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.
4. Vouch entries in sales journal to sales invoice and shipping document.
5. Examine evidence on sales invoice that the prices were agreed to the approved price
list.
6. Recompute extensions of price and quantities on the sales invoice.
7. Trace entries in sales journal to entry in accounts receivable master file.
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?

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 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

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?

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.