Reference no: EM132907706

Statistical Sampling

Robert and Donna, two auditors you work with at the Internal Audit Department of ABC Company, have independently assessed the risks associated with the accounts receivable. The appropriate audit risk for both is determined to be .02. Both agree that inherent risk should be set at the maximum (1.0) and that no analytical procedures will be performed. Robert evaluates control risk as moderate (.40) while Donna assesses it as relatively low (.20).

ABC Company processes an average of 400 vouchers payable every month. Each voucher package contains a copy of the cheque disbursed and supporting documents such as vendor invoices, receiving reports, and purchase orders. The Auditor plans to example a sample of vouchers listed in the voucher registry using attribute sampling to evaluate the effectiveness of several controls. The attributes include: I) Agreement of voucher amounts with invoice amounts;
II) Voucher canceled after payment

Based on past experience, the auditor expects a deviation rate of 2% for the first attribute and 1% for the second. The Auditor decides on a tolerable deviation rate of 7% for the first attribute and 6% for the second. The risk of assessing control risk too low is set at 5%. Assume that the auditor's tests uncovered 2 occurrences of voucher amounts not agreeing with invoice amounts and 2 occurrences of vouchers not being canceled after payment.

Required:

a) What is the risk of incorrect acceptance for Robert and for Donna and which auditor will have to collect the most evidence (explain your reasoning)?

b) Using Donna's assessment, complete the following schedule (if necessary, round sample size per table up for sample size to use)

c) Evaluate the sample results for the 2 attributes. What statistical conclusion do you make for each attribute?

d) What is the audit decision you would make based on the quantitative sample results for each attribute? Include in your answer what recommendations might be made regarding the use of Risk Management Techniques.

e) Compare the SDR results you calculated for Donna to that using Robert's assessments. Briefly discuss the difference in SDR results in terms of the costs and benefits of audit work.

f) List the two types of computer-assisted audit techniques (CAATs) and three prerequisites to be met before the internal auditor can consider using (CAATs)

Attachment:- Statistical Sampling.rar