Chrisel Gladson decided to use an attribute sampling approach based on the following for each control procedure and has decided to use a sample size of purchase orders for control 1 and a sample size of receiving reports for control 2.
Control Procedure
Parameters 1 2
Desired confidence 95% 90%
Tolerable deviation rate 4% 4%
Expected population deviation rate 1.5% 1.5%
After completing the examination of the sample items, Chrisel Gladson noted three deviations for control procedure 1 and two deviations for procedure 2.
Control Procedure:
Sample Size:
CUDR:
TDR:
Decision:
Sample Size:
CUDR:
TDR:
Decision:
Control Procedure 1 | Control Procedure 2 | |
Confidence Level Rate | 95% | 90% |
Tolearable Deviation Rate | 4% | 4% |
Expected Populatin Rate | 1.50% | 1.50% |
Sampling Risk ( 100- confidence Level Risk) | 5% | 10% |
No. of Deviation Observed | 3 | 2 |
Lets Suppose the Sample Size is | 100 Purchase orders | 100 Receiving Reports |
Hence Population Deviatin Rate | 3/100 | 2/100 |
Hence Population Deviation Rate and Sampling Risk | =3% +5% = 8% | = 2% +10% = 12% |
Comparision with Tolerable Deviation Rate | 4% | 4% |
Greater than TDR | Greater than TDR | |
Decision | Cannot rely on Internal Control | Cannot rely on Internal Control |
As in Both Cases Deviation Rate is higher than tolerable deviation rate, it means control is not appropriate and cannot rely over the same with such controls. |
Gurjot Gill Clothing Company manufactures high-quality silk ties that are marketed under a number of trademarked...
Gurjot Gill Clothing Company manufactures high-quality silk ties that are marketed under a number of trademarked names. Capone & Celestin have been the company's auditors for five years. Chrisel Gladson, the senior-in-charge of the audit, has reviewed Gurjot Gill Clothing Company's controls over purchasing and inventory, and has determined that a number of controls can be relied upon to reduce control risk. Chrisel Gladson has decided to test two control procedures over purchases and inventory: (1) purchase orders are agreed...
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