Please help with solving questions 1-6 as detailed as possbile.

Your audit firm, Hawk & Soar, PLLC, has been engaged to perform the annual audit of TealDeal, Inc. The Company manufactures and sells board shorts, t-shirts, and visors with customized designs and/or logos. TealDeal, Inc. is required to submit audited financial statements as part of the terms of its loan with the bank. Hawk & Soar has audited TealDeal for the past four years. During the current year audit, your team has already performed the majority of the audit work; you are being asked to help tie up some loose ends in order to finish the audit and issue the audit report.

Another member of your audit team (Jamie) has started the audit work for revenue using a reliance approach. Unfortunately, Jamie neglected to properly document the preliminary work used to determine the sample size. Your job is to complete the necessary documentation, in addition to testing the final control for which the client recently provided the requested documentation.

Jamie, along with the audit team manager, determined the following three controls should be tested as part of the audit of revenue:

1.    Sales are properly authorized for credit approval.

2.    Sales are reviewed by the sales manager to ensure they are properly priced.

3.    Credit memos for sales returns are properly authorized once all goods have been returned.

Hawk & Soar's sampling guidance for testing controls is based on attribute sampling. In testing the operating effectiveness of controls you must determine the likely deviation rate (the rate at which a control is not properly operating). Testing controls to measure the deviation rate provides evidence about whether the control is operating effectively an acceptably high percentage of the time and helps the auditor determine whether or not the control can be relied upon. The Firm's sample size table for attribute sampling can be found below (Appendix A). Use the table to determine the appropriate sample sizefor tests of controls given a specified tolerable deviation rate and estimated deviation rate.

Hawk & Soar's controls testing sampling policy indicates that to place a high reliance on controls (i.e., to support a low level of remaining control risk) the test must be performed at a high level of assurance, which they define as 95 percent confidence. Thus, only the sample size table associated with 95 percent confidence is provided. In addition to the sample size table, the evaluation table is provided with Appendix A that will help you determine the computed upper deviation rate for the control given the number of detected deviations and the sample size used.  The computed upper deviation rate is the sum of the sample deviation rate and an appropriate allowance for sampling risk(CUDR = Sample Deviation Rate + Allowance for Sampling Risk). It represents the upper end of the 95 percent confidence interval for the deviation rate in the population. If the computed upper deviation rate indicated is greater than the tolerable deviation rate for the control, the auditor should not rely on the control.

In order to determine the appropriate sample size for your tests, the importance of the control needs to be assessed. Hawk & Soar's policy indicates that any controls the auditor might consider relying on are either "highly important" or "moderately important." According to Firm policy, a deviation rate of only four percent can be tolerated for controls deemed highly important, while a tolerable deviation rate of eight percent can be tolerated for controls deemed moderately important. Additionally, some tolerance for error must always exist when using audit sampling because sampling involves sampling risk. The higher the tolerable deviation rate, the lower the sample size.

Based on prior experience with TealDeal, Jamie and your audit team's manager have decided that the first two controls are moderately important while the third control is highly important.

The other input needed to determine sample size is the estimated population deviation rate. Based on past experience with the client and considering historical rates, Jamie determined that the estimated population deviation rates for the three controls are one percent, two percent, and zero percent, respectively.

Jamie decided that since all sales pass through the first two controls and since the tolerable deviation rate for those controls is the same, it would be more efficient to use the same sample transactions to test both controls. Jamie randomly chose 58 sales transactions and tested the documentation for evidence of proper credit approval and review of pricing by the sales manager. After finding only one exception for the first control and two exceptions for the second control, Jamie decided that both controls are operating effectively.

Now that Jamie has tested the first two controls, you need to test the third one. Additionally, you need to review the information provide above and use it to complete the table below.

Refer to the Hawk & Soar sample size table (Appendix A) and determine the appropriate sample size for the test of the control related to authorization of credit memos (control #3). Document this sample size in the table below.

