1. Herd clothing company manufactures high quality rugby shirts that are marketed under a number of trademarked names. Doc & Dan have been the companys auditors for five years. Joe Black, the senior-in-charge of the audit, has reviewed Herds controls over purchasing and inventory, and determined that a number of controls can be relied upon to reduce control risk. Black has decided to test two control procedures over purchases and inventory: (1) purchase orders are agreed to receiving reports and vendors invoices for product, quantity, and price; and (2) inventory is transferred to raw material stores using an approved, prenumbered receiving report.

Black decided to use a nonstatistical sampling approach based on the following judgments for each control procedure and has judgmentally decided to use a sample size of 75 purchase orders for control 1 and 30 receiving reports for control 2. (10 points)

	Control Procedure
Parameters	1	2
Desired confidence	95%	90%
Tolerable deviation rate	7.0%	9.0%
Expected population deviation rate	2.0%	2.5%
Number of deviations	1	1

If Black used statistical sampling, what would the correct sample size be for each of the control procedures?

Using statistical sampling what would the Computed upper deviation rate be for each of the control procedures, assuming Black used the correct sample size and had the same number of deviations?

What would the conclusions for each control procedure be using statistical sampling?