chapter 9 connect

Question 1

The size of the upper limit on misstatement is largely dependent on the sample size, which is inversely related to the desired confidence level.

True or False

Answer 1

false

Question 2

The purpose of audit sampling is to draw inferences about the entire population from the results of a sample.

True or False

Answer 2

true

Question 3

Monetary-unit sampling is based on attribute sampling concepts.

true or false

Answer 3

true

Question 4

Confidence level is inversely related to sample size.

True or False

Answer 4

false

Question 5

Expected misstatement is directly related to sample size.

true or false

Answer 5

true

Question 6

Monetary-unit sampling is commonly used by auditors to test controls.

True or False

Answer 6

false

Question 7

The objective of monetary-unit sampling is to test the assertion that no material misstatements exist in an account balance or class of transactions.

True or False

Answer 7

true

Question 8

Haphazard selection allows the auditor to select items with bias.

True or False

Answer 8

false

Question 9

After a sample is drawn randomly, the allowance for sampling risk must be statistically quantified within a specified level of confidence when using nonstatistical sampling techniques.

true or false

Answer 9

false

Question 10

Classical variables sampling uses normal distribution theory to evaluate the characteristics of a population based on sample data.

true or false

Answer 10

true

Question 11

The risk of incorrect acceptance and the risk of overreliance (Type II Errors) relate to the

Multiple Choice

preliminary estimates of materiality levels.

allowable risk of tolerable error.

efficiency of the audit.

effectiveness of the audit.

Answer 11

effectiveness of the audit.

Question 12

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. Such a situation illustrates the risk of:

Multiple Choice

incorrect rejection.

incorrect acceptance.

assessing control risk too high.

assessing control risk too low.

Answer 12

incorrect rejection.

Question 13

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?

Multiple Choice

Greater reliance on internal controls.

Greater reliance on analytical procedures.

Smaller expected frequency of misstatements.

Smaller limit of tolerable misstatements.

Answer 13

Smaller limit of tolerable misstatements.

Question 14

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?

Multiple Choice

Expected amount of misstatement but not the measure of tolerable misstatement.

Expected amount of misstatement and the measure of tolerable misstatement.

Measure of tolerable misstatement but not the expected amount of misstatement.

Neither the expected amount of misstatement nor the measure of tolerable misstatement.

Answer 14

Expected amount of misstatement and the measure of tolerable misstatement.

Question 15

In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if:

Multiple Choice

monetary-unit sampling (MUS) is used.

classical variables sampling is used in order to focus on large items.

the auditor’s estimated tolerable misstatement is extremely small.

the standard deviation of recorded amounts is relatively small.

Answer 15

classical variables sampling is used in order to focus on large items.

Question 16

An auditor is preparing to sample an entity’s customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is:

Multiple Choice

attribute sampling.

ratio-estimation sampling.

monetary-unit sampling.

mean-per-unit sampling.

Answer 16

monetary-unit sampling.

Question 17

Which of the following statements best describes an inherent limitation of the monetary-unit sampling method?

Multiple Choice

It can only be used for substantive testing of asset accounts.

It requires the use of a computer system to perform the required calculations.

Misstatement rates must be large and the misstatements must be overstatements.

Misstatement rates must be small and the misstatements must be overstatements.

Answer 17

Misstatement rates must be small and the misstatements must be overstatements.

Question 18

For monetary-unit sampling, the number of items tested is:

Multiple Choice

always equal to sample size.

always greater than sample size.

always greater than or equal to sample size.

always less than or equal to sample size.

Answer 18

always less than or equal to sample size.

Question 19

Monetary-unit sampling should NOT be used if:

Multiple Choice

the population includes several large items.

the auditor expects overstatement errors.

many items in the account are expected to have errors.

no items in the account are expected to have errors.

Answer 19

many items in the account are expected to have errors.

Question 20

In monetary-unit sampling, population size is:

Multiple Choice

the dollar balance in an account.

the number of items in an account.

unrelated to sample size.

included in the denominator of the formula to determine sample size.

Answer 20

the dollar balance in an account.

Question 21

Monetary-unit sampling is said to eliminate the need to stratify the sample because:

Multiple Choice

sample items are selected in proportion to their dollar amount.

the risk of incorrect acceptance is inversely related to sample size.

tolerable misstatement is considered when determining sample size.

the upper limit on misstatements can be computed based on statistical principles.

Answer 21

sample items are selected in proportion to their dollar amount.

Question 22

An accounts receivable account balance is $500,000 and the auditor determines a sample size of 30 would provide adequate assurance. The auditor plans to use a monetary-unit sampling plan with systematic sample selection. The auditor notices that there are six customer accounts of at least $15,000 and would like the systematic selection technique to select all items that are at least $15,000, even if that means the sample size is slightly larger than 30. To achieve the auditor’s objectives, the sampling interval should be:

Multiple Choice

6.

