Case 9.6: Hooplah Inc.

Part A: Test of Controls
[1] Evaluate the appropriateness of Darrell’s conclusions relating to the first two controls: [a] Is it acceptable to use the same set of transactions and the same sample size to test two different controls? 1. a. Darrell should not resort to using the same set of transactions and same sample size to test the first two controls. Although all sales pass through both controls and the tolerable deviation rate is the same, the expected population deviation rate varies, meaning that Darrell should use a new randomly chosen set of transactions for the second control. In the first control, since it is moderately important the deviation rate is targeted at 8%. The population deviation rate …show more content…

This method of testing can be categorized as observation.

[3] [a] Reperform the control for the remaining five credit memo packages and evaluate the test results for the full sample. Provide support for your assessment on the effectiveness of the control based on testing performed. 3. a. Using the same five credit memos, but now reperforming the control instead of simply observing it, we are testing the packages on a more thorough level. Based on the reperformance of the sample of five credit memos, we found one package to be incorrectly approved by Brian Thompson. All memos were signed off by Thompson; however, we found an error in Credit Memo No. 92. In this memo issued to Steve Swenson of Midwest Electronics Depot, Thompson approved a credit for 10 power supply units at a unit price of $54.99 resulting in a credit of $549.90 despite the fact that the Inventory Receipt and Customer Return Report both do not have an indication of 10 power supply units being returned back to inventory or even being filed for return by Swenson in the first place. There is no paper trail justifying the credit for $549.90 by Hooplah Inc. In this control, it is categorized as highly important (4%) and has a 0% estimated population deviation rate; therefore, the Attribute Sampling Table indicates that there should be a