MSmith Is Studying the Internal Control of Pooh Company

question 74

Essay

M.Smith is studying the internal control of Pooh Company.Smith has identified client verification of sales invoices as an important control and,based on the acceptable level of control risk and experience from prior audits,has made the following assessments: a.What is the appropriate sample size?
b.Ignore your answer from A.Assume that Smith examined a sample of 80 items and found two deviations.Calculate the following measures:
(1)Sample rate of deviation.
(2)Upper limit rate of deviation.
(3)Allowance for sampling risk.
c.What is Smith's initial conclusion regarding Pooh Company's internal control?
d.What possible actions are available to Smith with respect to Pooh Company's internal control?

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Definitions:

Book Production

The process of creating a book, including writing, editing, designing, printing, and publishing.

Positive Statement

An objective statement that can be tested and validated by referring to the available evidence, often used in economics to describe what is happening.

Normative Statement

An opinion or assertion about how the world ought to be, often reflecting values or judgments that cannot be tested or proven true or false.

Production Possibilities Frontier

A graph that shows the various combinations of output that an economy can possibly produce, given the available factors of production and the available production technology.