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Auditing and Assurance Services

Lenter Supply Corp. is a medium-sized distributor of wholesale hardware supplied in southern Manitoba. It has been a client of yours for several years and has instituted excellent internal control for sales at your recommendation.

In Providing control over shipments, the client has prenumbered"warehouse removal slips" 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 prenumbered sales invoice, and the other copy is filed numerically. In some cases, more than one warehouse removal slip is used for billing on sales invoice. The lowest warehouse removal slip number for the year is 14682 and the highest is 37521. The lowest sales invoice number is 47821 and the highest is 68507.

In the audit of sales, one of the major concerns is the effectiveness of the controls in making sure that all shipments are billed.You have decided to use the audit sampling in testing internal controls.

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 deviations in the sample but are willing to accept a TER of 3 percent, at a 10 percent ARACR, what is the appropriate sample size for the audit test? You may complete this assignment using non-statistical sampling or attribute sampling.

c. Design a random selection plan for selecting the sample from the population using the random number table.

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 2 other audit procedures that could conveniently be performed using the same sample, and state the purpose of each of the procedures.

e. Is it desirable to test the existence of sales with the random sample you have designed in parc (c)? why or why not hide problem

Solution Preview

a. State an effective audit procedure for testing whether shipments have been billed. What is the sampling unit for the audit procedure?
To test whether shipments have been billed, a sample of warehouse removal slips should be selected and examined to see if they have the proper sales invoice attached.

The sampling unit is the warehouse removal slip.

b. Assuming that you expect no deviations in the sample but are willing to accept a TER of 3 percent, at a 10 percent ARACR, what is the appropriate sample size for the audit test? You may complete this assignment using nonstatistical sampling or attribute sampling.
Attributes sampling method: Assuming the auditor will accept a TER of 3% at a 10% ARACR, expecting no exceptions in the sample, the appropriate sample size would be ...

Solution Summary

Audit procedure recommendation, sampling/non statistical sampling, randomization, and others

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