15-25 (Objective 15-3)
Required
a. In each of the following independent problems,
design an unbiased random sampling plan, using an electronic spreadsheet or a
random number generator program. The plan should include defining the sampling
unit and establishing a numbering system for the population. After the plan has
been designed, select the sample using the computer. Assume that the sample
size is 75 for each of (1) through (4).
(1) Prenumbered
sales invoices in a sales journal where the lowest invoice number is 1 and the
highest is 8274.
(2)
Prenumbered bills of lading where the lowest document number is 18221 and the
highest is 29427.
(3)
Accounts receivable on 20 pages with 50 lines per page except the last page,
which has only 29 full lines. Each line has a customer name and an amount
receivable.
(4)
Prenumbered invoices in a sales journal where each month starts over with
number 1. (Invoices for each month are designated by the month and document
number.) There is a maximum of 25 pages per month with a total of 215 pages for
the year. All pages have 100 invoices except for the last page for each month.
b. Using
systematic sampling, select the first five sample items for populations (1)
through (3) from part a, using the random starting points shown. Recall that
the sample size is 75 in each case.
(1) Invoice
#39
(2) Bill
of lading #18259
(3) Page 1, line #11
15-26 (Objectives 15-3, 15-5, 15-7) Lenter Supply Company is a medium-sized distributor of
wholesale hardware supplies in the central Ohio area. It has been a client of
yours for several years and has instituted excellent internal controls for
sales at your recommendation.
In
providing control over shipments, the client has prenumbered âwarehouse removal
slipsâ that are used for every sale. It is company policy never to remove goods
from the warehouse without an authorized warehouse removal slip. After
shipment, two copies of the warehouse removal slip are sent to billing for the
computerized preparation of a sales invoice. One copy is stapled to the
duplicate copy of a pre numbered sales invoice, and the other copy is filed
numerically. In some cases, more than one warehouse removal slip is used for
billing one sales invoice. The smallest warehouse removal slip number for the
year is 11741 and the largest is 34687. The smallest sales invoice number is
45302 and the largest is 65747.
In the
audit of sales, one of the major concerns is the effectiveness of the controls
in ensuring that all shipments are billed. You have decided to use audit
sampling in testing internal controls.
Required
a. State an effective audit procedure for testing
whether shipments have been billed. What is the sampling unit for the audit
procedure?
b.
Assuming that you expect no exceptions in the sample but are willing to accept
a TER of 4%. At a 5% ARACR, what is the appropriate sample size for the audit
test? You may complete this requirement using attributes sampling.
c. Design a random selection plan for selecting
the sample from the population, using either systematic sampling or computer
generation of random numbers. Use the sample size determined in part b. If you
use systematic sampling, use a random starting point of 11878.
d. Your
supervisor suggests the possibility of performing other sales tests with the
same sample as a means of efficiently using your audit time. List two other
audit procedures that can conveniently be performed using the same sample and
state the purpose of each of the procedures.
e. Is it desirable to test the occurrence of
sales with the random sample you have designed in part c? Why?
16-25 (Objective 16-3) The following are audit procedures in the sales and
collection cycle:
1. Add
the columns on the aged trial balance and compare the total with the general
ledger.
2.
Examine a sample of shipping documents to determine whether each has a sales
invoice number included on it.
3.
Examine a sample of customer orders and see if each has a credit authorization.
4.
Compare the date on a sample of shipping documents a few days before and after
the balance sheet date with related sales journal transactions.
5.
Discuss with the sales manager whether any sales allowances have been granted
after the balance sheet date that may apply to the current period.
6.
Observe whether the controller makes an independent comparison of the total in
the general ledger with the trial balance of accounts receivable.
7.
Compare the date on a sample of shipping documents throughout the year with
related duplicate sales invoices and the accounts receivable master file.
8.
Compute the ratio of allowance for uncollectible accounts divided by accounts
receivable and compare with previous years.
Required
a. For each procedure, identify the applicable
type of audit evidence.
b. For
each procedure, identify which of the following it is:
(1) Test
of control
(2) Substantive
test of transactions
(3) Analytical
procedure
(4) Test
of details of balances
c. For those procedures you identified as a test
of control or substantive test of transactions, what transaction-related audit
objective or objectives are being satisfied?
d. For
those procedures you identified as a test of details of balances, what
balance-related audit objective or objectives are being satisfied?
16-30 (Objective 16-4) You have been assigned to the confirmation of aged
accounts receivable for the Blank Paper Company audit. You have tested the aged
trial balance and selected the accounts for confirming. Before the confirmation
requests are mailed, the controller asks to look at the accounts you intend to
confirm to determine whether he will permit you to send them.
He
reviews the list and informs you that he does not want you to confirm six of
the accounts on your list. Two of them are credit balances, one is a zero
balance, two of the other three have a fairly small balance, and the remaining
balance is highly material. The reason he gives is that he feels the
confirmations will upset these customers because âthey are kind of hard to get
along with.â He does not want the credit balances confirmed because it may
encourage the customer to ask for a refund.
In
addition, the controller asks you to send an additional 20 confirmations to
customers he has listed for you. He does this as a means of credit collection
for âthose stupid idiots who wonât know the difference between a CPA and a
credit collection agency.â
Required
a. Is it acceptable for the controller to review
the list of accounts you intend to confirm? Discuss.
b. Discuss
the appropriateness of sending the 20 additional confirmations to the
customers.
c. What additional procedures should be performed
if the auditor agrees with the clientâs request not to send confirmations to
the six customers?
17-31 (Objective 17-3) In the audit of Price Seed Company for the year ended
September 30, the auditor set a tolerable misstatement of $50,000 at an ARIA of
10%. A PPS sample of 100 was selected from an accounts receivable population
that had a recorded balance of $1,975,000. The following table shows the
differences uncovered in the confirmation process:
Accounts Receivable
per Records
Accounts Receivable
per Confirmation
Follow-up Comments by
Auditor
1.
$ 2,728.00
$ 2,498.00
Pricing error on two invoices.
2.
$ 5,125.00
-0-
Customer
mailed check 9/26; company received check 10/3.
3.
$ 3,890.00
$ 1,190.00
Merchandise returned 9/30 and counted in inventory;
credit was issued 10/6.
4.
$ 791.00
$ 815.00
Footing
error on an invoice.
5.
$ 548.00
$ 1,037.00
Goods were shipped 9/28; sale was recorded on 10/6.
6.
$ 3,115.00
$ 3,190.00
Pricing
error on a credit memorandum.
7.
$ 1,540.00
-0-
Goods were shipped on 9/29; customer received goods 10/3;
sale was recorded on 9/30.
Required
a. Calculate the upper and lower misstatement
bounds on the basis of the client misstatements in the sample.
To calculate misstatement bounds we have to use following
attributes tables:
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b. Is the
population acceptable as stated? If not, what options are available to the
auditor at this point? Which option
