Reference no: EM133074286
Problem 1 - Materiality
Net income before taxes at Roger Company is stable, predictable, and representative of its size. Thus, the auditors at Roger Company calculate materiality to be 5 percent of net income before taxes. Net income before taxes at Roger Company for fiscal 2013 is $1,388,500. Determine materiality for the audit of Roger Company's 2013 financial statements. Use ACL to determine if the reported AR account balance, $487,000, is materially different from the detailed files in Rogers Company ARtable. (Using the AR table, find the sum function on the tool bar and use it on the column of AR balances.) Define tolerable misstatement as 60 percent of materiality.
To do:
- Calculate materiality.
- Calculate the tolerable misstatement for Accounts Receivable.
- Determine the balance of Accounts Receivable in the company's records. (Using the AR table, find the sum function on the tool bar and use it on the column of AR balances.)
- Calculate the misstatement and determine if Accounts Receivable is materially correct.
- What might cause differences between the number reported in the financial statements and the details in the file?
Problem 2 - Attribute Sampling
For the following three control attributes, you want to be 90 percent confident that the population deviation rate does not exceed 7.5 percent.
Attribute 1-The purchase order was approved (purchasing department stamp provides evidence)
Attribute 2-The purchase order, receiving report, and vendor invoice are included in each voucher packet
Attribute 3-The accounts payable department compared product and quantities across the three documents (initials by an accounts payable clerk and auditor reperformance provide evidence)
You tested a sample of 52 voucher packages and discovered the following deviations:
- Attribute 1: 2 deviations
- Attribute 2: 1 deviation
- Attribute 3: 0 deviations
With any ACL project open (e.g., Roger Company) evaluate the results of your testing by:
- Select Sampling >> Evaluate Error
- Make sure Record is the selected sample type
- Enter the applicable parameters (e.g., Confidence is 90 and Sample Size is 52, Number of Errors or deviations listed above)
- Click OK
What is the upper error limit frequency for each attribute?
Based on the results of your controls testing, which controls are considered effective? Please explain why or why not?