Reference no: EM131625773

Question: Sample Selection. Hunter McNeal is studying and evaluating Branyon's internal controls related to the mathematical verification of sales invoices. In this verification, Branyon's control policies require that employees perform the following procedures:

• Verify that sales invoices are prepared only for items actually shipped to customers. This policy is evidenced by requiring employees to place a checkmark next to quantities on the sales invoices.

• Verify that prices charged to customers are from approved price lists. This policy is evidenced by requiring employees to place a checkmark next to prices on the sales invoice.

• Verify that extensions and footings on invoices are mathematically accurate. This policy is evidenced by requiring employees to initial the bottom of the invoice in a section marked "Mathematically verified by." To verify the operating effectiveness of these policies, McNeal established an expected population deviation rate of 3 percent, a tolerable rate of deviation of 6 percent, and a risk of overreliance of 10 percent. Using these parameters, McNeal determined a necessary sample size of 132 invoices, is now ready to select invoices for examination, and is considering the use of systematic selection.

Required: a. McNeal wants to ensure that the selection of a representative sample of sales invoices. What are some of the characteristics that should be considered to ensure that the sample is representative of the population of sales invoices?

b. What issues does the use of systematic selection introduce with respect to McNeal's ability to select a representative sample of sales invoices from the population (refer to Appendix F.B)?

c. Identify any issues associated with the use of systematic selection in the following independent circumstances.

1. Branyon does not maintain invoices in a computerized format but maintains hard copy by date. McNeal has full access to the files containing the invoices.

2. Branyon does not maintain invoices in a computerized format but maintains hard copy according to customer classification ("A" represents high-volume customers; "B," middle-volume customers; and "C," low-volume customers). McNeal has full access to the files containing the invoices.

3. Branyon does not maintain invoices in a computerized format but maintains hard copy by date. Because they are maintained off-site, McNeal does not have full access to the files; however, Branyon has offered to pull invoices selected by McNeal and make them available for the tests of controls.

4. Branyon maintains invoices in a computerized format arranged alphabetically by customer name. This file can be sorted by date, amount of sale, customer number, customer classification, and zip code. McNeal has full access to the computerized files.