QUESTION 1 - AUDIT EVIDENCE & SAMPLING (7 MARKS)

Tina Slater is auditing Turner's Tiles, a manufacturer and retailer of floor and wall tiles and outdoor pavers. Turner's Tiles was founded 25 years ago by a husband and wife team and has grown rapidly in the last eight years as they have added vinyl planks to their range of products,

which have grown in popularity. However, although Turner's Tiles' owners have attempted to

expand the administration department to keep pace with the growth in sales, some systems are not operating as effectively as they should. This is partly due to difficulty in attracting and retaining accounts staff with appropriate experience and skills.

The owners of Turner's Tiles have recently realised that they need to increase pay and improve conditions for accounts staff to avoid regular periods without sufficient qualified staff, particularly for sales invoice processing. The staff shortages have resulted in sluggish performance in processing invoices, sending out customer statements, and collecting cash from account customers. In addition, there have been numerous mistakes in processing sales invoices, some of which have been discovered after customer complaints.

Tina is selecting a sample of sales invoices for substantive testing. All documents relating to sales invoices for the last five years are stored in the basement, with the exception of the more recent invoices, which are kept in current files in the office. The accounting staff have found that the files fill up after approximately two months and it has now become common practice to only move these files down to the storeroom in the basement every second month. The basement is a very small space and the boxes are stacked on top of each other because the shelves are full. Due to the damp conditions some labels have peeled from the boxes, so it is not clear which boxes relate to the current year.

Required:

1.Identify the key account balance at risk because of the sluggish processing of sales

invoices, sending of customer statements and collection of cash from customers. Also, identify and briefly explain two key assertions at risk. (3 marks)

2.Describe the population(s) that would be relevant to Tina's sample selection. (2 marks)

3.Which sample selection methods would be appropriate for choosing sales invoices for

substantive testing at Turner's Tiles Ltd.? Explain the factors that would influence your choice. (2 marks)