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Assume that you are using attributes sampling to test a control activity related to the revenue cycle at the Packet Corporation, a public company. You

Assume that you are using attributes sampling to test a control activity related to the revenue cycle at the Packet Corporation, a public company. You will use the sample results to support your control risk assessment and plan the nature of substantive auditing procedures to evaluate the fairness of revenue account balance. You have decided to test the following controls and have set the risk of overreliance at 5%, the tolerable deviation rate at 5%, and the expected deviation rate at 1%. A sample size of 100 is used. The results of your testing are as indicated here. Please use relevant AICPAs Sample Evaluation Tables in the textbook. image text in transcribedimage text in transcribed

1. Determine the upper limit of deviation for each of the controls (Control 1 through Control 7) Please show the solutions and explain whether each control should be deemed effective or not using the attributes sampling method.

2. What nature of substantive audit procedures would you perform to test the revenue account balance in light of the above control tests results? Please address every control tested.

3. What do these results have on the type of opinion to be given on the effectiveness of the clients internal controls? What opinion would you issue on the clients internal controls effectiveness over the revenue recognition? Please explain.

Control Results 1. All sales over $10,000 must be approved by the sales manager by initialing the customer's order. 1. There were only twenty-five sales over $10,000 in the sample. So, the auditor randomly collects an additional seventy-five sales transactions that were over $10,000. All were approved by the sales manager. 2. Credit must be approved by the credit 2. Three sales were recorded without department prior to shipment and noted on evidence of credit approval. The sales the customer's order. manager said she had approved the sales. 3. Sales are recorded only when a shipping 3. No shipping document could be found for document is forwarded to the billing three of the sampled items. department. 4. The date of recording the sale must correspond to the date on the shipping document. 4. Four sales were recorded prior to the date of shipment. Your follow-up indicates that a temporary employee worked for the last two months of the fiscal year and was unaware of this requirement 5. All prices are obtained from the current price list that is periodically updated by the sales manager. 5. All prices agreed with the appropriate price list. 6. The shipping department is not to ship 6. No customer order could be found for two products without first receiving an approved sample items. customer's order. 7. The billing department compares the quantity billed with the customer's order. 7. Four billed quantities were for more than the customer order

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