Refer to problem 3-18, at the end of Chapter 3, concerning audit tests of control on shipments. The auditor in that case has now decided to use simple attributes.

Required :

a. Given the sampling unit that was used for part a in problem 3-18, do you believe dollar unit sampling would be desirable in this situation? Explain your answer.

b. Given the sampling unit that was used for part d in problem 3-18, do you believe dollar unit sampling would be desirable in this situation? Explain your answer.

Problem 3-18:

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3-18. Davidson Supply Company is a medium-sized distributor of wholesale hard- ware supplies in the central Ohio area. It has been a client of yours for several years and has instituted an excellent system for the control of sales at your recommendation. In providing control over shipments, the client has prenumbered "ware- house removal slips" that are used for every sale. It is company policy never to remove goods from the warehouse without an authorized warehouse removal slip. After shipment, two copies of the slip are sent to billing for preparation of a sales invoice. One copy is stapled to the duplicate copy of a prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing one sales invoice. The smallest warehouse removal slip number for the year is 35682, and the largest is 58521. The smallest sales invoice number is 47821 and the largest is 68507. In the audit of sales, one of the major concerns is the effectiveness of the system in making sure all shipments are billed. The auditor has decided to use attributes sampling in testing the system. REQUIRED: a. State an effective audit procedure for testing whether shipments have been billed. What is the sampling unit for the audit procedure? b. Assuming that you expect no error in the sample but are willing to accept a maximum error rate of 3 percent at a 90 percent confidence level, what is the initial sample size for the audit test? c. Your supervisor suggests the possibility of performing other sales tests with the same sample as a means of efficiently using your audit time. List two other audit procedures that could conveniently be performed using the same sample, and state the purpose of each of the procedures. d. Is it desirable to test the validity of sales with the random sample you have designed in part c? Why?