Mtindi Limited buys milk from dairy farmers, processes the milk and delivers them to retail outlets....

 

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Mtindi Limited buys milk from dairy farmers, processes the milk and delivers them to retail outlets. You are currently auditing the receivables system and determine the following information. (1) The company employs 60 drivers each responsible for delivering milk to customers. Each driver delivers milk to between 20 and 30 shops on a daily basis. Receivables normally amount to approximately TZS. 3,600,000. Payments by customers are not normally made to the drivers but are sent directly to the head office of the company. (2) The sales ledger is regularly reviewed by the office manager who prepares a list for each driver of accounts with 90 days balance or older. The list is used for the purpose of intensive collection by the driver. Each driver has a delivery book which is used for recording deliveries of milk and those receivables with 90 days balance (3) The audit program used in previous audits for the selection of debtor balance for direct confirmation stated Select two accounts from each driver's customers, one to be chosen randomly by opening each driver's delivery book and the other as the third item on the list of 90 days or older accounts. Each page of the driver's delivery book deals with a single customer. Having reviewed the receivables system, you conclude that statistical sampling techniques should be used to assist your audit work. On the completion of your review and testing of the 1,600 receivables balances, your statistical sample of 80 accounts disclosed 8 errors. You're therefore conclude that there must be 160 accounts in the entire population which are in error as you are sure that the errors detected in the sample will be exact proportion of the errors in the population. Required: (a) Explain the reason why audit procedures used for selection of accounts receivables in the previous audit would not produce a valid statistical sample. (b) Discuss briefly the audit objectives in selecting a sample of 90 days accounts for direct confirmation. (c) Describe whether application of statistical sampling techniques would help in the achieving the audit objectives set out in (b) above Mtindi Limited buys milk from dairy farmers, processes the milk and delivers them to retail outlets. You are currently auditing the receivables system and determine the following information. (1) The company employs 60 drivers each responsible for delivering milk to customers. Each driver delivers milk to between 20 and 30 shops on a daily basis. Receivables normally amount to approximately TZS. 3,600,000. Payments by customers are not normally made to the drivers but are sent directly to the head office of the company. (2) The sales ledger is regularly reviewed by the office manager who prepares a list for each driver of accounts with 90 days balance or older. The list is used for the purpose of intensive collection by the driver. Each driver has a delivery book which is used for recording deliveries of milk and those receivables with 90 days balance (3) The audit program used in previous audits for the selection of debtor balance for direct confirmation stated Select two accounts from each driver's customers, one to be chosen randomly by opening each driver's delivery book and the other as the third item on the list of 90 days or older accounts. Each page of the driver's delivery book deals with a single customer. Having reviewed the receivables system, you conclude that statistical sampling techniques should be used to assist your audit work. On the completion of your review and testing of the 1,600 receivables balances, your statistical sample of 80 accounts disclosed 8 errors. You're therefore conclude that there must be 160 accounts in the entire population which are in error as you are sure that the errors detected in the sample will be exact proportion of the errors in the population. Required: (a) Explain the reason why audit procedures used for selection of accounts receivables in the previous audit would not produce a valid statistical sample. (b) Discuss briefly the audit objectives in selecting a sample of 90 days accounts for direct confirmation. (c) Describe whether application of statistical sampling techniques would help in the achieving the audit objectives set out in (b) above

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a The audit procedures used for the selection of accounts receivables in the previous audit would not produce a valid statistical sample because they ... View the full answer