Refer to problem 6-28, concerning the audit of sales and sales returns. For this problem, assume that Rebecca is using dollar unit sampling.

Required :

a. Would it be practical to use combined attributes-variables estimation in this situation? Why would she have to use a different sampling method (statistical or judgmental) to test for unrecorded sales returns and allowances, even if she did use combined attributes-variables evaluation ?

b. Explain how the random numbers would be selected using dollar unit sampling with systematic selection.

c. Calculate the confidence limits for the population of sales and sales returns combined, using dollar unit difference estimation, assuming the sample results shown in problem 6-28 but excluding the unrecorded sales returns and allowances.

d. How large would the sample need to be to satisfy Rebecca’s requirements as they were specified in problem 6-28, assuming dollar unit difference estimation is used ?

Problem 6-28:

Transcribed Image Text:

6-28. Rebecca Downs, CPA, is doing the audit of Berlup Gun and Rack Shop, a national wholesaler of rifles and related equipment and supplies. She is surprised at the results found in the testing to this point in sales and sales returns. There are large numbers of errors in the sales tests, which were done using a judgmental sample. There are a variety of types of errors, includ- ing pricing, extensions, footings, failure to record, and duplicate recording in sales returns and postings to subsidiary records. The confirmation of accounts receivable also indicates numerous errors. Upon analysis of the errors, she concludes that the problem is extremely sloppy bookkeeping rather than intentional errors. When Downs informs management of the problem, she is told that they are not too surprised. Customers have been complaining about their bills in recent months, and the bookkeeper has been having personal problems. He has now been discharged, and the company is in the process of hiring a new bookkeeper. The owner states that he does not feel the problem is serious from a financial statement point of view, because the errors mostly offset each other. Downs is not convinced that the problem of overall financial statement errors is as minor as the owner states. She decides that additional confirmation