You are auditing the financial statements of Elite Corporation, a continuing audit client, for the year ended December 31, 1998. Unlike prior years, you decide to use a statistical sampling plan to test the effectiveness of the company's controls over sales invoices, all of which are sequentially numbered. In prior years, you selected one representative two-week period during the year and tested all of the invoices issued during that period.

Required:

1. Explain the procedures you would use to determine sample size.

2. Once sample size has been determined, how would you select the individual invoices to be included in the sample? Explain.

3. Compared with the selection procedure used in prior years, would the use of statistical sampling improve the audit of sales invoices? Discuss.

4. Assume that the company issued 50,000 sales invoices during the year and that you specified an acceptable risk of assessing control risk too low of 5 percent and a tolerable rate of 5 percent. Does this mean that you would be willing to conclude a control is effective if errors are found on no more than 4 sales invoices out of every 95 invoices examined (i.e., a sample deviation rate of .0421)? Discuss.