# In testing the cash discounts on vendors invoices, the auditor did not expect to find any errors

## Question:

In testing the cash discounts on vendors’ invoices, the auditor did not expect to find any errors in the sample and therefore used attributes sampling techniques. Based upon the statistical requirements for the test, a sample size of 120 items was randomly selected and carefully tested. Much to the auditor’s surprise, there were 15 sample items on which the client had failed to take the discount even though company policy clearly indicated one should have been taken. At this point, the auditor decided to switch to variables estimation to measure the amount of the lost discounts. The 15 items in the sample on which the client had failed to take the discount are summarized as follows:

Required:

**a.** Is it acceptable to change to variables estimation at this point? Explain.

**b.** If variables estimation is used, explain how the auditor should proceed. State in words the meaning of the confidence limits the auditor will calculate in this case.

**c.** Calculate the confidence interval for total discounts that the client failed to take based on the 15 items in the sample, assuming that the total population size was 4,850. Use a 90% confidence level.

## Step by Step Answer:

**Related Book For**

## Applications Of Statistical Sampling To Auditing

**ISBN:** 9780130391568

1st Edition

**Authors:** Alvin A. Arens, James K. Loebbecke