Fournette, CPA, is studying and evaluating Tiger Inc.'s internal controls over cash disbursements. In planning the engagement, Fournette has identified the requirement that vendor invoices are authenticated (through a formal approval process) prior to being submitted for payment as a key control. Because of the large number of purchase transactions, Fournette has decided to use attributes sampling during his evaluation of this control. In so doing, he has established a risk of overreliance of 5 percent and a tolerable rate of deviation of 3 percent.

Required:

a. What is the appropriate population from which Fournette should select his sample?

b. After selecting and evaluating his sample, Fournette determined an upper limit rate of deviation of 6 percent.

1. Provide a brief explanation about the meaning of the term upper limit rate of deviation.

2. What would Fournette conclude with respect to Tiger's internal control?

3. What sampling risk(s) is Fournette exposed to in this situation?

c. Repeat part (b), assuming that Fournette determined an upper limit rate of deviation of 2 percent.

d. If Fournette were willing to accept a risk of overreliance of 10 percent, how would that affect the likelihood of relying on Tiger's internal controls?