15-29 (OBJECTIVE 15-7) The following is a partial audit program for the audit of sales

transactions.

1. Foot the sales journal for one month and trace the postings to the general ledger.
2. Review the sales journal for any large or unusual transactions.
3. Examine sales order for evidence of credit approval prior to shipment. (TOC) – Sale invoive
number (check date – effective credit term
4. Vouch entries in sales journal to sales invoice and shipping document. (TOC)
5. Examine evidence on sales invoice that the prices were agreed to the approved price list.
(TOC)
6. Recompute extensions of price and quantities on the sales invoice. (STOT)
7. Trace entries in sales journal to entry in accounts receivable master file. (STOT)
Required
a. Identify which audit procedures can be tested by using attributes sampling.
b. What is the appropriate sampling unit for the tests in part a.?
c. List the attributes for testing in part a.
d. Assume an ARO of 5% and a TER of 6% for tests of controls and 5% for substantive tests
of transactions. The EPER for tests of controls is 1.0%, and for substantive tests of
transactions it is 0.5%. What is the initial sample size for each attribute?
1. Ghi vào sổ nhật ký bán hàng trong một tháng và theo dõi các bài đăng trên sổ cái.
2. Xem lại nhật ký bán hàng xem có bất kỳ giao dịch lớn hoặc bất thường nào không.
3. Kiểm tra đơn đặt hàng để có bằng chứng về việc phê duyệt tín dụng trước khi giao hàng.
4. Chứng từ ghi sổ nhật ký bán hàng vào hóa đơn bán hàng và chứng từ vận chuyển.
5. Kiểm tra bằng chứng trên hóa đơn bán hàng về việc giá đã thống nhất với bảng giá đã được phê duyệt.
6. Tính toán các phần mở rộng về giá và số lượng trên hóa đơn bán hàng.
7. Lần theo các bút toán trên sổ nhật ký bán hàng để nhập vào tệp tổng thể các khoản phải thu.
ANSWER:
a. Audit procedure b. Sampling unit c. Attribute d. Initial sample size
1 No
2 No
3 Yes sales order is credit approved & documented on sales TOC: TER = 6%,
order prior to shipment EPER = 1%
Size = 78
4 Yes vouch entries entries in the sales journal have been shipped Size = 78
5 Yes sales invoice evidence that prices used to calculate the sale Size = 78
amount came from price list
6 Yes sales invoice calculations on the sales invoices are STOT: TER = 5%,
mathematically accurate EPER = 0.5%
Size = 93
7 Yes sales journal entries in the sales journal match postings in Size = 93
A/R master file

15-30 (OBJECTIVES 15-5, 15-7) The following questions concern the determination of the proper
sample size in audit sampling using the following table:

1 (90) 2 (>90) 3 4 5 6 7 >90

ARO (in percent) 10 5 5 5 10 10 5 SS (T)

(TLN SS)

TER (TLN SS) 6 6 5 6 20 20 2 SS (T)

EPER (in percent) 2 2 2 2 8 2 0 SS (G)

Population size 1,000 100,000 6,000 1,000 500 500 1,000,000

TER - EPER 4 12 2

Required
a. Assume that the initial sample size for column 1 using nonstatistical sampling is 90 items.
For each of columns 2 through 7, use your judgment to decide the appropriate nonstatistical
sample size. In deciding each sample size, consider the effects of changes in each of the four
factors (ARO, TER, EPER, and population size) compared with column 1.
b. For each of the columns numbered 1 through 7, determine the initial sample size needed to
satisfy the auditor’s requirements using attributes sampling from the appropriate part of
Table 15-8 (p. 508).
c. Using your understanding of the relationship between the following factors and sample size,
state the effect on the initial sample size (increase or decrease) of changing each of the
following factors while the other three are held constant:
(1) An increase in ARO
(2) An increase in the TER
(3) An increase in the EPER
(4) An increase in the population size
d. Explain why there is such a large difference in the sample sizes for columns 3 and 6.
e. Compare your answers in part c. with the results you determined in part a. (nonstatistical
sampling) or part b. (attributes sampling). Which of the four factors appears to have the
greatest effect on the initial sample size? Which one appears to have the least effect?
f. Why is the sample size called the initial sample size?

