Reference no: EM13589665

Your firm has selected you to develop and assess the control risk over shipping and billing functions of ABC Company. The audit manager wishes to rely on control risk assessment at a low level. In other words, the firm would like to be able to assess internal control risk at a low level. You wish to estimate control risk at the desired low-level, therefore you selected a tolerable deviation rate of 20%. To estimate the population deviation rate and the computer and upper deviation rate you have applied discovery sampling techniques that would use an expected population deviation of 3%. There are 8000 shipping documents and to postpone consideration of the allowable risk of assessing risk to low until the sample results were evaluated. You use the tolerable deviation rate, the population size, and expected population deviation rate to determine the sample size of 80 should be sufficient. Later you discovered that the actual population size was 10,000 shipping documents therefore you've increased your size by 100. your objective is to determine wether ABC's shipping have been properly billed. You took the sample of 100 invoices by selecting the first 25 minutes invoices from the first month of each quarter then you compare those to the corresponding pre-numbered shipping documents. you discovered eight deviations and one shipping that should have built at $10,440 but was actually billed at $10550. You consider this amount to be immaterial and did not counted it as an error. In your valuation you have made the initial determination that a 5% risk of assessing control risk to low was desired and using the appropriate statistical sampling table you determine that for the deviations from sample size of 100 the computed upper deviation rate was 14%. when you calculated the allowance or sampling risk you determined it to be 5%, the difference between the actual sample deviation rate which was 8% and expected rate which you decided was 3%. you determine that the actual sample deviation rate plus it allows for sampling risk, 5%, was less than the computed upper the actual sample deviation rate plus it allows for sampling risk 5% was less than the computed upper deviation rate of 14%. Given this you determined that the sample supported a low level of control risk.

Prepare and describe each incorrect assumption, statement and/are inappropriate application in the above procedures.