Download and install IDEA, a data analysis software tool, after logging in:
Once you have downloaded IDEA, you will need to access the “Roger Company Files”. These are provided as a zip file below.
1. First, download and unzip the folder.
2. Next, copy and paste the unzipped “Roger Company Files” folder to the IDEA Projects folder located in Documents > My IDEA Documents.
1. The “Roger Company Files” you may need to review for this assignment can be opened from this IDEA Projects folder using IDEA.
1. Open and review any file of interest.
Scenario
Roger Company is a mid-size company that handles the distribution of various home and garden products. You are part of the engagement team assigned to audit Roger Company’s financial statements. Roger Company has been an audit client of your firm for many years, and your firm has rarely encountered any problems with management or material misstatements in the past. However, the engagement partner has made it very clear to you that there is no room for mistakes. Your tasks as one of the auditors on the engagement are outlined below.
Problem 1
Use IDEA to determine the sample size an auditor should use for attributes sampling given the criteria listed below.
Enter the following information:
· Confidence level is 95
· Population size is 1000
· % Tolerable deviation rate is 8
· % Expected deviation rate is 3
· Click Compute.
What is the recommended sample size?
Hint: In the Analysis tab, Sample group, choose Attribute to open the Attribute Samplingwindow.
Problem 2
How would the sample size change if all sample-size inputs listed in Problem 1 stayed the same with the exceptions listed below? Please evaluate each item independently by resetting the inputs to those listed in Problem 1 and changing only the one factor listed in each item below.
Record what the new sample size would be for each scenario:
a. Confidence level dropped to 90%?
b. Population size increased to 500,000?
c. Expected deviation rate increased to 4%?
d. Tolerable deviation rate decreases to 7%?
e. Tolerable deviation rate increases to 15%?
Problem 3
Using your results from Problem 2 above, answer the following questions:
a. Which of the following four input factors—confidence, population, upper error limit, or expected error rate—had the smallest effect on the sample size?
b. Which two factors appear to have the greatest effect on sample size?
c. Go into IDEA’s Attribute Sampling Tool, input the factors listed in Problem 1 above, and then experiment with increasingly larger expected error rates. What happens as the expected error rate is nearly as large as the upper error limit or tolerable error? Why does this happen?
Problem 4
For the following three control attributes, you want to be 90 percent confident that the population deviation rate does not exceed 7.5 percent.
· Attribute 1: The purchase order was approved (purchasing department stamp provides evidence).
· Attribute 2: The purchase order, receiving report, and vendor invoice are included in each voucher packet.
· Attribute 3: The accounts payable department compared product and quantities across the three documents (initials by an accounts payable clerk and auditor reperformance provide evidence).
You tested a sample of 52 voucher packages and discovered the following deviations:
· Attribute 1: 2 deviations
· Attribute 2: 1 deviation
· Attribute 3: 0 deviations
Evaluate the results of your testing by doing the following:
· In the Analysis tab, Sample group, choose Attribute to open the Attribute Sampling window.
· Click on the Sample Evaluation tab.
· Enter the applicable parameters (e.g., % Desired confidence level is 90, Sample size is 52, Number of deviations in sample listed above. Enter 1000 for the Population size).
· Click Compute.
Answer the following questions:
a. What is the 1-Sided Upper Limit for each attribute? (Note: Ignore 2-Sided Limits when answering this question.)
b. Based on the results of your controls testing, which controls are considered effective? Please explain why or why not?
Problem 5
Use IDEA to complete problems 8-27 and 8-28 in your textbook.
· For problem 8-27, use a population size of 500,000.
· For 8-28, use the sample sizes computed by IDEA in 8-27.
What do you notice as you compare the sample sizes computed by IDEA to the tables in the textbook? (Note: Ignore 2-Sided Limits when answering this question.)
Problem 6
IDEA is able to generate a random sample. With the Accounts Receivable file open, select Random in the Sample grouping of the Analysis tab.
· Enter 25 for the Number of records to select.
· Enter 7 for the Random number seed.
· Rename the File name to “AR Rand Sample,” leave the other settings as they are, and click OK.
IDEA will generate a new tab displaying your random sample. Assuming that the electronic data were difficult to obtain and that the client compiled the electronic data only for the sample you selected, evaluate the effectiveness of the control that is designed to ensure that the invoice date always precedes the due date.
Answer the following questions.
a. How many exceptions did you observe in your sample of 25? Evaluate the sample at 90% confidence.
b. Record the sample deviation rate and the 1-sided upper limit.
c. If you can tolerate a deviation rate of 15% would you accept this control as effective?
