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You are using attribute estimation sampling to test the controls over revenue recognition of the Packet Corporation, a public company, and will use the results as part of the evidence on which to base your opinion on its internal controls and to determine what additional audit procedures should be performed on revenue and accounts receivable. You have decided to test the following controls and have set sampling risk at 5%, the tolerable failure rate at 5%, and the expected failure rate of 1%. A sample size of 100 is used. The results of your testing are as indicated. Control 1. All sales over $10,000 must be approved by the sales manager by initialing the customer’s order. 2. Credit must be approved by the credit department prior to shipment and noted on the customer’s order. 3. Sales are recorded only when a shipping document is forwarded to the billing department. 4. The date of recording the sale must correspond to the date on the shipping document. 5. All prices are obtained from the current price list that is periodically updated by the sales manager. 6. The shipping department is not to ship products without first receiving an approved customer’s order. 7. The billing department compares the quantity billed with the customer’s order. Results 1. There were only 25 sales over $10,000 in the sample. All were approved by the sales manager. 2. Three sales were recorded without evidence of credit approval. The sales manager said she had approved the sales.
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