AUDITING IDEA – Assignment 2
(See Point Discussion Below)
This second assignment will continue with your understanding of the IDEA software in order to complete the remaining assignments that will be required in the course. Please recall that these assignments are to be completed individually, but I am more than willing to help you as needed.
This assignment corresponds to Chapters 5 through 8. In this assignment, the only required portion is related to Chapter 8. As stated in the course syllabus, you are required to do two other chapters other than the assigned chapters in order to get full credit on the IDEA Software Activities. Given that understanding, here is the point breakdown based on the chapters covered in this assignment:
Chapter  Requirement  Possible Points 
5  Not Required – Not Assigned (To Be Completed in Class)  N/A 
6  Not Required – Optional (Would be 1 of the 2 Additional Required)  10 
7  Not Required – Optional (Would be 1 of the 2 Additional Required)  10 
8  Required  20 
Each of the chapters associated with this assignment is linked below. Your deliverable is to turn in this document with the answers included for each problem. If you would like, you can skip printing pages 2 through 4 of this document when you turn it in (as they were completed in class). Space has been provided for you to provide these answers, but if you need to provide more that is okay. If you elect not to complete an “optional” chapter, please do so by inserting an “X” in the box at the beginning of the applicable chapter. This option is only available for chapters 6 and 7 in this assignment.
Jump to specific Chapter
(Hold down the CTRL key and click on a link below)
Chapter 5 
Chapter 6 
Chapter 7 
Chapter 8 
Chapter 5 IDEA Problems Return to Menu
There is technical assistance available for the educational version of IDEA, please contact technical support: 18886412800 Option#4 or email the help desk at [email protected]
Tutorial Assignment(Estimated time to complete the Chapter 5 tutorial and the related endofchapter problem is 4050 minutes.)
Read and work through IDEA Tutorial pages 4263of Chapter3. NOTE: Please skip the following section: “Reviewing the History” on page 46.
After reading the assigned tutorial pages, complete the Chapter 5 problems below.
Hint: Staying actively involved while completing the tutorial assignment will help you to complete the IDEA problems more efficiently. You may find it helpful to review the assigned problems before completing the IDEA tutorial exercises.
For instructions on accessing the IDEA Tutorial please see Installation Instructions above (you can also download the IDEA Tutorial file from Blackboard or Connect if you have chosen to access the text in that manner).
** Note: This assignment is completed in class – you will turn in the answers to the questions below as evidence of your participation in the class session **
Messier/Glover/Prawitt EndofChapter 5, IDEA Problems
For the remaining problems in this chapter and subsequent chapters you will use an IDEA project called Roger Company.
In the IDEA Software Activities on Blackboard, you can obtain the Roger Company files. Save the Roger Company project inside the “IDEA Projects” folder located in “Documents” >> “My Documents”.You may need to uncompress or unzip the file.
Roger Company is a midsize company that handles the distribution of various home and garden products. You are part of the engagement team assigned to audit Roger Company’sfinancial statements. Roger Company has been an audit client of your firm for many years, and your firm has rarely encountered any problems with management or material misstatements in the past. However, the engagement partner has made it very clear to you that there is no room for mistakes. Your tasks as one of the auditors on the engagement are outlined below and in other problems inthe followingchapters.
Name__________________________________________ (For InClass Participation Only)
Problem 1
Roger Company has a policy that their allowance for uncollectible accounts should be 50% of the amount in the 6190 day past due category plus 75% of the amount in the >90 day past due category as of the reporting date (in this case December 31, 2015). Open the Roger Company data set. To do so, click Home and then Select. Select Roger Company and click OK(if you saved the Roger Company project outside the IDEA Project folder, then open the project from the location where you saved it on your hard drive). Use the Roger Company Accounts_Receivablefile in IDEA to recompute the allowance for uncollectible accounts.
 Once in the Roger Company Accounts_Receivablefile, click Aging(in the Analysis tab, Categorize group) to open the Aging window.
