Flashcards in AUDS Deck (56):
Which of the following is included as part of the definition of audit sampling?
a) Inquiry and observation procedures.
b) Documentary evidence.
c) Evaluation of some characteristic.
d) Statistical techniques.
Evaluation of some characteristic.
Which of the following is an element of sampling risk?
a) Choosing an audit procedure that is inconsistent with the audit objective.
b) Failing to perform audit procedures that are required by the sampling plan.
c) Choosing a sample size that is too small to achieve the sampling objective.
d) Failing to detect an error on a document that has been inspected by the auditor
Choosing a sample size that is too small to achieve the sampling objective.
In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the
Efficiency of the audit.
Which of the following best illustrates the concept of sampling risk?
a) An auditor may fail to recognize errors in the documents examined for the chosen sample.
b) The documents related to the chosen sample may not be available for inspection.
c) An auditor may select audit procedures that are not appropriate to achieve the specific objective.
d) A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.
A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.
At times a sample may indicate that the auditor’s planned assessed level of control risk is reasonable when, in fact, the true compliance rate does not justify such reliance. This situation illustrates the risk of
Assessing control risk too low.
Which of the following best describes the distinguishing feature of statistical sampling?
a) It provides for measuring the actual misstatements in financial statements in terms of sampling risk and allowance for sampling risk.
b) It allows the auditor to have the same degree of sampling risk as with non-statistical sampling but with substantially less work.
c) It provides for measuring mathematically the degree of uncertainty that results from examining only a part of the data.
d) It allows the auditor to substitute sampling techniques for audit judgment.
It provides for measuring mathematically the degree of uncertainty that results from examining only a part of the data.
The objective of the allowance for sampling risk in sampling for tests of controls on internal control is to
Estimate the range of procedural deviations in the population.
Auditors often utilize sampling methods when performing tests of controls. Which of the following sampling methods is useful when testing controls?
a) Variable sampling.
b) Stratified random sampling.
c) Unrestricted random sampling with replacement.
d) Attribute sampling.
An auditor examining inventory may appropriately apply sampling for attributes in order to estimate the
Percentage of slow-moving inventory items.
Jones, CPA, believes the industry-wide occurrence rate of client billing errors is 3% and has established a maximum acceptable occurrence rate of 5%. In the review of client invoices Jones should use
Statistical sampling generally may be applied to test controls when the client’s internal control activities
Leave an audit trail in the form of documentary evidence of compliance.
If an auditor, planning to use statistical sampling, is concerned with the number of a client’s sales invoices that contain mathematical errors, the auditor would most likely utilize
Sampling for attributes.
An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the client’s internal control activities. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the reasons for this limitation and
Treat the missing check as a deviation for the purpose of evaluating the sample.
When performing a test of a control with respect to control over cash disbursements, a CPA may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population
May occur in a systematic pattern, thus destroying the sample randomness.
If certain forms are not consecutively numbered
Systematic sampling may be appropriate.
If the size of the sample to be used in a particular test of attributes has not been determined by utilizing statistical concepts, but the sample has been chosen in accordance with random selection procedures
The auditor may or may not achieve the desired risk of assessing control risk too low.
In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items
Do not have to be pre-numbered in order for the auditor to use the technique.
Which of the following statistical selection techniques is least desirable for use by an auditor?
a) Stratified selection.
b) Block selection.
c) Sequential selection.
d) Systematic selection.
In estimation sampling for attributes, which one of the following must be known in order to appraise the results of the auditor’s sample?
a) Actual occurrence rate of the attribute in the population.
b) Estimated dollar value of the population.
c) Sample size.
d) Standard deviation of the values in the population.
Which of the following statements is correct concerning statistical sampling in tests of controls?
a) There is an inverse relationship between the sample size and the tolerable rate.
b) Deviations from control procedures at a given rate usually result in misstatements at a higher rate.
c) The qualitative aspects of deviations are not considered by the auditor.
d) As the population size doubles, the sample size should also double.
There is an inverse relationship between the sample size and the tolerable rate.
In planning a statistical sample for a test of controls, an auditor increased the expected population deviation rate from the prior year’s rate because of the results of the prior year’s tests of controls and the overall control environment. The auditor most likely would then increase the planned
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that
The deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation rat in the population exceeds the tolerable rate.
In connection with his test of the accuracy of inventory counts, a CPA decides to use discovery sampling. Discovery sampling may be considered a special case of
Sampling for attributes.
What is an auditor’s evaluation of a statistical sample for attributes when a test of 50 documents results in 3 deviations if tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling risk is 2%?
Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
In performing tests of controls, the auditor will normally find that
The rate of deviations in the sample exceeds the rate of error in the accounting records.
When using a statistical sampling plan, the auditor would probably require a smaller sample if the
Desired sampling risk increases.
An auditor may decide to increase the risk of incorrect rejection when
The cost and effort of selecting additional sample items is low.
The risk of incorrect acceptance and the risk of assessing control risk too low for internal control relate to the
Effectiveness of the audit.
There are many kinds of statistical estimates that an auditor may find useful, but basically every accounting estimate is either of a quantity or of an error rate. The statistical terms that roughly correspond to “quantities” and “error rate,” respectively, are
Variables and attributes.
