You have been asked to test the effectiveness of Ingo Corporation’s control of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. Jian Zhang, CIA, your supervisor, has asked you to use a tolerable deviation rate of 4 percent (although she expects the rate to be only approximately 0.25 percent) and a 5 percent risk of assessing control risk too low.
a. What is the planned assessed level of control risk (using the table on page 340 of the text)?
b. Determine the appropriate sample size using Figure 9.4.
c. Use Figure 9.5 to determine the achieved upper deviation rate if no deviations were included in the sample. What is the assessed level of control risk?
d. What is the achieved upper deviation rate if 2 deviations are found in the sample? What is the assessed level of control risk?
e. What is the achieved upper deviation rate if 8 deviations are found in the sample? What is the assessed level of control risk?
f. Determine the appropriate sample size using ACL. Use this sample for (g), (h), and (i).
g. Determine the achieved upper deviation rate if no deviations are included in the sample. What is the assessed level of control risk?
h. What is the achieved upper deviation rate if 2 deviations are found in the sample? What is the assessed level of control risk?
i. What is the achieved upper deviation rate if 8 deviations are found in the sample? What is the assessed level of control risk?