North Queensland Supply Company Ltd is a medium-sized distributor of wholesale hardware supplies. It has been a client of yours for several years and has instituted excellent internal controls for sales at your recommendation.

In providing control over shipments, the client has pre-numbered 'warehouse removal slips' that are used for every sale. It is company policy never to remove goods from the warehouse without an authorised warehouse removal slip. After shipment, two copies of the warehouse removal slip are sent to billing for the computerised preparation of a sales invoice. One copy is stapled to the duplicate copy of a pre-numbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. In the current audit period, the smallest warehouse removal slip number for the year is 14682 and the largest is 37521. The smallest sales invoice number is 47821 and the largest is 68507.

In the audit of sales, one of the main concerns is the effectiveness of the controls in ensuring that all shipments are billed. You have decided to use audit sampling in testing internal controls.

REQUIRED

a. State an effective audit procedure for testing whether shipments have been billed. What is the sampling unit for the audit procedure?

b. Assuming that you expect no deviations in the sample but are willing to accept a TDR of 3%, at a 10% ARO, what is the appropriate sample size for the audit test? You may complete this requirement using attributes sampling.

c. Design a random selection plan for selecting the sample from the population, using either systematic sampling or computer generation of random numbers. Use the sample size determined in (b). If you use systematic sampling, use a random starting point of 14825.

d. Your supervisor suggests the possibility of performing other sales tests with the same sample as a means of using your audit time efficiently. List two other audit procedures that could conveniently be performed using the same sample and state the purpose of each procedure.

e. Is it desirable to test the existence of sales with the random sample you designed in (c)? Why/why not?