You are planning interim tests of credit approval procedures for a December 31 year-end client, a manufacturer of name-brand children's toys. The attribute of interest is the credit manager's approval initials on the face of customer sales orders, and the population consists of all prenumbered sales orders issued through September 30, the date of the interim audit tests.

Required:

1. What is the sampling unit?

2. Assume your desired reliability is 95 percent and that the expected population deviation rate is .75 percent. Select a tolerable deviation rate between 4 and 10 percent, and indicate the sample size you would actually use for your tests.

3. What is the maximum population deviation rate if you detect one deviation in the sample?

4. Do the results for your sample indicate you can rely on the credit approval procedures to reduce control risk below the maximum? Why?

5. Upon returning for the year-end phase of the engagement but before performing audit procedures, the audit manager asks your opinion about the effectiveness of credit approval procedures during the holiday buying season. Respond.