 Always enter the Aging dateas one day after the period end date as the actual date entered is included in the forward date or interval zero in the analysis. In this case, enter 2016/01/01 for December 31, 2015.
 In the Aging field to use select DUE_DATE and in the Amount field to total select AMOUNT.
 In Aging interval in select Days
 IDEA automatically creates 6 intervals. Each aging interval must be lower than all succeeding intervals. Also, if you do not require six intervals, enter 0 for the intervals that are not required. For Roger Company’s aging analysis, enter zero in all intervals above 90 (i.e., interval windows 4, 5, and 6 should be set to zero).
 In the Create result, Name field at the bottom of the window, enter “AR Aging”
 Click OK.
Answer (Allowance for Uncollectible Accounts):
In addition to recomputing the allowance for uncollectible accounts, report the results of the AR Aging table that you created. Provide your results in the following table (from the “Net Value” column):
030 days  3160 days  6190 days  >90 days  
Outstanding Balance 
Problem 2
Assuming no cash is collected on past due accounts, how much will be more than 60 days past due as of January 31, 2016? (Hint: remember to use one day after the desired period end date).
Answer:
Problem 3
Auditors must gather evidence, and obtain documentation around identified risks. A risk in the purchasing process is that a purchase is made from an unauthorized vendor. To gather evidence around this risk, we first want to open and join the two data sets(Accounts_Payable and Vendors) for Roger Company to begin the process for identifying the unauthorized vendors. Once the file is open, join the databases.With the Accounts_Payablefile open, on the Analysis tab, in the Relate group, select Join to open the Join Databases window. Select Vendors as your Secondary database. Join both databases by vendor number (refer to section 4 of the tutorial for additional help.)How many total records are there in the joint database?
Answer:
Problem 4
Now that both the Accounts_Payable and Vendorsdata sets for Roger Company are joined together, right click a null cell and select theDisplay All Records Containing function identify how many transactions were made in the Accounts_Payabledatabase using unauthorized vendors (refer to section 4 of the tutorial for additional help).
Answer:
Problem 5
One aspect of gathering evidence is obtaining copies of invoices. As has been demonstrated through the tutorial, IDEA is useful for testing completeness and finding gaps in invoice numbers. With the Accounts_Receivabletable open for Roger Company, on the Analysis tab, in the Explore group, select Gap Detection to open the Gap Detection window. How many gaps are there within the invoice numbers for the Accounts_Receivabledatabase? Which invoices does it identify? Please provide your answer to these two questions in the following table:
Number of Gaps:  
Related Invoice Numbers: 
Chapter 6 IDEA Problems Return to Menu
There is technical assistance available for the educational version of IDEA, please contact technical support: 18886412800 Option#4 or email the help desk at [email protected]
I have elected not to use this chapter as one of my remaining two required assignments. 
Messier/Glover/Prawitt EndofChapter 6, IDEA Problems
As introduced above in the IDEA problems for Chapter 5, Roger Company is a midsize company handles the distribution of various home and garden products. You are part of the engagement team assigned to audit the financial statements of Roger Company. Roger Company has been a client of your firm for many years, and your firm has rarely encountered any problems with them. However, the engagement partner has made it very clear to you that there is no room for mistakes. Your tasks as one of the auditors on the engagement are outlined below and in other problems of the remaining chapters.
Please download the Roger Company IDEA files, if you haven’t already. See instructions for obtaining the Roger Company files in the Chapter 5 assignment above.
Problem 1
After reviewing a list of parties related to Roger Company, you notice that the customers with customer numbers 803882 and 512198 are related to the owners of the company. Please use the Roger CompanyAccounts_Receivablefile to determine the amount of accounts receivable that relates to sales made to these relatedparty customers. What percent of total accounts receivable are made up of sales to these two relatedparty customers? Use the table provided to input your answers.(Hint: Remember the Customer_Number field is a character field, not a numeric field. There are various ways to solve this, including using the Find feature on the Data tab.Consider using Field Statistics.)
