Solved

You Are Working on the Testing of Internal Controls Over

question 35

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:
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?

Definitions:

Sold At A Discount

Refers to selling a product or service below its usual price or the issuing of bonds below their face value.

Bond Carrying Amount

The net value of a bond recorded on the issuer's balance sheet, which can differ from its face value due to amortization of any discounts or premiums and issuance costs.

Sold At A Discount

Refers to selling an asset or security for a price that is less than its face value or original purchase price.

Fair Value Option

An accounting strategy giving companies the choice to measure financial assets and liabilities at fair value, to provide a more accurate picture of current market value.