Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 551

Sample Size Determination. Jule Phillips is examining the internal control of Cowboy Company and has identified the mathematical verification of sales invoices as an important control and decided to test this control. Based on a discussion with Cowboy's management, Phillips determined that Cowboy Company's employees were required to indicate their compliance with this control by writing their initials in an appropriate place on the invoice copy.
Assume that Phillips established an acceptable risk of overreliance of 5 percent, an expected population deviation rate of 3 percent, and a tolerable rate of deviation of 9 percent.
Required:
a. Using AICPA sample size tables, determine the appropriate sample size.
b. Indicate how Phillips would assess the three parameters that are used to determine sample size (risk of overreliance, expected population deviation rate, and tolerable rate of deviation).
c. Use the original parameters but now assume that Phillips is willing to increase the acceptable risk of overreliance to 10 percent. Using AICPA sample size tables, determine the new sample size to examine.
d. Provide an explanation for the change in sample size noted in (c).