Audting Homework

F.75 Comprehensive Attributes Sampling

a. Since the auditors established a risk of overreliance of 10 percent, expected population deviation rate of 1 percent and a tolerable rate of deviation of 7 percent, selecting 55 invoices was appropriate in the prior audit. The upper limit of deviation was calculated correctly and since it was higher than the tolerable rate of deviation, the auditors made the right choice to reduce the reliance of the controls.

B. Since there has not been any major changes or remediation in the control policy since the last audit, I see no good chance in the viability of increasing the reliance of the controls in the current audit.

c. If the auditors decided to increase the reliance on the controls then the sample size would become larger. The tolerable rate of deviation and the risk of overreliance would be need to be reduced for this to happen in the current audit.

d. The necessary sample size for the current audit would be 78 items. Yes it is consistent because the sample size is larger from the prior year of 55.

e. The factors that increased the sample size were the reduction in the tolerable rate of deviation and the risk of overreliance. With the expected population deviation rate being 1 percent and the risk of overreliance being 10 percent, if the tolerable rate of deviation was reduced from 7 to 6 percent, then the sample size would change from 55 to 64. With the tolerable rate of deviation being 7% and the expected population deviation rate being 1 percent, if the risk of overreliance was reduced from 10 to 5 percent, then the population size would change from 55 to 66.

f. With a sample size of 100 items and a risk of overreliance of 5 percent, the auditor would need to find an upper limit rate of deviation that is less than the tolerable rate of deviation to rely on the controls. The upper limit rate of deviation for 0 deviations is 3 percent. The upper limit rate of deviation for 1 deviation is 4.7 percent. The...