803882  512198  Total  
Number of sales transactions made with customer  
Total amount of the transactions  
Percentage of AR Transactions 
Problem 2
As part of the audit of Accounts Payable, you want to identify all invoices (Invoice_Amount) greater than $50,000 so that you can vouch the transaction to original documentation (i.e., approved purchase order, receiving records). Using the Roger Company Accounts_Payable file identify the invoice numbers for all accounts payable invoices greater than $50,000 and compute the total value of those transactions. Why is it important for auditors to determine if large purchases are properly authorized?
Answer:
Chapter 7 IDEA Problems Return to Menu
There is technical assistance available for the educational version of IDEA, please contact technical support: 18886412800 Option#4 or email the help desk at [email protected]
I have elected not to use this chapter as one of my remaining two required assignments. 
Messier/Glover/Prawitt EndofChapter 7, IDEA Problems
Please download the Roger Company IDEA files, if you haven’t already. See instructions for obtaining the Roger Company files in the Chapter 5 assignment above.
Problem 1
Roger Company’s policy is to not ship goods unless a valid purchase order has been received. However, based on information obtained during your walk through to confirm your understanding of processes and controls, you learned that occasionally a rush order is received via telephone and the goods are shipped before receiving the purchase order. Rush orders are only processed for existing customers. When rush orders are received the sales person taking the order completes a “Rush Order” form, which is then approved by the sales department supervisor. The “Rush Order” form is then attached to the purchase order when it is received and the details of the two forms (i.e., product and quantity) are compared. To test the effectiveness of the controls around rush orders, you want to identify all instances where product is shipped before a purchase order is received. Using the Roger Company Shipping file, determine the number of invoices related to orders that were shipped before a purchase order was received.Hint: In the Properties window you can open the equation editor by clicking on Criteria. You will be looking for records where the shipping date is before the order date.If you need to clear any prior Criteria, use Ctrl + E when the Criteria Equation Editor is open.
Answer:
Problem 2
In discussions with the order fulfillment and shipping departments, you learn that it is common for a partial or “split” shipment to go out because of an insufficient quantity of items in stock to fulfill the customer order. However, controls should prohibit shipping a higher quantity than was ordered. Using the Roger Company Shipping file, determine how many records contain fields where the quantity shipped exceeds the quantity ordered.
Answer:
Chapter 8 IDEA Problems Return to Menu
There is technical assistance available for the educational version of IDEA, please contact technical support: 18886412800 Option#4 or email the help desk at [email protected]
(Note: Please submit your answers to the following exercises and problems to your instructor in this same document.)
Messier/Glover/Prawitt EndofChapter 8, IDEA Problems
Please download the Roger Company IDEA files, if you haven’t already. See instructions for obtaining the Roger Company files in the Chapter 5 assignment above.
Problem 1
Use IDEA to determine the sample size an auditor should use for attributes sampling given the criteria listed below (Hint: In the Analysis tab, Sample group, choose Attributeto open the Attribute Sampling window):
Enter the following information
 Confidence level is 95
 Population size is 1000
 % Tolerable deviation rate is 8
 % Expected deviation rate is 3
Click Compute. What is the recommended sample size?
Answer:
Problem 2
How would the sample size change if all samplesize inputs listed in Problem 1 stayed the same with the exceptions listed below? Please evaluate each item independently by resetting the inputs to those listed in Problem 1 and changing only the one factor listed in each item below. Record what the new sample size would be for each scenario in the table below.
a.  Confidence level dropped to 90 percent?  
b.  Population size increased to 500,000?  
c.  Expected deviation rate increased to 4%?  
d.  Tolerable deviation rate decreases to 7%?  
e.  Tolerable deviation rate increases to 15%? 
Problem 3
Using your results from Problem 2 above, answer the following questions:
 Which of the following four input factors—confidence, population, upper error limit (tolerable deviation rate), or expected error rate (expected deviation rate)—had the smallest effect on the sample size?
Answer:
 Which two factors appear to have the greatest effect on sample size?
