Piper McLay (Piper) is planning the control testing of the accounts payable function in the hardware retailer Voltaic Trading. Piper
Piper McLay (Piper) is planning the control testing of the accounts payable function in the hardware retailer Voltaic Trading. Piper is attempting to determine the appropriate sample size for her tests and is writing a report to the engagement partner of the audit justifying her choices. She has had the opportunity to talk to management at Voltaic Trading and tour the facilities. She has also reviewed the working papers from the previous audits and identified factors that have changed from previous years. She notes that the number of accounts payable has increased by 45 per cent since last year because Voltaic Trading has changed some of its suppliers from large corporate wholesalers to dealing directly with manufacturers. Overall, Piper believes that the controls in accounts payable are likely to be operating more effectively than in previous years, and she expects a reduction in control deviations. This situation is likely because of the appointment of an additional staff member in the accounts payable department three months after the start of the financial year. However, she is recommending that a lower rate of deviation would be acceptable this year because of the increased importance of accounts payable to Voltaic Trading’s solvency situation in the current economic climate. In addition, she is recommending that substantive testing of accounts payable be more extensive than in past years.
Explain how the factors mentioned would affect the sample size for control testing of accounts payable.
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