Assume that Jamie randomly selected the appropriate sample size you have calculated. Jamie reviewed all but the last five credit memo packages and found no exceptions. Each credit memo package includes a credit memo with a matching receiving report and inventory warehouse receipt. Each credit memo authorizing a customer refund or reduction in the amount owed due to the return of goods should be authorized by Brian Thompson, the accounting supervisor over accounts receivable. When a customer wants to return unwanted or defective product, they go to TealDeal's website and download a "Customer Return Report" and fill in their information as well as a description and quantity of goods being returned. Chris Jacobs in the receiving department at TealDeal uses the Customer Return Report as the receiving report when the shipment comes in, and Felix Katt counts and inspects the goods to make sure they are all in good condition. The goods are then transferred back to Jed Baxter in the warehouse, who issues an "Inventory Receipt." Once the Inventory Receipt is attached to the Customer Return Report, the documents are forwarded to Brian so that he can approve a credit memo. Brian examines the Customer Return Report and Inventory Receipt to ensure that credit is only authorized when goods have been received and for the quantity actually received. He then documents his authorization by marking his initials on the credit memo.

Graded components:

(1) Perform the control testing related to the final five credit memo packages. Answer questions [1]-[2]below related to your findings for this testing. To receive full credit, you must provide a response to all parts of each question with sufficient detail to show that you put some thought into your response. Please make sure your responses are well-written using full sentences.

(2) Complete the table below (question [3]). Some information has been completed by Jamie (leave this information as is), but all other items need to be completed based on the information provided above.

(3) Provide a thorough response to questions [4]-[6], below. To receive full credit, you must provide a response to all parts of each question with sufficient detail to show that you put some thought into your response. Please make sure your responses are well-written using full sentences.

Questions:

1. You have agreed to help Jamie by examining the remaining five credit memo packages. You will find the last five credit memo packages in Canvas. Examine these documents for Brian Thompson's initials indicating the memos were approved. (Note that you are performing control testing through observation and inspection, thus his initials are sufficient audit evidence that the control is operating effectively.) Discuss your findings for the final five credit memos. Did you find any exceptions in your testing? (If so, describe the exceptions noted.) Regardless of whether you found any exceptions, discuss the results of the full testing (Jamie's and yours together, so the entire sample size), whether the testing supports effective or ineffective controls, and why.

Response:

            

2. After discussing the results of your testing from Question [1] with your manager, you decide that higher quality evidence of the control's effectiveness can be obtained by reperforming Brian's control procedure. This reperformance would be done by verifying that each credit memo is supported by a Customer Return Report and Inventory Receipt and that the quantity and description of goods on the credit memo is supported by the quantity and description on the supporting documents. (So if Brian's initials are on the credit memo but the quantity or description of goods on the memo is not consistent with the quantity and description on the supporting documents, this would be considered a control deviation.) Assume Jamie already properly reperformed the control for all but the last five credit memo packages and found no exceptions. Using the same documents from Question [1], reperform the control and evaluate the test results on the full sample (Jamie's and yours together). Discuss your findings for the final five credit memos. Did you find any exceptions in your testing? (If so, describe the exceptions noted.) Regardless of whether you found any exceptions, discuss the results of the full testing (Jamie's and yours together), whether the testing supports effective or ineffective controls, and why. Additionally, if you came to a different conclusion from Question [1], which conclusion is more supportable and why?

Response:

