Response to the following problem:
Calgari Clothing Company manufactures high-quality silk ties that are marketed under a number of trademarked names. Joe & Vandervelte LLP has been the company's auditors for five years. Lisa Austen, the senior-in-charge of the audit, has reviewed Calgari's controls over purchasing and inventory, and she determined that a number of controls can be relied upon to reduce control risk. Austen has decided to test two control procedures over purchases and inventory
(1) purchase orders are agreed to receiving reports and vendor's invoices for product, quantity, and price; and
(2) inventory is transferred to raw material stores using an approved, prenumbered receiving report.
Austen decided to use a nonstatistical sampling approach based on the following judgments for each control procedure and has judgmentally decided to use a sample size of 75 purchase orders for control 1 and 30 receiving reports for control 2.
Control Procedure
Parameters 1 2
Desired confidence 95% 90%
Tolerable deviation rate 7% 9%
Expected population deviation rate 2% 2.5%
After completing the examination of the sample items, Austen noted one deviation for each control procedure.
Required:
What conclusion should Austen reach about each control procedure? Justify your answer.