The auditor faces a risk that the examination will not detect material misstatements which occur in the accounting process. In regard to minimizing this risk, the auditor primarily relies on
In which of the following cases would the auditor be more likely to conclude that all of the items in an account under consideration should be examined rather than tested on a sample basis?
a) The Measure of tolerable misstatements is large/Error frequency is expected to be low.
b) The Measure of tolerable misstatements is small/Error frequency is expected to be high.
c) The Measure of tolerable misstatements is large/Error frequency is expected to be high.
d) The Measure of tolerable misstatements is small/Error frequency is expected to be low.
The Measure of tolerable misstatements is small/Error frequency is expected to be high.
Which of the following sampling plans would be designed to estimate a numerical measurement of a population, such as a dollar value?
a) Discovery sampling.
b) Numerical sampling.
c) Sampling for attributes.
d) Sampling for variables.
Sampling for variables.
In estimation sampling for variables, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor’s needs in a given situation?
a) The estimated rate of error in the population.
b) The total dollar amount of the population.
c) The acceptable level of risk.
d) The qualitative aspects of errors.
The acceptable level of risk.
An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to
Measure the sufficiency of the audit evidence obtained.
The size of a sample designed for dual-purpose testing should be
The larger of the samples that would otherwise have been designed for the two separate purposes.
To determine the number of items to be selected in a sample for a particular substantive test of details, the auditor should consider all of the following except
a) Allowable risk of incorrect acceptance.
b) Tolerable misstatement.
c) Characteristics of the population.
d) Deviation rate.
Which of the following statements is correct concerning probability-proportional-to-size sampling, also known as dollar unit sampling?
a) Overstated units have a lower probability of sample selection than units that are understated.
b) The sampling interval is calculated by dividing the number of physical units in the population by the sample size.
c) The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.
d) The sampling distribution should approximate the normal distribution.
The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.
In a probability-proportional-to-size sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected error of this sample was
Use the ratio method of sampling to calculate the year-end accounts payable audited balance from the following data:
Number of accounts Book Balance Audited Balance
4,100 5,000,000 ?
200 250,000 300,000
The major reason that the difference and ratio estimation methods would be expected to produce audit efficiency is that the
Variability of the populations of differences or ratios is less than that of the populations of book values or audited values.
When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible error in either direction. This statistical concept is known as
Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate when
A book value for each sample item is unknown.
An auditor examining inventory most likely would use variables sampling rather than attributes sampling to
Estimate whether the dollar amount of the inventory is reasonable.
Which of the following statements is correct about the sample size in statistical sampling when testing internal controls?
a) As the likely rate of deviation decreases, the auditor should increases the planned sample size.
b) The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size.
c) Of all the factors to be considered, the population size has the greatest effect on the sample size.
d) The allowable risk of assessing control risk too low has no effect on the planned sample size.
The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size.
Which of the following characteristics most likely would be an advantage of using classical variables sampling rather than PPS sampling?
a) The auditor need not consider the preliminary judgments about materiality.
b) The sample will result in a smaller sample size if few errors are expected.
c) The sampling process can begin before the complete population is available.
d) The selection of negative balances requires no special design considerations.
The selection of negative balances requires no special design considerations.
For which of the following audit tests would a CPA most likely use attribute sampling?
a) Selecting receivables for confirmation of account balances.
b) Identifying entries posted to incorrect accounts.
c) Evaluating the reasonableness of depreciation expense.
d) Estimating the amount in an expense account.
Identifying entries posted to incorrect accounts
Which of the following would be a consideration in planning an auditor’s sample for a test of controls?
a) Preliminary judgments about materiality levels.
b) The level of detection for the account.
c) The auditor’s allowable risk of assessing control risk is too low.
d) The auditor’s allowable risk of assessing control risk is too high.
The auditor’s allowable risk of assessing control risk is too low.
Which of the following actions should the auditor take in response to discovering a deviation from the prescribed control procedure?
a) Make inquiries to understand the potential consequence of the deviation.
b) Report the matter to the next higher level of authority within the entity.
c) Increase sample size of tests of controls.
d) Assume that the deviation is an isolated occurrence without audit significance.
What action should the auditor take in response to discovering a deviation from the prescribed control procedure?
Make inquiries to understand the potential consequence of the deviation.
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk higher than appropriate. The most likely explanation for this situation is that
The deviation rate in the auditor’s sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.
In attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the sample?
a) Planned assessed level of control risk.
b) Degree of assurance desired.
c) Tolerable rate of deviation.
d) Number of iterms in the population.
Number of items in the population.
Which of the following is the primary objective of probability-proportional-to-size sampling?
a) To identify zero and negative balances.
b) To identify items where controls were not properly applied.
c) To identify overstatement errors.
d) To increase the proportion of smaller-value items in the sample.
To identify overstatement errors.
Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts?
a) The amount of bad debt write-offs in the prior year.
b) The size of the intercompany receivable balance.
c) The auditor’s allowable risk of assessing control risk is too low.
d) Preliminary judgments about materiality levels.
Preliminary judgments about materiality levels.
Which of the following statements is ordinarily correct about the sample size in statistical sampling when testing controls?
a) The population size has little effect on the sample size.
b) The expected population deviation rate has little effect on determining the sample size.
c) As the tolerable deviation rate increases, the sample size should also increase.
d) As the population size doubles, the sample size should also double.
The population size has little effect on the sample size.
An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following sampling types of risks?
a) Incorrect acceptance.
b) Assessing control risk too high.
c) Incorrect rejection.
d) Assessing control risk too low.
How do you calculate the tainting percentage
(Recorded amount - Audit amount)/Recorded amount