Audit Sampling - Test of Control (Attribute Sampling)

Risk of over reliance - 5%

Tolerable deviation rate - 5%

Expected deviation rate - 1%

Required:

1. What is the sample size and how many deviations?
2. Using 100 as sample, the results of testing are as follows:

Control	Results
1. All sales over P10,000 must be approved by the sales manager by initialing the customer's order	There were only 25 sales over P10,000 in the sample. So, the auditor randomly collects an additional 75 sales transactions that were over P10,000. All were approved by the manager.
2. Credit must be approved by the credit department prior to shipment and noted on the customer's order	Three sales were recorded without evidence of credit approval. The sales manager said she had approved the sales. No customer order could be found for two of the other sampled items.
3. Sales are recorded only when a shipping document is forwarded to the billing department	No shipping document could be found for three of the sampled item
4. The date of recording the sale must correspond to the date on the shipping document	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	All prices agreed with the appropriate price list
6. The shipping department is not to ship products without first receiving an approved customer's order	No customer order could be found for two sample items.
7. The billing department compares the quantity billed with the customer's order	Four billed quantities were for more than the customer order. Three of these took place near year-end. In addition, there was no customer order for the two items indicated in #2

Using the above information, determine:

1. upper limit deviation for each control
2. indicate the potential misstatement as a result of each control deviations
3. what substantive procedures should be performed in response to each of the control deviations identified

Use the following format to organize your answer:

Control #	Upper limit of deviation	Potential misstatement	Possible substantive procedure