In the dialogue between the Kingston auditors, Fred said, “Our analytical procedures related to receivables didn’t show much. The total is down, consistent with the sales decline, so the turnover is up a little. If any misstatement is in the receivables total, it may be too small to be obvious in the ratios.” Jack replied, “That’s good news if the problems are immaterial. Too bad we can’t say analytical procedures reduce our audit risk. What about internal control?” Fred responded: “I’d say it’s about a 50–50 proposition. Sometimes control seemed to work well; sometimes it didn’t. I noticed a few new people doing the invoice processing last week when we were here for a conference. Incidentally, I lump the inherent risk problems and internal control risk problems together when I think about internal control risk. Anyway, firm policy is to plan a sample for a low overall audit risk for the receivables.” Required: Based on this dialogue information, use the expanded risk model to determine a test of detail risk. Relate this risk to sample-size determination.
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