Harold Brodkey plans to apply sequential sampling to the receiving controls used by the Ozyck Corporation, a December 31, 1999 year end manufacturer and supplier of home lighting fixtures. Based on a review of prior year working papers, Brodkey assesses the following risks and expected deviation rates for each of three tests of controls:

Brodkey performs the sampling plan on September 10 and finds one deviation each for tests numbered 2 (although receiving report no. 1429 includes a receiving clerk's approval initials indicating the receiving report agrees with the packing slip and P.O., the received goods were apparently not counted) and 5 (although receiving report no. 2137, Winston-Raleigh Co., reads 12,500 units, the receiving log reads 12,250 units).

Required: 

Prepare audit working papers to document the sequential sampling plan and the analysis of deviations.

Transcribed Image Text:

Test of Control 1. Compare receiving reports in voucher packages with copies of receiving reports in Receiving Department files. 2. Review receiving reports for evidence that received goods have been inspected, counted, and compared with packing slips and purchase orders. 3. Trace receiving reports to entries in the receiving log. Risk of Assessing Control Risk Expected Population Deviation Too Low Rate .95 .06 .90 .05 59 .85 .07