Instructions: Respond to each question with complete sentences and reasoning to support your answer. Cite sources. Part A: You have documented your understanding of GPC's internal controls and your preliminary assessment that control risk is "low". You are about to begin testing the controls. Consider each of the following controls. Indicate the anticipated results (what you would expect to find if the control is functioning properly) and the potential problem which could exist if the control is not functioning properly. # Control What is the auditor What problems could occur if looking for? (What does the control is not effective? the auditor expect to see assuming effective controls?) 1 Verify the pricing of an invoice against an approved pricing list 2 Trace the amount of the remittance to the validated bank deposit slip filed in the office of the assistant to the president 3 Verify that customer credit has been approved. 4 Cash deposits are made daily Part B: Think about errors and fraud that could occur and/or fail to be detected due to the following weakness. Complete the table to communicate the potential problem. # Internal Control what error(s) or fraud may not be prevented or detected due to the internal Deficiency control deficiency? 1 Sales invoices are prepared and mailed prior to delivery of the goods. 2 Accounts receivable are not written off on a regular basis. Part C: You will use audit sampling to test the operating effectiveness of a control procedure. Utilize the statistical sampling table provided below to determine the appropriate sample size and allowed number of deviations based on the following parameters. 1. Required Sample Size: Allowed Number of Deviations: Description Risk of Assessing Control Risk Too Low Tolerable (Sample) Deviation Rate Expected (Population) Deviation Rate Parameters 5% 7% 2% Statistical Sample Sizes for Tests of Controls at 5 Percent Risk of Assessing Control Risk Too Low (with Allowable Number of Deviations in Parentheses) Expected Population Deviation Rate (As Percentages) Tolerable Deviation Rate 2% 3% 4% 5% 6% 7% 8% 9% 10% 15% 20% 0.00% 149(0) 99(0) 74(0) 59(0) 49(0) 42(0) 36(0) 32(0) 290) 1900) 14(0) 0.25 236(1) 157(1) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 0.50 157(1) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 0.75 208(2) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.00 156(2) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.25 156(2) 124(2) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.50 192(3) 124(2) 103(2) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.75 227(4) 153(3) 103(2) 88(2) 77(2) 51(1) 46(1) 30(1) 22(1) 2.00 181(4) 127(3) 88(2) 77(2) 68(2) 46(1) 30(1) 22(1) 2.25 208(5) 127(3) 88(2) 77(2) 68(2) 61(2) 30(1) 22(1) 2.50 150(4) 109(3) 77(2) 68(2) 61(2) 30(1) 22(1) 2.75 173(5) 109(3) 95(3) 68(2) 61(2) 30(1) 22(1) 3.00 195(6) 129(4) 95(3) 84(3) 61(2) 30(1) 22(1) 3.25 148(5) 112(4) 84(3) 61(2) 30(1) 22(1) 3.50 167(6) 112(4) 84(3) 76(3) 40(2) 22(1) 3.75 185(7) 129(5) 100(4) 76(3) 40(2) 22(1) 4.00 146(6) 100(4) 89(4) 40(2) 22(1) 5.00 158(8) 116(6) 40(2) 30(2) 6.00 179(11) 50(3) 30(2) * 7.00 68(5) 37(3) Note: This table assumes a large population. Source: AICPA, Audit Guide, Audit Sampling (New York, 2001). 2. Assume the control test has been performed and 3 deviations were identified within the sample. Answer the following questions based upon the these results and the answer in 1. a. Based upon the results of the control test, will the auditor increase or decrease choose one), the assessed level of control risk? Response: b. In order to maintain the desired level of audit risk (AR), will the auditor increase or decrease (choose one) acceptable detection risk (DR)? Response: C. How will the control test results impact the substantive (detail) testing? Response: Instructions: Respond to each question with complete sentences and reasoning to support your answer. Cite sources. Part A: You have documented your understanding of GPC's internal controls and your preliminary assessment that control risk is "low". You are about to begin testing the controls. Consider each of the following controls. Indicate the anticipated results (what you would expect to find if the control is functioning properly) and the potential problem which could exist if the control is not functioning properly. # Control What is the auditor What problems could occur if looking for? (What does the control is not effective? the auditor expect to see assuming effective controls?) 1 Verify the pricing of an invoice against an approved pricing list 2 Trace the amount of the remittance to the validated bank deposit slip filed in the office of the assistant to the president 3 Verify that customer credit has been approved. 4 Cash deposits are made daily Part B: Think about errors and fraud that could occur and/or fail to be detected due to the following weakness. Complete the table to communicate the potential problem. # Internal Control what error(s) or fraud may not be prevented or detected due to the internal Deficiency control deficiency? 1 Sales invoices are prepared and mailed prior to delivery of the goods. 2 Accounts receivable are not written off on a regular basis. Part C: You will use audit sampling to test the operating effectiveness of a control procedure. Utilize the statistical sampling table provided below to determine the appropriate sample size and allowed number of deviations based on the following parameters. 1. Required Sample Size: Allowed Number of Deviations: Description Risk of Assessing Control Risk Too Low Tolerable (Sample) Deviation Rate Expected (Population) Deviation Rate Parameters 5% 7% 2% Statistical Sample Sizes for Tests of Controls at 5 Percent Risk of Assessing Control Risk Too Low (with Allowable Number of Deviations in Parentheses) Expected Population Deviation Rate (As Percentages) Tolerable Deviation Rate 2% 3% 4% 5% 6% 7% 8% 9% 10% 15% 20% 0.00% 149(0) 99(0) 74(0) 59(0) 49(0) 42(0) 36(0) 32(0) 290) 1900) 14(0) 0.25 236(1) 157(1) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 0.50 157(1) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 0.75 208(2) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.00 156(2) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.25 156(2) 124(2) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.50 192(3) 124(2) 103(2) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.75 227(4) 153(3) 103(2) 88(2) 77(2) 51(1) 46(1) 30(1) 22(1) 2.00 181(4) 127(3) 88(2) 77(2) 68(2) 46(1) 30(1) 22(1) 2.25 208(5) 127(3) 88(2) 77(2) 68(2) 61(2) 30(1) 22(1) 2.50 150(4) 109(3) 77(2) 68(2) 61(2) 30(1) 22(1) 2.75 173(5) 109(3) 95(3) 68(2) 61(2) 30(1) 22(1) 3.00 195(6) 129(4) 95(3) 84(3) 61(2) 30(1) 22(1) 3.25 148(5) 112(4) 84(3) 61(2) 30(1) 22(1) 3.50 167(6) 112(4) 84(3) 76(3) 40(2) 22(1) 3.75 185(7) 129(5) 100(4) 76(3) 40(2) 22(1) 4.00 146(6) 100(4) 89(4) 40(2) 22(1) 5.00 158(8) 116(6) 40(2) 30(2) 6.00 179(11) 50(3) 30(2) * 7.00 68(5) 37(3) Note: This table assumes a large population. Source: AICPA, Audit Guide, Audit Sampling (New York, 2001). 2. Assume the control test has been performed and 3 deviations were identified within the sample. Answer the following questions based upon the these results and the answer in 1. a. Based upon the results of the control test, will the auditor increase or decrease choose one), the assessed level of control risk? Response: b. In order to maintain the desired level of audit risk (AR), will the auditor increase or decrease (choose one) acceptable detection risk (DR)? Response: C. How will the control test results impact the substantive (detail) testing? Response