed on a sample of the population.

b.

The most appropriate sampling unit for conducting most of the audit sampling tests is the shipping document because most of the tests are related to procedure 4. Following the instructions of the audit program, however, the auditor would use sales journal entries as the sampling unit for step 3 and shipping document numbers for step 4. Using shipping document numbers, rather than the documents themselves, allows the auditor to test the numerical control over shipping documents, as well as to test for unrecorded sales. The selection of numbers will lead to a sample of actual shipping documents upon which tests will be performed.

c.

The sampling data sheet that follows assumes a statistical attributes sampling approach. The approach also assumes sampling is applied to automated controls, rather than an IT audit approach. The only difference between the sampling data sheet for statistical sampling and for nonstatistical sampling is the actual determination of sample size. For nonstatistical sampling, students’ answers will vary, but will most likely be comparable to the sample sizes determined under statistical sampling.

DESCRIPTION OF ATTRIBUTES	EPER	TER	ARO	INITIAL SAMPLE SIZE*
A sales invoice exists for the shipping document selected.	1.0	5.0	10	77
Shipping document agrees with related duplicate sales invoice.	0.0	4.0	10	57
The sales invoice agrees with the shipping document, shipping order, and customer order.	1.0	5.0	10	77
The customer is included in the master file and does not exceed authorized credit limits.	1.0	5.0	10	77
The sales invoice has internal verification of computations.	1.0	5.0	10	77

DESCRIPTION OF ATTRIBUTES	EPER	TER	ARO	INITIAL SAMPLE SIZE*
The sales invoice has the same price and quantity as approved price list and shipping document.	0.0	4.0	10	57
Customer name, amount and date agrees between sales invoice and sales journal and subsidiary ledger.	0.0	4.0	10	57

*assumes the shipping document is the sampling unit.

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