CASE ANALYSIS

Case 1: ATTRIBUTE SAMPLING PLAN: ATTRIBUTE ESTIMATION SAMPLING

Case information:

1. You are auditing for the first time the financial statements of CHRISTOPHER INC.
2. In your understanding of its sales and other related transaction cycles and upon rendering an analytical procedures to build understanding around the related revenue accounts, you have noticed that sales returns, as in the past and as compared to similar companies within the same industry, is unreasonably excessive.
3. Discussions with the predecessor auditor and in accordance with your review of the predecessor auditors working papers revealed that tests of sales returns in the prior years has indicated relatively high deviation rates.
4. Based on this information and interviews with client personnel, you have designed the following test of controls for sales returns transactions

a. Obtained a random sample of credit memos from files in the sales department

b. Test unit pricing and extensions on sampled credit memos

c. Trace details of sampled credit memos to: 1) Receiving reports; 2) perpetual inventory record; 3) entries in Inventory and Cost of Goods Sold; 4) entries in the Sales Returns and in the Accounts Receivable.

d. Review the credit register( list of all credit memos) for unusual items such as credits for very large amounts or an unusually large number of credits for the same customer, and investigate.

e. Document test results

Step 1: Determine the Objectives, Attributes, and Deviation Conditions.

Item to consider:

1. Statistical or non-statistical?
2. Which of the test above shall be subjected to sampling?
3. What will be the sampling unit?
4. What are the Attributes of Interest?
5. What are considered deviationsoncompliance?

Step 2: Define the Population

Items to consider:

1. Define the population from which the sample will be extracted

Step 3: Determine the Sample size

Items to consider:

1. Assumed Risk of Assessing Control Risk Too Low(or confidence level);
2. The tolerable Deviation rate
3. The expected Population Deviation Rate

Note: For the purpose of this exercise, assume the following figures across all identified attributes: Risk of Assessing Control Risk Too Low: 5%; Tolerable Deviation Rate: .05; Expected Population Deviation Rate: .01;

Step 4: Perform Sampling Plan

Assume that the following deviations were observed in your sample testing:

1. Cr. Memo #4823 and #4901 amounting to P12,690 and P11,200, respectively.Although unit prices were correct, the extensions were incorrect resulting in a P590 and P420 understatement, respectively.
2. Cr. Memo # 4934, amounting to P25,280; Cr. Memo # 4685, amounting to P17,290, and; Cr. Memo #4590, amounting to P21,160. In all cases, the description of the returned inventory compared with the receiving report are inaccurate.
3. Cr. Memo # 4731, P54,421. The quantity recorded within perpetual records was inaccurate.
4. Cr. Memo # 4221 and # 4532, entries in the Inventory and Cost of Goods Sold were inaccurate.
5. Cr. Memo #4221, entry in the Sales returns snd AR were inaccurate.

Step 5: Evaluate Sample results.

Note: Evaluation should be documented properly with the corresponding conclusions reached.

** for the purpose of this exercise, round up observed sample size.

observed sample size. orresponding conclusions reached. CASE 2: ATTRIBUTE SAMPLING PLAN: ATTRIBUTE ESTIMATION SAMPLING assume you are considering the controls over a client's purchasing activities, and estimate the expected population deviation rate. Astowing for acceptable risk of assessing control risk too low, tolerable rate of deviation, and ATTRIBUTE Risk of CR Too Tolerable Rate Expected 1. Voucher package (e.g. Low Rate purchase requisition, purchase order, receiving report and invoice) is .05 .07 cancelled after payment is 01 made. 2. Purchase is properly authorized. .05 .05 .015 3. Details on purchase requisition, purchase order, .05 receiving report, and invoice 06 0125 agree. 4. Purchase order in voucher package agree with copy filed in Purchasing 10 07 department. 035 5. Canceled checks contain appropriate signatures and .05 08 .02 endorsements. 6. Details on voucher package agree with canceled check (e.g. check number, date, 05 .08 .03 payee and amount). The sampling results for each attribute follow: Attribute Number of Deviations. 1. 2. 3. NNAHNN 4. REQUIRED: (a) Prepare a worksheet documenting the attribute estimation sampling results. Your worksheet should indicate required sample size determined (and sample size used, if different), AUDITING AND ASSURANCE PRINCIPLES (2018-2019 EDITION) 331