You are currently auditing Krome Ltd, a wholesaler and manufacturer of gardening tools sold in hardware stores. Krome has branch offices in Sydney, Melbourne and Adelaide; and head office is located in Sydney. The company's only factory is also located in Sydney. The audit is administered out of your Sydney office with some work performed by your firm's branch offices.

Your manager has asked you to complete the audit programs for various audit file sections by inserting detailed instructions on sample selection. In order to maintain tight control over costs, the audit manager wants all samples to be selected by the Sydney head office auditors. Branch offices will then simply be given details of the items they are to test.

You have the following information about various account balances of Krome.

1. Krome's fixed assets consist of office furniture and equipment (held at all branches) and factory machinery (held in Sydney). Factory machinery comprises around 50 items totalling 80% of the value of fixed assets. Each branch maintains its own fixed asset register on an off-the-shelf software package.

You need to select a sample of fixed assets for existence testing.

2. Trade creditors are handled centrally in Sydney. Branches send in authorised invoices with related supporting documents for processing on a weekly basis. Each month, an alphabetical list of creditors is produced showing the invoices outstanding and the total balance owing.

Krome uses a wide range of suppliers and accordingly there are no individually significant creditors.

You need to select a sample of creditors for valuation testing.

3. Each branch processes its own sales invoices using a unique series of invoice numbers (i.e.

each branch has a different sequence). A sales listing is produced monthly by each branch, and gives a sequential listing of the invoices used, the customer name and code, date and amount.

You need to select a sample of sales invoices on which to perform tests of controls to ensure credit limits are complied with.

4. Debtor collections are handled centrally at head office. A consolidated monthly alphabetical debtors listing is produced showing the invoices making up each debtor's balance, the amounts paid that month and the amount outstanding. Ageing details are also provided (current, >30 days, >60 days and >90 days).

You need to select a sample of debtors for existence testing.

5. To meet reporting deadlines at year-end, each branch handles its own accruals. Once the creditors ledger is closed off, branches track year-end related invoices using a manual listing showing creditor name and cost, invoice amount and accrual amount.

You need to select a sample of accruals for valuation testing.

6. About 200 of Krome's stock lines carry 12-month ‘free replacement’ warranties. When a customer in a particular state makes a warranty claim, the item is returned to that branch office. Each branch keeps a list of items returned in product number order, so that trends in warranty claims can be identified by product. At year-end, the warranty provision is calculated by determining the return percentages of major sales items, plus a general allowance for other items.

You need to select a sample of items to test valuation of the warranty provision.

Required

a. For each independent situation above:

i. describe the steps you would follow to select a sample for testing. Include details of any information you might require from the client's branch offices and assume only manual selection techniques will be used.

ii. briefly describe the analytical procedures that could help corroborate the evidence gained from detailed testing of the sampled items.

b. What action would you take if:

i. a sales invoice you selected was subsequently found to be cancelled?

ii. your sampling plan for debtors resulted in no debtors from the Melbourne branch being selected?

c. Give examples of situations where sampling from the recorded population might not be appropriate.