In performing a test of controls for sales order approvals, the CPAs stipulate a
ID: 1192265 • Letter: I
Question
In performing a test of controls for sales order approvals, the CPAs stipulate a tolerable deviation rate of 8 percent with a risk of assessing control risk too low of 5 percent. They anticipate a deviation rate of 2 percent.
a. What type of sampling plan should the auditors use for this test?
b. Using the appropriate table or formula from this chapter, compute the required sample size for the test
c. Assume that the sample indicates four deviations. May the CPAs conclude with a 5 percent risk of assessing control risk too low that the population deviation rate does not exceed the tolerable rate of 8 percent?
Explanation / Answer
a.
Double sampling plan should be used here.
In this plan, a sample of n1 items is first chosen at random from the lot size N. If the sample has less than 5% defectives, the lot is accepted. If it contains more than 8% defectives, the lot is rejected. If the defectives lie between 5% and 8%, a second lot of sample of n2 items is taken from the same lot. If the defective in the second is also not exceeding 8%, the lot should be accepted; otherwise it is rejected.