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14-27 (OBJECTIVES 14-5, 14-7) You are going to audit a private companys sales and collection cycle and are planning the sampling for tests of controls and substantive tests of transactions.

a. Answer the following questions to start the planning process.

(1) Discuss the objectives of the audit test for the sales and collection cycle.

(2) One of the audit procedures is to examine sales invoices for credit approval by the credit manager. Decide whether audit sampling applies to this audit procedure.

(3) Outline the attribute and the exception condition in the audit procedure in (2).

(4) Define the population and the sampling unit in the audit procedure in (2).

(5) What is the difference between these four steps in terms of nonstatistical and attributes sampling?

b. If nonstatistical sampling is used, discuss whether you are going to set a high, medium, or low ARO for the audit procedure in part a. List some factors that may affect your determination of the initial sample size.

c. If attributes sampling is used,

(1) What changes will be made to your discussion in part b. (1)?

(2) Determine the initial sample size to satisfy the auditors requirements using the attributes sampling from Table 14-8 for the following three cases:

	1	2	3
ARO (in percent)	5	5	10
TER (in percent)	5	4	4
EPER (in percent)	1	1	1

(3) Is there any difference in the sample selection for attributes and nonstatistical sampling?

d. If TER exceeds EPER used in planning the sample, what can you conclude? Discuss your possible actions.

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