You are carrying out the audit of Top Tiles Ltd, a company that manufactures roofing tiles and other ceramic products for the building industry. The head office of Top Tiles is in Bigtown and branches are located in five other towns. You are about to design sampling plans for various audit file sections. Consider the following scenarios for the organisation of accounting records at Top Tiles:

1. Computerised sales invoices are issued by each branch on an on-line basis as required.

A single sequence of invoices is used, so, for example, invoice number 100 might be issued by a branch, invoice number 101 by head office, etc. The branches retain all supporting documents. A monthly invoice register is produced by head office that lists all invoices issued in numerical order.

~ You need to select a sample of invoices for tests of controls.

2. The provision for annual leave is calculated centrally at head office. An annual leave listing is produced which lists each employee and his or her related leave balance. The listing is produced in employee number order; each branch uses a unique range of employee numbers.

— You need to select a sample of employees and substantively test their annual leave provision.

3. Standard costs for stock are determined centrally in head office. There are about 200 product lines, although stock is held for only about 100 of these at any one time. Five stock lines make up about 40 per cent of the inventory balance at year-end. The following monthly reports are produced:

e stock listing: shows all stock held by location (each branch maintains a warehouse);

and

• catalogue listing: shows all stock lines (whether actually in stock or not) in part number order.

• You need to select a sample of standard costs and check whether they are reasonable.

4. Each branch maintains its own creditors ledger. Monthly creditors ledgers are produced centrally at head office; these list each creditor in alphabetical order, and show the invoices which make up each creditor’s balance. Branches draw monthly creditors’

cheques; a cheque listing is produced by each branch showing the cheque number, supplier and amount paid. Cheque number sequences are unique to each branch.

— You need to select a sample of cheque payments for tests of controls.

5. The fixed asset register is centrally maintained at head office. Assets are grouped in categories (e.g. computer equipment, furniture and fittings), and listed within each category in date and purchase order. 

— You need to select a sample of fixed asset additions for substantive testing.

Required

(a) What factors should the auditor consider when designing an audit sample?

(b) How could you select a sample in each of the above situations? Explain the advantages of the particular approach you have chosen.