Use of TER and RIA tables (out of 12 - 2 marks for each of 6 requirements)

Robert and Evelyn, two auditors you work with at the Internal Audit Department of ABC Company, have independently assessed the risks associated with the accounts receivable. The appropriate audit risk for both is determined to be .02. Both agree that inherent risk should be set at the maximum (1.0) and that no analytical procedures will be performed. Robert evaluates control risk as moderate (.40) while Evelyn assesses it as relatively low (.20).

ABC Company processes an average of 400 vouchers payable every month.Each voucher package contains a copy of the cheque disbursed and supporting documents such as vendor invoices, receiving reports, and purchase orders.The Auditor plans to example a sample of vouchers listed in the voucher registry using attribute sampling to evaluate the effectiveness of several controls.The attributes include: I) Agreement of voucher amounts with invoice amounts;

II) Voucher canceled after payment

Based on past experience, the auditor expects a deviation rate of 2% for the first attribute and 1% for the second.The Auditor decides on a tolerable deviation rate of 7% for the first attribute and 6% for the second.The risk of assessing control risk too low is set at 5%.Assume that the auditor's tests uncovered 2 occurrences of voucher amounts not agreeing with invoice amounts and 2 occurrences of vouchers not being canceled after payment.

Required:

1. What is the risk of incorrect acceptance for Robert and for Evelyn and which auditor will have to collect the most evidence (explain your reasoning)?
2. Using Evelyn's assessment, ccomplete the following schedule (if necessary, round sample size per table up for sample size to use)

Attribute 1

Attribute 2

Risk of assessing control risk too low

Tolerable deviation rate

Expected population deviation rate

Sample size per table

Sample size used

Number of deviations identified

Sample deviation rate (SDR)

Achieved upper deviation rate

1. Evaluate the sample results for the 2 attributes.What statistical conclusion do you make for each attribute?
2. What is the audit decision you would make based on the quantitative sample results for each attribute?Include in your answer what recommendations might be made regarding the use of Risk Management Techniques.
3. Compare the SDR results you calculated for Evelyn to that using Robert's assessments.Briefly discuss the difference in SDR results in terms of the costs and benefits of audit work.
4. List the two types of computer-assisted audit techniques (CAATs) and three prerequisites to be met before the internal auditor can consider using (CAATs)

ATTRIBUTE SAMPLING SAMPLE SIZE TABLES 5% Risk of Assessing Control Risk Too Low Expected Tolerable Deviation Rate (Number of Expected Errors) Population Deviation 2% 3% 4% 5% 6% 7% 8% 9% 10% Rate (%) 0.00 149 (0) 99 101 74 10] 50 10) 49 (0) 42 (0) 36 (0) 32 10) 29 (0) 0.50 ID ELE 157 [) 117 (1] CLI EG (L)BZ 66 (1) 51 [1) 46 (1) 1.00 590 161 257 031 156 121 78 (1) 66 (1) 51 [1) 46 (1) 1.50 302 061 197 131 124 (2) 103 (7) 66 (1) SA (IN 51 [1) 46 (1) 2.00 246 (17) 294 16] 181 (4) 127 (3) 88 (2) 77 (2) GB (21 46 (1) 2.50 513 (13) 214 10 150 49) 109 () 77 () 61 (2) 3.00 1,008 (3) 361 [1 1) 195 46) 129 (4) 95 () 61 (2) 4.00 1348 64 421 017) 221 40) 146 (6) 100 [4) 80 (4) 5.00 1580 79) 478 (24) 240 (12) 158 10 116 09 6.00 1,832 (710) 532 (32) 266 (16) 179(11) 10% Risk of Assessing Control Risk Too Low Expected Tolerable Deviation Rate (Number of Expected Errors) Population Deviation 2% 3% 4% 5% 6% 7% 8% 9% 10% Rate ('%) 114 10) 76 101 57 10] 45 10) 38 10) 32 400 28 00) 25 10) 22 (0) 0.50 194 CI) 129 [1) 95 [1] 77 (1) 64(1) 55 (1) 48 (1) 42 [1) 38 (1) 1.00 398 (4) 176 121 95 (1] 77 (1) 64 (1) 55 (1) 42 (1) (0) BE 1.50 DA63 (22) 203 141 132 (2) 105 (2) 3.00 500 (12) 137 (3) 38 (7) 75 () 48 (1) 42 [1) 2.50 353 19) 158 10) 110 (3) 75 (2) 65 (2) SP 21 3.00 730 2) 25 (8) 132 14) 65 () 58 121 52 (2) 4.00 98 14) 65 (3 5.00 1,019 (51) 318 (16) 160 08) 115 (6) 78 (4) 6.00 1.150(65 349(21) 182 (11) 116 (7) Note: Sample sizes over 2,000 are not shown. This table assumes a large population. Copyright 2008. American Institute of Certified Public Accountants, Inc. All rights reserved. Used with permission.ATTRIBUTE SAMPLING SAMPLE SIZE TABLES 5% Risk of Assessing Control Risk Too Low Expected Tolerable Deviation Rate (Number of Expected Errors) Population Deviation 2% 3% 4% 5% 6% 7% 8% 9% 10% Rate (9%) 0.00 149 10 99 101 74 10) 49 40 42 090 36 10 32 101 0.50 313 (2) 157 [1) 117 (1] (LIFE 51 (1) 460 1.00 500 06) 257 3) 156 12) 03 (1) 78: (1) 66 /1) 51 [1) 46 (1) 1.50 302 16) 192 (3) 124 (2) tel EOL 66 (1) 51 [1) 46 (1) 2.00 846 (17) 294 161 181 19 127 (M) 77 (2) 68 (2) 46 (1 2.50 513 [1 3] 234 (6) 150 (4) 100 435 77 () 68 12) 61 (7) 3.00 1,058 (33) 361 [1 1) 195 (5) 129 (4) (8) 56 61 (2) 4.00 146 064 100 14) 89 (4) 5.00 6.00 1 1 1348 09 421017) 221 (9) 1,580 (70) 478 (24) 240 (12) 158 [8) 116 05) 1,832 (1 10 532 (32) 266 (16) 179(11) 10% Risk of Assessing Control Risk Too Low Expected Tolerable Deviation Rate (Number of Expected Errors) Population Deviation 2% 3% 4% 5% 6% 7% 8% 9% 10% Rate ("%) 0.00 114 ON 76 101 57 101 45 KD 38:40 32 (0 28 030 25 101 22 10 0.50 194 (1) 129 [11 77 (1) (4 (1) 35 (1) 42 (1) 1.00 308 (4) 176 12) 05 [1] 77 (1) 64(1) 55 (1) 48 (1) 42 [1) 1.50 1,463 (22) 265 14) 132 [2] 105 (2) 64(1) 55 (1) 42 [1) 38 (0) 2.00 590 (12) 19# 141 132 (31 75 () 48 (1) 42 [1) 2.50 353 (9) 158 (4) 110(3) 75 (2) 65 (2) SB1 21 () BE 3.00 730 [24) 132 (4) 65 (2) 52 (2) 4.00 873 (35) 274 [11) 149 (5) 98 (4) 65 (3) 5.00 1,019 (51) 318 (16) 160 08) 115 06) 78 (4) 500 1,150(65) 349 (21) 182 (1 1) 116 (7) Note: Sample sizes over 2,000 are not shown. This table assumes a large population. Copyright 2008. American Institute of Certified Public Accountants, Inc. All rights reserved. Used with permission