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Hooplah 9.6

In: Business and Management

Submitted By johnvo11
Words 2404
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Case 9.6: Hooplah Inc.

Part A: Test of Controls
[1] Evaluate the appropriateness of Darrell’s conclusions relating to the first two controls: [a] Is it acceptable to use the same set of transactions and the same sample size to test two different controls? 1. a. Darrell should not resort to using the same set of transactions and same sample size to test the first two controls. Although all sales pass through both controls and the tolerable deviation rate is the same, the expected population deviation rate varies, meaning that Darrell should use a new randomly chosen set of transactions for the second control. In the first control, since it is moderately important the deviation rate is targeted at 8%. The population deviation rate is set at 1%, indicating that a sample size of 58 should be used, with an allowance for 1 deviation and still be assumed tolerable. In the second control, the tolerable deviation rate is still set a 8%, although now the population deviation rate is set at 2%, increasing the sample size up to a set of 77 transactions. In addition, there is now an allowance for 2 deviations within the set.
[b] Do you agree with Darrell’s conclusions with respect to these first two controls? If not, why not? In evaluating Darrell’s conclusions, you may wish to refer to the attribute sampling evaluation table available in Appendix A.
b. Darrell’s conclusions regarding the first two controls are not entirely accurate. Because he did not test using the right sample size, his conclusions cannot be relied upon. For the first control, Darrell concluded that the test is operating efficiently after finding only one exception. This assumption is correct as the right sample size of 58 was used, and within the population deviation of 1%, one exception is allowed for the control to still be effective. In the second control, although two exceptions are...

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Hooplah Inc

...complete Parts A and B and those files are available on BB. Hooplah, Inc. 9.6 Applying Audit Sampling Concepts to Tests of Controls and Substantive Testing in the Revenue Cycle Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt l ea r n ing ob je C t ive s After completing and discussing this case you should be able to [1] Understand the differences between statistical and non-statistical sampling [2] Appreciate the professional judgment involved in determining the extent of sampling to be performed [3] Appreciate the role of sampling risk in determining sample size and in evaluating results Understand how to perform attribute sampling for tests of controls [5] Know how and why it is important to consider size- and risk-based substantive testing prior to obtaining evidence using audit sampling [6] Understand the implications of the results of tests of controls on substantive testing [4] INTRODUCTION Your audit firm, Garrett and Schulzke LLP, is engaged to perform the annual audit of Hooplah, Inc., for the year ending December 31, 2012. Auditing standards also allow The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of an administrative situation. Hooplah, Inc. is a fictitious company. All characters......

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