IDEA Case Study: Sampling
DUE: October 30, 2020 by midnight.
Using IDEA in Attributes Sampling – Elm Manufacturing Company
Elm Manufacturing Company (ELM) is a small manufacturer of backpacks located in Rochelle, Illinois. You
are testing controls related to the authorization of sales made to customers on account and are interested in
ensuring that goods are only shipped to customers following a formal credit approval. You have access to ELM’s
electronic records (via the “Sales 2017 – 4th Quarter” dataset provided below). Detailed information about ELM,
instructions for accessing datasets, and a data directory for data sets can be found below.
NOTE: The Sales 2017–4th Quarter data set contains a total of 410 transactions; because you are only examining
the credit approval for goods that have been shipped, you would only examine orders through No. 17383 (a total
of 388 shipments).
Required Data Files:
Attributes Sampling ELM Files
Attributes Sampling Student Setup Guide
PART 1 QUESTIONS
Section 1 (10 Points)
Your audit team has established the following parameters for the examination of ELM’s control over the
authorization of sales:
Population size 388 shipments
Risk of overreliance 10 %
Expected population deviation rate 1 %
Tolerable rate of deviation 6 %
Using IDEA, perform the following related to ELM’s control over credit approvals. After completing each step,
answer each question by supplying the required information. (Provide your answers exactly as they appear in
a. Determine the appropriate sample size. Based on the sample size and preceding parameters, how many
deviations could be observed without the audit team reducing their reliance on the authorization control?
b. Using systematic random selection, a random start of 23, as well as the sample size in part (a), select sample
random items from the population. What are the first five transactions that will be selected for examination
(based on ORDERNO)?
c. After performing your tests of controls, you have identified three deviations in your sample. What is the
ULRD? With respect to the functioning of ELM’s controls over the authorization of sales, would you conclude
that reliance on the control should be increased or reduced?
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