(solution) Simulation: Statistical Auditing This activity has two problems

(solution) Simulation: Statistical Auditing This activity has two problems

Simulation: Statistical Auditing

This activity has two problems that deal with the items you would typically encounter during statistical auditing. Each problem will give you data and ask you a series of questions.

In Problem 1 Actual Allowance for Sampling Risk, you will use the information from a table of various risk percentages and sample sizes to determine the appropriate computed upper exception rate (CUER) to be used for samples when testing for controls.

In Problem 2 Tests of Transactions, you will use the information from a table to calculate the missing attributes in the table in order to obtain samples for the testing of controls.

Problem 1Problem 2

For the first problem, the questions relate to determining the CUER in audit sampling for tests of controls. Please use the following table for Problem 1 :

Acceptable risk of over-reliance (ARO) (in percent) 10 10 5 5
Population size 5,000 50,000 5,000 50,000
Sample size 50 100 50 100
Number of exceptions 2 4 2 3
CUER 10.3 7.9 12.1 7.6

Calculate sample exception rate (SER) for each of columns 1 through 4. Use the SER to calculate the actual allowance for sampling risk. Fill in the missing values.

1 10.3
2 7.9
3 12.1
4 7.6

Now answer the following questions about the data:

  1. Why is the CUER higher for the attribute in column 1 than for the attribute in column 2?
  2. Why is the CUER higher for the attribute in column 3 than for the attribute in column 1?
  3. Assume that the tolerable exception rate (TER) for attribute 4 is 6 percent. Your audit senior indicates that he would like to be able to rely on this control and asks you to increase the sample by an additional 50 items. Use the appropriate statistical sampling table to answer this question: Will the increase in the sample be likely to yield favorable results for the entire sample of 150 items?

For this problem, the sampling data sheet is missing information for six attributes involving tests of transactions for the sales and collection cycle.

Use Table 15-8 Determining Sample Size for Attributes Sampling and 15-9 Evaluating Sample Results (click the link to access each table) to complete the missing cells in the table below.

Attributes EPER TER ARO Initial Sample Size Sample Size Number of Exceptions CUER
Attribute 1 0% 6% 5% 49 50 1
Attribute 2 .50% 5% 10% 80 0 2.9%
Attribute 3 1% 10% 55 55 1 6.9%
Attribute 4 1% 6% 5% 78 80 5.8%
Attribute 5 0% 4% 74 80 0 3.7%
Attribute 6 .50% 6% 10% 64 2 7.5%