Based on a population size of 388 shipments, a 10 percent desired risk of overreliance, an expected population deviation rate of 1 percent, and a tolerable rate of deviation of 6 percent, the audit team selected a sample of 58 items.

In performing tests of controls, your audit team identified three shipments that were not supported by an approved sales order and concluded that these represent deviations from the control activity.

Required:

a. Use IDEA to determine the ULRD. What would the audit team's conclusion be with respect to the functioning of ELM's control over the authorization of sales transactions?

Part (b) is a set of independent scenarios that affect the evaluation of sample results.

b. For each of the following numbers of deviations, use IDEA to determine the ULRD and provide the audit team's conclusion with respect to the functioning of ELM's control over the authorization of sales transactions.

1. 0 deviations.

2. 1 deviations.

3. 2 deviations.

c. How do the results in part (b) reflect the relationship between the number of deviations and the ULRD?