Reference no: EM132833078

Question - Calgari Clothing is a division of A&B Industries and manufactures high-quality silk ties that are marketed under a number of brand names. You are an Intermediate External Auditor with the Public Accounting Firm that Calgari has employed for the past two years. Your manager has asked you to review Calgari's controls over purchasing and have determined that there are a number of controls in place. You have decided to test the operating effectiveness of the following control: Vendor invoices are agreed to receiving reports and purchase orders for product, quantity, and price. You also have decided to apply attribute sampling in your tests.

Required -

A. Clearly state how you would test the operating effectiveness of the control identified above.

B. Assume that you expect a 2% deviation rate in the sample and that you will tolerate a deviation rate of 7% at a 5% risk of assessing control risk too low. What is the appropriate sample size for your audit test?

C. Assume that the correct sample size is 100. Assume further that you properly tested the 100 sample items and found three items for which there was no purchase order. Evaluate your sample results and indicate what, if any, further action you should take.