ANSWER
a. Use judgement

1 2 3 4 5 6 7

ARO (in percent) 10 5 5 5 10 10 5

TER 6 6 5 6 20 20 2

EPER (in percent) 2 2 2 2 8 2 0

Population size 1,000 100,000 6,000 1,000 500 500 1,000,000

Initial sapmle size 90 120 150 100 45 30 200

b. Using table 15.8

1 2 3 4 5 6 7

ARO (in percent) 10 5 5 5 10 10 5

TER 6 6 5 6 20 20 2

EPER (in percent) 2 2 2 2 8 2 0

Population size 1,000 100,000 6,000 1,000 500 500 1,000,000

Initial sapmle size 88 127 181 127 25 18 149

c. Effect
 Increase in ARACR Sample Decrease
Increase in TER Sample Decrease
Increase in EPER Sample Increase
Increase in population size Sample Increase
d. Because there are differences in ARACR and TER percentage and also there is a huge
differences in population size.
e. ARACR and TER have the greatest effect on the initial sample size and population size
has the least effect on the initial sample size.
f. It called the initial sample size, because the exceptions in the actual sample must be
evaluated before it is possible to know whether the sample is sufficiently large to achieve
the objectives of the test

17-25 (OBJECTIVES 17-2, 17-3) Assume you performed sampling for an accounts receivable
population with a recorded population amount of $2,000,000. Tolerable misstatement is set at
$100,000 for the test, and there are no individually significant accounts greater than $100,000.
Several different sampling results for this population are presented below; the upper bound is the
projected misstatement plus an allowance for sampling risk. The results presented are for an MUS
sample, but the decision as to how to resolve the projected misstatement, including consideration of
sampling risk, also applies to nonstatistical sampling. The differences in sample size reflect
differences in confidence levels and expected misstatement used in designing the sample.

You are to make a recommendation as to the appropriate action to take given the sample results.
Assume that the client is willing to record an audit adjustment for actual misstatements detected in
your testing, but is unwilling to record an adjustment for projected errors. Issuing a qualified or
adverse opinion is not included as an option. Because the audited financial statements are required
under the terms of a loan agreement, the client will agree to additional testing or will correct the
population if needed to receive an unmodified opinion.

Sample Interval Number of Dollar Amount Projected Upper Nature of

Size Misstatements of Actual Misstatement Bound Misstatements
Misstatements

1 54 36,450 1 20,000 20,000 104,200 Improper contract

price applied

2 46 43,290 3 425 4,731 106,979 Various pricing and

quantity errors
 3 54 36,450 8 20,000 110,568 241,468 Incorrect shipments,
cutoff errors, and
pricing errors

4 33 60,385 1 4,000 12,077 114,007 Incorrect currency

translation on
foreign shipment

5 72 27,500 1 400 7,333 95,333 Incorrect product

shipped

6 44 44,845 2 2,500 29,897 112,934 Duplicate shipment,

incorrect price

Required
For each of the sampling results 1 through 6, recommend the appropriate response(s) from the
options listed below. Explain the reason for your decision.
a. Accept the population as fairly stated.
b. Request the client to record an adjustment for the actual misstatements.
c. Expand the sample size.
d. Request the client to fix the population, which will then be reaudited.
e. Treat the misstatement as an anomaly that is an isolated occurrence that should not be
projected to the population.

17-28 (OBJECTIVE 17-3) You intend to use MUS as a part of the audit of several accounts for
Roynpower Manufacturing Company. You have done the audit for the past several years, and there has
rarely been an adjusting entry of any kind. Your audit tests of all tests of controls and substantive tests of
transactions cycles were completed at an interim date, and control risk has been assessed as low. You
therefore decide to use an ARIA of 10% and a ratio of expected misstatement to tolerable misstatement of
0% for all tests of details of balances.

You intend to use MUS in the audit of the three most material asset balance sheet account balances:
accounts receivable, inventory, and marketable securities. You feel justified in using the same ARIA for
each audit area because of the low assessed control risk.
The recorded balances and related information for the three accounts are as follows:

Recorded Value
 Accounts receivable $3,600,000

Inventory 4,800,000

Marketable securities 1,600,000

$10,000,000

Net earnings before taxes for Roynpower are $2,000,000. You decide that a combined misstatement of
$100,000 is allowable for the client.
The audit approach to be followed will be to determine the total sample size needed for all three
accounts. A sample will be selected from all $10 million, and the appropriate testing for a sample item
will depend on whether the item is a receivable, inventory, or marketable security. The audit conclusions
will pertain to the entire $10 million, and no conclusion will be made about the three individual accounts
unless significant misstatements are found in the sample.
Required
a. Evaluate the audit approach of testing all three account balances in one sample.
b. Calculate the required sample size for a combined sample of all three accounts. Use $100,000 as
the measure of tolerable misstatement for the combined test.
c. Calculate the required sample size for each of the three accounts, assuming you decide that the
tolerable misstatement in each account is $100,000.
d. Assume that you select the random sample using computer software. How will you identify
which sample item in the population to audit for the number 4,627,871? What audit procedures
will be performed?
e. Assume that you select a sample of 200 sample items for testing and you find one misstatement in
inventory. The recorded value is $987.12 and the audit value is $887.12. Calculate the
misstatement bounds for the three combined accounts and reach appropriate audit conclusions.