EarthWear Hands-on Mini-case

Chapter 8 - Tests of Controls (Part B)

The McGraw-Hill Companies, Inc., 2014

In this mini-case you will statistically evaluate the tests of controls on accounts payable for the 2014
audit of EarthWear Clothiers, Inc.
INSTRUCTIONS:

Use ACL to compute (1) the Sample Size for each control activity and (2) the Upper Deviation Rate for
the sample results provided on Work Paper 8-1. Record the results from ACL in the fields on Work
Paper 8-1 indicated in yellow. For control activities where the results are rejected, please describe any
necessary changes to the audit plan. Please refer to Chapter 8 of the textbook for instructions on
using ACL.
Fields you are to complete on work papers are colored yellow. The color will disappear when the field is completed.

When you have completed the work paper, enter your initials in the yellow box in the upper right-hand
corner of Work Paper 8-1 (box indicates "Initial Here").

Please print a hard copy of Work Paper 8-1 to submit unless your instructor requests an electronic
submission. The work paper is formatted to fit on one page.

Name:
Class:
EARTHWEAR CLOTHIERS
Control Activities Testing - Sampling and Evaluation Sheet: Accounts Payable
December 31, 2014

8-1
Initial Here
3/30/2015

Compute Sample Size

The list below indicates the control activities tested using voucher packets in Part A (Part A was a Chapter 6 assignment, but you can complete this
assignment even if you did not complete Part A). Use the information provided below to calculate the sample size using ACL. Please refer to
Chapter 8 of the textbook for instructions on how to use ACL to calculate sample sizes. When different sample sizes are computed for control
activities that will be tested concurrently, it is common to use the largest sample size computed for testing all control activities (see Chapter 8 for a
more detailed description).

Description of Control Activities

1 Document packet includes all documents appropriate for the transaction.

2 The Purchase Requisition is signed by a supervisor.
3 The Purchase Order is signed by an authorized purchasing agent.
4
5

Quantities on vendor's invoice agree with related receiving report and

purchase order, and invoice is mathematically correct.
All documents in voucher packet have been stamped "paid".

Desired
Confidence
Level
Population

Tolerable
Deviation
Rate (%)

Expected
Population
Deviation
Rate (%) Sample Size

90%

2,147

5%

1%

Enter Here

90%

2,147

10%

4%

Enter Here

90%

2,147

10%

1%

Enter Here

90%

2,147

5%

1%

Enter Here

90%

2,147

10%

Enter Here
1%
Sample Size Used
0

Compute Upper Deviation Rate

The list below indicates the test of controls results for each control activity. Use the information provided to evaluate the results using ACL. Please refer to Chapter 8 for instructions on using
ACL to evaluate test results and to compute the upper deviation rate. After you compute the upper deviation rate, determine whether the test results met the objectives and can be accepted
(i.e., determine whether the computed upper deviation rate is below the tolerable deviation rate noted above for the control activity). Select "Accept" or "Reject" from the drop down menu in each
cell of the Accept/Reject column. For control activities that you reject, please indicate necessary revisions to the audit plan.

Description of Control Activities

1 Document packet includes all documents appropriate for the transaction.

2 The Purchase Requisition is signed by a supervisor.
3 The Purchase Order is signed by an authorized purchasing agent.
4
5

Quantities on vendor's invoice agree with related receiving report and

purchase order, and invoice is mathematically correct.
All documents in voucher packet have been stamped "paid".

Desired
Confidence
Level

Sample
Size

Number of
Deviations

Computed
Upper
Deviation
Rate (%)

90%

Enter Here

90%

Enter Here

90%

Enter Here

90%

Enter Here

90%

Enter Here

Accept/
Reject

Describe Any Necessary Revisions to the

Audit Plan