You Are Working on the Testing of Internal Controls Over

question 13

Essay

You are working on the testing of internal controls over price changes in the inventory system.You completed the controls testing to determine whether all price changes were approved by the senior accountant,by reference to master file change forms.In order to place reliance on this control,your audit supervisor has decided that the error rate in the population should be less than 1%.When you calculated your sample size,you used a confidence level of 90% and predicted an error rate of less than one percent.Based on these decisions,you examined 150 inventory price master file change forms.In your testing you uncovered two deviations.Based on these results,you calculate that the actual error rate in the population could be as high as 2.33%.
Required:A)What actions are available to you regarding your planned reliance on the master file change controls? B)What are the advantages and disadvantages of each action? C)How would you decide which action to take?

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Definitions:

Multi-attribute Utility Analysis

A systematic approach for evaluating and comparing options based on multiple criteria or attributes, used in decision-making processes.

Decision Points

Critical moments or stages in a process where a specific decision needs to be made to determine the subsequent course of action.

Constraints

Limitations or restrictions that affect the process or outcome of a situation, project, or system.

Generating Ideas

The process of coming up with new and creative concepts or solutions, often through brainstorming or other collaborative methods.