1. Gurjot Gill Clothing Company manufactures high-quality silk ties that are marketed under a number of trademarked names. Capone & Celestin have been the company's auditors for five years. Chrisel Gladson, the senior-in-charge of the audit, has reviewed Gurjot Gill Clothing Company's controls over purchasing and inventory, and has determined that a number of controls can be relied upon to reduce control risk. Chrisel Gladson has decided to test two control procedures over purchases and inventory: (1) purchase orders are agreed to receiving reports and vendor's invoices for product, quantity, and price and (2) inventory is transferred to raw material stores using an approved, pre-numbered receiving report.

Chrisel Gladson decided to use an attribute sampling approach based on the following for each control procedure and has decided to use a sample size of purchase orders for control 1 and a sample size of receiving reports for control 2.

Control Procedure

Parameters 1 2

Desired confidence 95% 90%

Tolerable deviation rate 4% 4%

Expected population deviation rate 1.5% 1.5%

After completing the examination of the sample items, Chrisel Gladson noted three deviations for control procedure 1 and two deviations for procedure 2.

Control Procedure:

1. What conclusion should Chrisel Gladson reach about control procedure 1? Justify your answer:

Sample Size:

CUDR:

TDR:

Decision:

2. What conclusion should Chrisel Gladson reach about control procedure 2? Justify your answer.

Sample Size:

CUDR:

TDR:

Decision: