The Oak Leaf Company, Inc. employs three internal auditors. They each receive a threeweek vacation and are expected to work a 40-hour week. Below is a list of potential audits ranked according to their levels of risk. The estimated number of audit hours required for a complete audit — including review, tests of compliance, and evaluation — is given for each entity. The auditors estimate that the review alone will take approximately 25 percent of the time that a complete audit would take and that a review with tests of compliance would take up approximately 80 percent.

Required:

a. Create a worksheet listing the potential audits in their ranked order with four additional columns, as shown below:

Using this worksheet, determine at least two strategies the auditors might use to allocate their total available audit-hours among the seven riskiest auditing entities.

b. Suppose the auditors were asked to evaluate and show the effect that bypassing evaluations of systems would have on total audit coverage in the budget period. Do you see any dangers in such a policy if the auditors decide not to perform the evaluation portion of an audit?

Transcribed Image Text:

AUDITING ENTITY Accounting Data Processing Mechanical Engineering Commercial Research Plant Engineering RANK ESTIMATED AUDIT HOURS Purchasing Industrial Engineering Assembly Plant Processing Plant Facilities Customer Service Eastern Region Sales Western Region Sales 5247843569213 1,500 1,500 250 550 500 1,500 350 250 500 1,000 800 1,750 1,250 Transportation 10 1,600 Personnel Training and Services 11 500 16 250