You are now conducting your third annual audit of the financial statement of Elite Corporation for the year ended December 31, 19X1. You decide to employ unrestricted random number statistical sampling techniques in testing the effectiveness of the company's internal control procedures relating to sales invoices, which are all serially numbered. In prior years, afier selecting one representative two-week period during the year, you tested all invoices issued during that period and resolved all of the errors which were found to your satisfaction.

Required:

a. Explain the statistical procedure you would use to determine the size of the sample of sales invoices to be examined.

b. Once the sample size has been determined, how would you select the individual invoices to be included in the sample? Explain.

c. Would the use of statistical sampling procedures improve the examination of sales invoices as compared with the selection procedure used in prior years? Discuss.

d. Assume that the company issued 50,000 sales invoices during the year and the auditor specified a confidence level of 95 percent with a precision range of plus or minus 2 percent.
1. Does this mean that the auditor would be willing to accept the reliability of the sales invoice data if errors are found on no more than four sales invoices out of every 95 invoices examined?
2. If the auditor specified a precision range of plus or minus 1 percent, would the confidence level be higher or lower than 95 percent assuming that the size of the sample remains constant? Why?