Answer:
 Go into IDEA’s attribute sampling tool and input the factors listed in Problem 1 and then experiment with increasingly larger expected error rates (expected deviation rates). What happens as the expected error rate is nearly as large as the upper error limit (tolerable deviation rate) or tolerable error? Why does this happen?
Answer:
Problem 4
For the following three control attributes, you want to be 90 percent confident that the population deviation rate does not exceed 7.5 percent.
Attribute 1The purchase order was approved (purchasing department stamp provides evidence)
Attribute 2The purchase order, receiving report, and vendor invoice are included in each voucher packet
Attribute 3The accounts payable department compared product and quantities across the three documents (initials by an accounts payable clerk and auditor reperformance provide evidence)
You tested a sample of 52 voucher packages and discovered the following deviations:
 Attribute 1: 2 deviations
 Attribute 2: 1 deviation
 Attribute 3: 0 deviations
Evaluate the results of your testing by:
 In the Analysis tab, Sample group, choose Attribute to open the Attribute Sampling window.
 Click on the Sample Evaluation tab
 Enter the applicable parameters (e.g., % Desired confidence level is 90 and Sample size is 52, Number of deviations in sample listed above. Enter 1000 for the population size.
 Click Compute
What is the 1Sided Upper Limit for each attribute? (Note: Ignore 2Sided Limits when answering this question.) Please provide your answers in the following table:
Attribute Number  1Sided Upper Error Limit 
1  
2  
3 
Based on the results of your controls testing, which controls are considered effective? Please explain why or why not?
Answer:
Problem 5
Use IDEA to complete problems 827 and 828 in your book.Please do so by both using the tables in your book and by using IDEA. For problem 827 (when doing so in IDEA), use a population size of 500,000. What do you notice as you compare the sample sizes computed by IDEA to those from the tables in the textbook?For 828, use the sample sizes computed in 827. What do you notice when you compare the conclusions in problem 828? (Note: Ignore 2Sided Limits when answering this question.)Please provide your answers using the tables below.
Problem 827
Parameters  Control Procedure  
1  2  3  4  
Risk of incorrect acceptance  5%  5%  10%  10% 
Tolerable deviation rate  6%  7%  4%  3% 
Expected population deviation rate  2%  2%  1%  0% 
Sample size Using Tables 




Sample size Using IDEA 




(Continues on Next Page)
What do you notice as you compare the sample sizes computed by IDEA to those from the tables in the textbook?

Problem 828
Results using Tables in Textbook  Control Procedure  
1  2  3  4  
Number of deviations  4  2  2  0 
Sample size Using Tables (above)  
Sample deviation rate  
Computed upper deviation rate  
Auditor’s decision (Does Support or Does not Support) 
Results using IDEA  Control Procedure  
1  2  3  4  
Number of deviations  4  2  2  0 
Sample size Using IDEA (above)  
1SidedUpper error limit frequency  
Auditor’s decision (Does Support or Does not Support) 
What do you notice when you compare the conclusions in problem 828?

Problem 6
IDEA is able to generate a random sample. With the Accounts Receivable file open, select Random in theSample grouping of the Analysis tab. Enter 25 for the Number of records to select. Enter 7 for the Random number seed. Rename the File nameto “AR Rand Sample”leave the other settings as they are andclick OK. IDEA will generate a new tab displaying your random sample. Assuming that the electronic data were difficult to obtain and that the client compiled the electronic data only for the sample you selected, evaluate the effectiveness of the control that is designed to ensure that the invoice date always precedes the due date.
How many exceptions did you observe in your sample of 25?Evaluate the sample at 90% confidence. Record the sample deviation rate and the 1sided upper limit. If you can tolerate a deviation rate of 15% would you accept this control as effective? Please answer these items in the table below.
How many exceptions did you observe in your sample of 25?
 
Record the sample deviation rate and the 1sided upper limit.
 
If you can tolerate a deviation rate of 15% would you accept this control as effective?
