Hooplah Inc

1071 Words5 Pages
Hooplah, Inc.

R1. (a) It is acceptable to use the same set of samples when testing both controls, as each “transaction” should pass through all of the controls in a business process. It becomes more efficient to test the same set, because the audit team could request a comprehensive documents package from the client.

The sample size table in Appendix A indicates that a sample size of 58 is acceptable for the first control, but the higher estimated population deviation rate for the second control suggests that a larger sample size of 77 is necessary in order to gather sufficient evidence and obtain reasonable assurance over the control. The larger of the possible sample sizes should be selected for testing, because the results based on
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Assessing the control solely based on examination might not justify a low control risk assessment, as human error is always a possibility in manual control processes. Although Brian Thompson initialed all of the credit memos, he might not have thoroughly examined the supporting documentation (i.e. customer return report and inventory receipt) each and every time to ensure proper authorization has occurred. As a result, the conclusion reached in R3(b) is more supportable.

R4 Conclusion: First control: Operating effectively Second control: Not enough samples were tested Third control: Not operating effectively

Given that Darrell did not test enough transactions to provide sufficient assurance regarding the second control, he would have to select more samples before a conclusion can be reached. As 2 deviations have already been discovered, a third one could suggest that the control cannot be relied upon, as per the firm’s standards. From the evidence gathered thus far, it appears that the third control is not working effectively.

The controls for the revenue process should not be relied on completely, as there is not sufficient evidence to conclude that all three controls are operating according to design. The firm’s policy indicates that to place high reliance on controls, the test must be performed at a high level of assurance, i.e. 95 percent confidence. More substantive testing would have to be done in order to provide assurance for the audit. When
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