Appendix A[5] Do you agree with Jamie's testing and conclusions with respect to these first two controls? If not, whyNote that some additional calculations may be required if your sample size falls between two numbersnot (be specific)? What impact would those issues have on the table you completed for control #2 (Le.,in the Evaluation Table, below.what numbers would change, assuming no further deviations were found)? Update the table below basedon any changes you think are necessary. In evaluating Jamie's conclusions, you may want to refer to theStatistical Sample Sizes for Attribute Sampling-95-Percent Desired Confidence Levelsample size table and attribute sampling evaluation table in Appendix A.Expected PopulationDeviation Rate2%Tolerable Deviation RateResponse:0%149[0)99(0)0.25%%74[0)1910)236[1)4210)157(1)36[0)0.50%%117(1]90(178(1)157(1)86[1)58(1)117(1)0.75%%931 178[1)66(1)58(1)208(2)1.00%%117(1)93(1]78(1)Fact#268(1)58(1)5%1.25%156(2)93(1)78(1)66(1)58(1)Risk of incorrect acceptance1.50%156(2)124[2)78(1)66(1)58(1)192(3)124(2)1.75%%103(2)66[1)58(1)2.00%227[4)153(3103(2)88(2)77(2)Tolerable deviation rate181(41127(3)8612)7712)"Sample size is too large to be cost-effective for most audit applications. The number in parentheses representsExpected population deviation ratethe maximum number of deviations in a sample of that tize that allows the auditor to conclude that the tolerabledeviation rate is not tacorded.Sample sizeStatistical Sample Results Evaluation Table (Computed Upper Deviation Rates)Number of deviations in samplefor Attribute Sampling-95-Percent Desired Confidence LevelSample deviation rate (calculate)Sample SizeActual Number of Deviations Found11.317.69.514.9Computed upper deviation rate8.37.312919.611.417Allowance for sampling risk0.21518.313.418.412114811.113.5Auditor's conclusion10.2125(Effective/Not Effective)9.48.811.510.810.195[6] Based on your answer to [5], what additional work, if any, is necessary to support Jamie's assessmentOver 20 percentthat both controls are operating effectively?Response: CREDIT MEMODate : May 20, 2018CREDIT MEMO NO . [lookTOTeal Deal , Inc . Because you can'tEric Johnsongo wrong when you're having fun.Eric's Computer Shop478 Eastbrook LnAtlanta , GA 30301404 - 590- 9801Customer 10 105-4368)QuantityItem #DescriptionUnit Price*Line Total151094782Custom T- Shirts$15.99$239. 85Subtotal$2:39. 85Sales Tax$15.59Total$255. 44Approved by :_\TealDeal , Inc . 901 Harrison Ave . Nashville , TN 37 201 Phone ( 615 - 822- 8:4921 Fax (615- 822 -8:4991 Inventory ReceiptCustomer Return ReportMay 19, 2018DATEItems Received into InventoryMay 19, 2018DATEEric's Computer ShopCHECK CARRIERQTYDESCRIPTIONItem #UNITED PARCEL SVCSHIPPER'S TRUCK15 Custom T-Shirts1094782478 Eastbrook LnPARCEL POST (USPS)AIR EXPRESSTRUCKEXPRESS MAILAlanta, GA 30301RAILSHIPPED FROMOTHERCHECK PAYMENTX PPREPAIDCOLLECTRECEIVED BYDATEORIGINAL INVOICE NUMBERDATE SHIPPEDSHIPPED TO ATTENTION OFLOCATIONPHONE615-822-8492Jed Baxter5/19/20182018927May 13, 2018Felix KNashvilleWBGHTWEIGHTCARTONREC'D BYQTYDESCRIPTIONtam aEACH (681TOTALCONDITIONNTLS15 Custom T-Shirts10947821.5 GoodCJSHIPMENT.TOTAL NUMBERTOTALNUMBER & CONDITION OF ITEMSCOMPLETE or