Question

You have been asked to test the effectiveness of Ingo Corporation’s control of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. Jian Zhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 8 percent (although she expects the rate to be only approximately 1.75 percent) and a 5 percent risk of assessing control risk too low. Use the following to determine the planned assessed level of control risk and the assessed level of control risk. (Planned) Assessed Level of Control Risk Low Moderate Slightly below the maximum Maximum Tolerable Deviation Rate 2-7% 6-12% 11-20% Over 20% a. What is the planned assessed level of control risk? • Moderate Low Slightly below the maximum Maximum

Answer 1

Ancuver Manual Ginen appioal Puchases made duing the year Limit Punhases over $25,000 000,000 Puchases atove 51000 3000 Tolearable level f deviation Yate d &l hat isthe planned assessed lerel ot Conholnsk 7 AS inditated în the Qston, a toleavable deviahon Yale of8indilates a level f Control Flanned assese d at the Modeate level Yisk b) From qure 9.4, we obtan a Sample ie f 7 with two allowatle deviaion Sarmple Stae Allrwable No d devatons

per Table 9.5 Sumple Si2e aumed to be 75 iems ; Then s Asessed lerel Civumstance Acheied per Deviaton Rate ComtoL Rik Low ND Devia hons ue re included in the Sutmple Modevate 6-2. Ore deviotion is included in Sample Slightly below Manimm 136-l deviatons Ore induded in Carmple