Dunder Supply Company is a medium-sized distributor of wholesale hardware supplies in the central Ohio area. It has been a client of yours for several years and has instituted excellent internal controls for sales at your recommendation.

In the audit of sales, one of the major concerns is the effectiveness of the controls in ensuring that all shipments are billed. You have decided to use audit sampling in testing internal controls.

In providing control over shipments, the client has prenumbered "warehouse removal slips" that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. Aftershipment, two copies of the warehouse removal slip are sent to billing for the computerized preparation of a sales invoice. One copy is stapled to the duplicate copy of a prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 2048 and the largest is 13597. The smallest sales invoice number is 36978 and the largest is 47333.

Please help with Requirement C.

5 PERCENT RISK OF OVERRELIANCE Tolerable Exception Rate (in Percent) 2 3 6 7 8 9 10 15 20 Estimated Population Exception Rate (in Percent) 0.00 0.25 0.50 149 99 74 59 49 42 36 32 29 19 14 93 78 66 58 51 46 30 22 236 157 117 313 157 117 386 208 117 93 78 66 58 51 46 30 22 0.75 93 78 66 58 51 46 30 22 1.00 257 156 93 78 66 58 51 46 30 22 1.25 303 156 124 78 66 58 51 46 30 22 1.50 392 192 124 103 66 58 51 46 30 22 1.75 227 153 103 88 77 51 46 30 N N N N N N N 22 294 181 127 88 77 68 46 30 22 390 208 127 88 77 68 61 30 22 234 150 109 77 68 61 30 22 2.00 2.25 2.50 2.75 3.00 3.25 286 173 109 95 68 61 30 22 361 195 129 95 84 61 30 22 458 238 148 112 84 61 30 22 3.50 280 167 112 84 76 40 22 3.75 341 185 129 100 76 40 22 4.00 421 221 146 100 89 40 22 5.00 478 240 158 116 40 30 10 PERCENT RISK OF OVERRELIANCE Tolerable Exception Rate (in Percent) 7 20 2 3 4 5 6 7 8 9 10 15 114 76 57 45 38 32 28 25 22 15 11 Estimated Population Exception Rate (in Percent) 0.00 0.25 0.50 0.75 1.00 1.25 194 129 96 77 64 55 48 42 38 25 18 194 129 96 77 64 55 48 42 38 25 18 265 129 96 77 64 55 48 42 38 25 18 398 176 96 77 64 55 48 42 38 25 18 221 132 77 64 55 48 42 38 25 18 1.50 265 132 105 64 55 48 42 38 25 18 390 166 105 88 55 48 42 38 25 18 1.75 2.00 198 132 88 75 48 42 38 25 18 2.25 75 65 42 38 25 18 75 65 58 38 25 18 2.50 2.75 262 132 88 353 158 110 471 209 132 258 132 94 65 58 52 25 18 3.00 94 65 58 52 25 18 3.25 306 153 113 82 58 52 25 18 3.50 400 194 113 82 73 52 25 18 3.75 235 131 98 73 52 25 18 4.00 274 149 98 73 65 25 18 5.00 318 160 115 78 34 18 Requirement a. State an effective audit procedure for testing whether shipments have been billed. What is the sampling unit for the audit procedure? attached. The sampling unit will therefore be the To test whether shipments have been billed, a sample of warehouse removal slips should be selected and examined to see if they have the proper sales invoice warehouse removal slip. Requirement b. Assume that you expect no exceptions in the sample but are willing to accept a TER of 7 percent. At a 5 percent ARO, what is the appropriate sample size for the audit test? You may complete this requirement using attributes sampling. The appropriate sample size for the audit test is 42 Requirement c. Design a random selection plan for selecting the sample from the population, using systematic sampling. Use the sample size determined in part b. Use a random starting point of 2189. (Round to the nearest whole number.) Using systematic sampling, the sample will be selected by beginning with 2189 and then selecting at intervals of Thus, 2189 will be the first selection, will be selected next, followed by and so on. 5 PERCENT RISK OF OVERRELIANCE Tolerable Exception Rate (in Percent) 2 3 6 7 8 9 10 15 20 Estimated Population Exception Rate (in Percent) 0.00 0.25 0.50 149 99 74 59 49 42 36 32 29 19 14 93 78 66 58 51 46 30 22 236 157 117 313 157 117 386 208 117 93 78 66 58 51 46 30 22 0.75 93 78 66 58 51 46 30 22 1.00 257 156 93 78 66 58 51 46 30 22 1.25 303 156 124 78 66 58 51 46 30 22 1.50 392 192 124 103 66 58 51 46 30 22 1.75 227 153 103 88 77 51 46 30 N N N N N N N 22 294 181 127 88 77 68 46 30 22 390 208 127 88 77 68 61 30 22 234 150 109 77 68 61 30 22 2.00 2.25 2.50 2.75 3.00 3.25 286 173 109 95 68 61 30 22 361 195 129 95 84 61 30 22 458 238 148 112 84 61 30 22 3.50 280 167 112 84 76 40 22 3.75 341 185 129 100 76 40 22 4.00 421 221 146 100 89 40 22 5.00 478 240 158 116 40 30 10 PERCENT RISK OF OVERRELIANCE Tolerable Exception Rate (in Percent) 7 20 2 3 4 5 6 7 8 9 10 15 114 76 57 45 38 32 28 25 22 15 11 Estimated Population Exception Rate (in Percent) 0.00 0.25 0.50 0.75 1.00 1.25 194 129 96 77 64 55 48 42 38 25 18 194 129 96 77 64 55 48 42 38 25 18 265 129 96 77 64 55 48 42 38 25 18 398 176 96 77 64 55 48 42 38 25 18 221 132 77 64 55 48 42 38 25 18 1.50 265 132 105 64 55 48 42 38 25 18 390 166 105 88 55 48 42 38 25 18 1.75 2.00 198 132 88 75 48 42 38 25 18 2.25 75 65 42 38 25 18 75 65 58 38 25 18 2.50 2.75 262 132 88 353 158 110 471 209 132 258 132 94 65 58 52 25 18 3.00 94 65 58 52 25 18 3.25 306 153 113 82 58 52 25 18 3.50 400 194 113 82 73 52 25 18 3.75 235 131 98 73 52 25 18 4.00 274 149 98 73 65 25 18 5.00 318 160 115 78 34 18 Requirement a. State an effective audit procedure for testing whether shipments have been billed. What is the sampling unit for the audit procedure? attached. The sampling unit will therefore be the To test whether shipments have been billed, a sample of warehouse removal slips should be selected and examined to see if they have the proper sales invoice warehouse removal slip. Requirement b. Assume that you expect no exceptions in the sample but are willing to accept a TER of 7 percent. At a 5 percent ARO, what is the appropriate sample size for the audit test? You may complete this requirement using attributes sampling. The appropriate sample size for the audit test is 42 Requirement c. Design a random selection plan for selecting the sample from the population, using systematic sampling. Use the sample size determined in part b. Use a random starting point of 2189. (Round to the nearest whole number.) Using systematic sampling, the sample will be selected by beginning with 2189 and then selecting at intervals of Thus, 2189 will be the first selection, will be selected next, followed by and so on