PARTIALOF CARTONSWEIGHTOKAYDAMAGEDCOMPLETE1.515RECEIVED BYDATECHECKED BYDATEChris Jacobs5/19/ 2018Fdie KattS/19/2018 CREDIT MEMOInventory ReceiptDate: July 3, 2018July 1, 2018CREDIT NO. [172]DATEToTeal Deal, Inc. Because you can'tBrad EnsignItems Received into Inventorygo wrong when you're having fun.Discount Bectronics92 Madison AveQTYDESCRIPTIONItem #San Diego, CA 9210150 Visors1094777858-560-0182100 |Custom T-Shirts1094892Customer ID [01-5253]QuantityItem #DescriptionUnit PriceLine Total50109 4777Visors$5.99$299.50RECEIVED BYDATE100109 4892Custom T-Shirts$13.99$1,399.00Jed Baxter7/1/2018Subtotal$1,698.50Sales Tax$1 10.40Total$1 ,808,90Approved by:_BTTealDeal, Inc. 901 Harrison Ave, Nashville, TN 37201 Phone [615-822-8492] Fax [615-822-8499] Customer Return ReportCREDIT MEMODate: September 15, 2018July 1, 2018CREDIT NO. [194]ToDiscount ElectronicsCHECK CARRIETealDeal, Inc, Because you can'tSusan JensenUNITED PARCEL SVCSHIPPER'S TRUCK92 Madison Avego wrong when you're having fun.Electronics WarehousePARCEL POST (USPSAIR EXPRESS6689 Park AveTRUCKEXPRESS MAILSan Diego, CA 92101RAILOTHERNew York City, NY 1 1040SHIPPED FROMCHECK PAYMENT212-598-9920X PREPADCOLLECTCustomer ID [01-3231]ORIGINAL INVOICE NUMBERDATE SHIPPEDSHIPPED TO ATTENTION OFLOCATIONPHONEQuantityItem #DescriptionUnit PriceLine Total20187 24June 20, 2018Felix KattNashville615-822-849215109 4782Custom T-Shirts$15.99$239.85NEGHTCARTONREC'D BY251089019Custom Board Shorts$54.99$1,374.75QTYDESCRIPTIONEACH Obs)TOTALCONDITIONINTLS50 |Visors109470.1Good100Custom T-Shirts10948920.110GoodSubtotal$1,614.60DSales Tax$104.95SHIPMENT.TOTAL NUMBERTOTALNUMBER & CONDITION OF ITEMSTotal$1,719.55COMPLETE of PARTIALOF CART ONEWEIGHTOKAYDAMAGEDCOMPLETE15150Approved by:_BTRECEIVED BYDATECHECKED BYDATEChris JacobsFelix Kell7/1/20 18TealDeal, Inc. 901 Harrison Ave, Nashville, TN 37201 Phone [615-822-8492] Fax [615-822-8499] Inventory ReceiptCustomer Return ReportSeptember 12, 2018DATESept 12, 2018Items Received into InventoryDATEElectronics WarehouseCHECK CARRIERQTYDESCRIPTIONItem #UNITED PARCEL SVCSHIPPER'S TRUCK15 Custom T-Shirts10947826689 Park AvePARCEL POST (USPS)AIR EXPRESS25 Custom Board ShortsTRUCKEXPRESS MAIL1089019New York City, NY 11040SHEFED FROMRAILOT HIERCHECK PAYMENTX PREPAIDCOLLECTRECEIVED BYDATEORIGINAL INVOICE NUMBERDATE SHIPPEDSHIPPED TO ATTENTION OFLOCATIONPHONE2018632Sept. 7, 2018Felix KallNashville615-822-8492Jed Baxter/12/2018WEIGHTVBIGHTCARTONREC'D BYQTYDE SCRIPTIONRam #EACH (64)TOTALCONDITIONNTLS15 Custom T-Shirts10947820.11.5 | GoodCJ25Custom Board Shorts108901950GoodCJSHIPMENTTOTAL NUMBERTOTALNUMBER & CONDITION OF ITEMS:COMPLETE of PARTIALOF CARTONSWBGHTOKADAMAGEDCOMPLETE51.5RECEIVED BYDATECHECK ED BYDATEChris Jacobs912| 201 59/12/2018 CREDIT MEMOInventory ReceiptDate: April 22, 2018April 21, 2018CREDIT NO. [92]DATEToSteve SwensonItems Received into InventoryTealDeal, Inc. Because you can'tgo wrong when you're having fun.Midwest Bectronics Depot840 Cornfield RowQTYDESCRIPTIONItem #Des Moines, IA 5031115 Visors1094780515-772-367220 Custom Hats1089201Customer ID [03-3423]QuantityItem #DescriptionUnit PriceLine Total15109 4780Visors$5.99$89.85RECEIVED BYDATE201089201Custom