price changes in the determine whether all price changes were approved by the senior accountan place reliance on this control, your audit supervisor has decided that the errc calculated your sample size, you used a confidence level of 90% and predicte decisions, you examined 150 inventory price master file change forms. In you results, you calculate that the actual error rate in the population could be as h Required: A. What actions are available to you regarding your planned reliance on the ma B. What are the advantages and disadvantages of each action? C. How would you decide which action to take? To assist in your response, answer in the following format A. and B.
price changes in the determine whether all price changes were approved by the senior accountan place reliance on this control, your audit supervisor has decided that the errc calculated your sample size, you used a confidence level of 90% and predicte decisions, you examined 150 inventory price master file change forms. In you results, you calculate that the actual error rate in the population could be as h Required: A. What actions are available to you regarding your planned reliance on the ma B. What are the advantages and disadvantages of each action? C. How would you decide which action to take? To assist in your response, answer in the following format A. and B.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:g on
You are working on the testing of internal controls over price changes in the inventory system. You completed the controis testing to
determine whether all price changes were approved by the senior accountant, by reference to master file change forms. In order to
place reliance on this control, your audit supervisor has decided that the error rate in the population should be less than 1%. When you
calculated your sample size, you used a confidence level of 90% and predicted an error rate of less than one percent. Based on these
decisions, you examined 150 inventory price master file change forms. In your testing, you uncovered two deviations. Based on these
results, you calculate that the actual error rate in the population could be as high as 2.33%.
Required:
A. What actions are available to you regarding your planned reliance on the master file change controls?
B. What are the advantages and disadvantages of each action?
C. How would you decide which action to take?
To assist in your response, answer in the following format:
A. and B.
Potential Action
Advantages
Disadvantages
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