AUDITING QUESTION:

Audit Sampling

Assume that you are an audit manager and one of your audit assistants derived the following information as to the clients ending clothing stock.

Required:

a) Using the data above information, answer the following:

i.) Is this a test of controls or a test of balances?

ii.) What is the name of the method used?

iii.) What is the population?

iv.) What is the sample size?

b) Assume that this list has only one error: Brown Cardigans are $900 overstated. A tolerable misstatement for this account is $800. What do you conclude and why?

c) Assume that your audit assistants also performed tests of controls on a sample of 200 purchases. During the tests they found that 16 purchases did not comply with the control procedures as laid down. This gave a sample deviation rate of 8%. After performing the tests, the audit assistant noted the following conclusion: The deviation rate of 8% is below the quantitative materiality level of 10% as outlined in the accounting standards. Therefore, controls over purchases can be relied on.

Require: Critically evaluate the appropriateness of the assistants evaluation of sampling results relating to the tests of controls on purchases.

PLEASE ANSWER ALL QUESTIONS ABOVE AND PROVIDE CLEAR EXPLAIN/CALCULATION NEEDED

No. of items 20 Cost per item ($) Audit assistant's tested items 50 Red Skirts White Skirts Blue Skirts Total cost per item (S) 1,000 1,000 1,000 20 50 1 20 50 Cumulative Balance 1,000 2,000 3,000 4,000 5,000 6,400 7,800 Black Skirts 20 50 2 1,000 1,000 Green Skirts 20 50 70 20 3 1,400 1,400 20 70 20 70 1,400 4 20 70 1,400 9,200 10,600 10,700 5 10 100 10 10 10 10 100 10,800 6 10 Black Cardigans Brown Cardigans Green Cardigans Blue Cardigans Black Socks White Socks Blue Socks Black Jackets White Jackets Blue Jackets Black Raincoats Red Raincoats Beige Raincoats Total 15 100 7 15 100 8 15 100 100 1,500 1,500 1,500 1,200 800 800 10,900 12,400 13,900 15,400 16,600 17,400 18,200 15 80 9 10 80 10 80 10 300 18,200 No. of items 20 Cost per item ($) Audit assistant's tested items 50 Red Skirts White Skirts Blue Skirts Total cost per item (S) 1,000 1,000 1,000 20 50 1 20 50 Cumulative Balance 1,000 2,000 3,000 4,000 5,000 6,400 7,800 Black Skirts 20 50 2 1,000 1,000 Green Skirts 20 50 70 20 3 1,400 1,400 20 70 20 70 1,400 4 20 70 1,400 9,200 10,600 10,700 5 10 100 10 10 10 10 100 10,800 6 10 Black Cardigans Brown Cardigans Green Cardigans Blue Cardigans Black Socks White Socks Blue Socks Black Jackets White Jackets Blue Jackets Black Raincoats Red Raincoats Beige Raincoats Total 15 100 7 15 100 8 15 100 100 1,500 1,500 1,500 1,200 800 800 10,900 12,400 13,900 15,400 16,600 17,400 18,200 15 80 9 10 80 10 80 10 300 18,200