Hats$9.99$199.80Jed Baxter1/21/2018101089019Custom Board Shorts$54.99$549.90Subtotal$839.55Sales Tax$54.57Total$894.12Approved by:__BTTealDeal, Inc. 901 Harrison Ave, Nashville, TN 37201 Phone [615-822-8492] Fax [615-822-8499] Customer Return ReportCREDIT MEMODate: August 12, 2018April 21, 2018CREDIT NO. [183]ToMidwest Electronics DepotCHECK CARRIERMary DeckersonUNITED PARCEL SVCHIPPER'S TRUCKTealDeal, Inc. Because you can'tManny's Appliances840 Comfield RowPARCEL POST (USPS)AIR EXPRESS123 Number WayTRUCKEXPRESS MAILgo wrong when you're having fun.Bakersfield, CA 93301Des Moines, 14 50311RAILSHIPPED FROMOTHER661-477-9813CHECK PAYMENTX PREPAIDCOLLECTCustomer ID [03-3423]ORIGINAL INVOICE NUMBERDATE SHIPPEDSHIPPED TO ATTENTION OFLOCATIONPHONEQuantityItem #DescriptionUnit PriceLine Total201 86 32April 15, 2018Felix KallNashville615-822-849220109 4729Visors$5.9$1 19.80WEIGHTVEIGHTCARTONREC'D BYOTYDESCRIPTIONRamEACH (14)TOTALCONDITIONINTLS15 |Visors10947800.11.5 | GoodCJ20 |Custom Hats10892010.1GoodCJSubtotal$1 19.80Sales Tax$7.79Total$127.59SHIPMENTTOTAL NUMBERTOTALNUMBER & CONDITION OF ITEMSCOMPLETE of PARTIALOF CARTONSWEIGHTOKAYDAMAGEDCOMPLETE3.5Approved by:_BT35RECEIVED BYDATECHECKED BYDATEChris Jacobs4/ 21 / 201 8Felix Kett4/21/2018TealDeal, Inc. 901 Harrison Ave, Nashville, TN 37201 Phone [615-822-8492] Fax [615-822-8499] Inventory ReceiptCustomer Return ReportAugust 11, 2018DATEItems Received into InventoryAugust 11, 2018DATEManny's AppliancesCHECK CARRIERQTYDESCRIPTIONItem #UNITED PARCEL SVCSHIPPER'S TRUCK20 Visors1094729123 Number WayPARCEL POST (USPS)AIR EXPRESSTRUCKEXPRESS MAILBakersfield, CA 93301RAILOTHERSAPPED FROMCHECK PAYMENTXPREPAIDCOLLECTRECEIVED BYDATEORIGINAL INVOICE NUMBERDATE SHIPPEDSHIPPED TO AT TEN TION OFLOCATIONPHONE2018632Aug. 1, 2018Felix KaltNashville615-822-8492Jed Baxter8/11/2018WEIGHTWEIGHTCARTONREC'D BYQTYDESCRIPTIONEACH(bs)TOTALCONDITIONNTLS20 Visors10947290.1GoodCJSHIPMENTTOTAL NUMBERTOTALNUMBER & CONDITION OF ITEMSCOMPLETE or PARTIALOF CARTONSWEIGHTOKAYDAMAGEDCOMPLETERECEIVED BDATECHECKED BYDATEChris JacobsSINI20IS8/11/2018 131 Complete the following table based on the appropriate guidance and calculations . Additionally , USEyour testing from Question IZI when completing the table below for the third control . If you find anyErrors made by Jamie , You will be given the opportunity to explain them in Question 5 . For the purposesof this question , complete the remainder of the table assuming the sample sizes used by Jamie are correct .Round all percentages to the nearest tenth .Note that the Sample Deviation Rate li.e . , the actual rate of deviation based on the number of exceptionsfound across the sample ) is a calculation and will not be found in any of the tables .Control ProceduresFactor# 1# 2# 3Risk of incorrect acceptance5^5. 46Tolerable deviation rateExpected population deviation rateSample SIZE5850Number of deviations in sample*Sample deviation rate ( calculate*!*Computed upper deviation rateAllowance for sampling riskAuditor's conclusion( Effective / Not Effective !14] Is it acceptable to use the same set of transactions and the same sample size to test two differentcontrols ?RESPONSE !