Reference no: EM131810122

Attribute Sampling Problem 1

You have been assigned by the in charge auditor to test controls over accounts receivable, specifically, to determine credit authorization. P & P requires that the credit manager approve all credit sales prior to shipping orders. Credit approval is demonstrated by initials of the credit manager on each invoice. The balance in accounts receivable consist of 850 invoices. In addition, the sales journal indicates that another 34 invoices were generated due to cash sales. After considering the design of AR internal controls it has been determined that a 95% confidence level, and 5% tolerable rate should be used. It is expected that the population deviation rate is 1.5%.

After selecting your sample, you found the following items:

1. Four invoices did not have the credit manager's approval

2. One invoice had the assistant credit manager's initial

3. You were unable to find two invoices

Required:

1. Calculate the appropriate sample size

2. Determine the upper deviation rate

3. Evaluate the results