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You have been asked to test the effectiveness of Ingo Corporations control of manually approving...

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Finance

You have been asked to test the effectiveness of Ingo Corporations control of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. Jian Zhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 5 percent (although she expects the rate to be only approximately 1.25 percent) and a 5 percent risk of assessing control risk too low. Use the following to determine the planned assessed level of control risk and the assessed level of control risk.

(Planned) Assessed Level of Control Risk Tolerable Deviation Rate
Low 27%
Moderate 612%
Slightly below the maximum 1120%
Maximum Over 20%

a. What is the planned assessed level of control risk?

Low

Moderate

Slightly below the maximum

Maximum

b. Determine the appropriate sample size and allowable number of deviations using Figure 9.4.

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