Marty Novakowski has to audit the sales transactions of Okawa Ltd., which supplies tools to the mining industry. Okawa carries a large number of different makes and models of standard mining tools. It also designs and manufactures tools for special purposes and for miners operating in difficult conditions. The custom-designed tools are made only after a contract has been signed and a deposit received, while standard tools are supplied to regular customers on receipt of a telephone order. Okawas sales transactions vary from a few dollars to millions of dollars depending on the number of items sold, whether the individual items are large or small tools, and whether the tools are standard items or custom designed. Marty is instructed to gather evidence about the sales transactions using sampling and vouching. This is explained in detail in the audit program.

a)Which of the following would you expect to see in the audit program given to Marty about the sample selection and the vouching procedures?

The major risk is overstatement of sales, therefore, substantive procedures in the audit program must be designed to test the assertions of existence, and cut-off for sales.

The major risk is understatement of sales, therefore, substantive procedures in the audit program must be designed to test the assertions of completeness, and rights and obligations.

The major risk is overstatement of sales, therefore, substantive procedures in the audit program must be designed to test the assertions of occurrence and cut-off for sales.

The audit program would require sampling of recorded sales transactions, where key items would be selected on the basis of size and date.

The tracing procedures would require Marty to inspect documents supporting the sales transactions.

Marty would be instructed to verify the date and amount of the sales transaction, plus the details of the items sold.

Accuracy is not a concern, therefore, he would be not be instructed to recalculate the total price by reference to number of units and the agreed price.

b)How could Marty use CAATs to help gather the evidence for substantive testing?

calculating the size of the samples

selecting items from the population to include in the sample

determine if the sales sample is complete

test the restrictions over the addition of new customers

recalculating # unit unit price

select large dollar sales

review program changes to the sales program