20.

16,666.

15,000.

Answer 22

15,000.

Question 23

For monetary-unit sampling, a sampling interval of 400 means that:

Multiple Choice

every 400th item in the account will be selected in the sample.

the average size of items in the account is 400.

every 400th dollar in the account will be included in the sample.

the average misstatement in sample items is $400.

Answer 23

every 400th dollar in the account will be included in the sample.

Question 24

Which of the following sampling methods would be used to estimate a numerical measurement of population, such as the dollar value of an account?

Multiple Choice

Attributes sampling.

Stop-or-go sampling.

Classical variables sampling.

Random-number sampling.

Answer 24

Classical variables sampling.

Question 25

In applying classical variables sampling, an auditor attempts to: Multiple Choice estimate a qualitative characteristic of interest. determine various rates of occurrence for specified attributes. discover at least one instance of a critical deviation. predict a monetary population value within a range of precision.

Answer 25

predict a monetary population value within a range of precision.

Question 26

In a monetary-unit sample with a sampling interval of $5,000, an auditor discovers that a selected account receivable with a recorded amount of $10,000 has an audit amount of $8,000. If this were the only error discovered by the auditor, the projected misstatement for this sample would be: Multiple Choice $5,000. $4,000. $2,000. $1,000.

Answer 26

$2,000.

Question 27

What is the primary objective of testing all individually significant items rather than sample testing? Multiple Choice To increase the audit risk at which a decision will be reached from the results of the sample selected. To increase sample size. To accept no sampling risk for items greater than tolerable misstatement. To increase the size of the confidence bound around the projected misstatement.

Answer 27

To accept no sampling risk for items greater than tolerable misstatement.

Question 27

Using nonstatistical sampling, which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? Multiple Choice Set the tolerable deviation rate at a lower level than originally planned. Identify the large and unusual disbursements as individually significant and test 100 percent. Increase the sample size to reduce the effect of the unusually large disbursements. Continue to draw new samples until all the unusually large disbursements appear in the sample.

Answer 27

Identify the large and unusual disbursements as individually significant and test 100 percent.

Question 28

Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable? Multiple Choice Combining negative and positive dollar misstatements in the appraisal of a sample. Using a sampling technique in which the same account balance could be selected more than once. Selecting a random starting point and then sampling every nth dollar. Defining the sampling unit in the population as an individual dollar and not as an individual account balance.

Answer 28

Combining negative and positive dollar misstatements in the appraisal of a sample.

Question 29

In a monetary-unit sampling plan, the upper misstatement limit is $11,200 and the risk of incorrect acceptance is 5%. This means that: Multiple Choice tolerable misstatement is $11,200. there is a 95% chance that the actual misstatement in the account is $11,200 or more. there is a 95% chance that the actual misstatement in the account is $11,200. there is a 95% chance that the actual misstatement in the account is $11,200 or less.

Answer 29

there is a 95% chance that the actual misstatement in the account is $11,200 or less.

Question 30

If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least likely to: Multiple Choice increase sample size. conduct other substantive procedures. adjust the account balance. increase the risk of incorrect rejection.

Answer 30

increase the risk of incorrect rejection.

Question 31

Which of the following most likely would be an advantage in using classical variables sampling rather than monetary-unit sampling? Multiple Choice An estimate of the standard deviation of the population's recorded amounts is not required. The auditor rarely needs the assistance of a computer program to design an efficient sample. Inclusion of zero and negative balances generally does not require special design considerations. Any amount that is individually significant is automatically identified and selected.

Answer 31

Inclusion of zero and negative balances generally does not require special design considerations.

Question 32

The confidence factor for nonstatistical sampling is based on: Multiple Choice the number of items in the account. auditor judgment. the risk of misstatement in the account and the level of desired confidence. variability in the population and the risk of misstatement in the account.

Answer 32

the risk of misstatement in the account and the level of desired confidence.

Question 33

The formula for nonstatistical sampling sample sizes provided by the AICPA: Multiple Choice must be used for nonstatistical sampling. includes a provision for the risk of incorrect acceptance. includes a measure for the expected misstatement in the population. is largely based on the variation of items in the account.

Answer 33

includes a measure for the expected misstatement in the population.

Question 34

The use of the ratio projection is most effective when: Multiple Choice the dollar amount of the misstatement is expected to relate to the dollar amount of items tested. a small number of differences exist in the population. estimating populations whose records consist of quantities but not book values. large understatement differences exist in the population.

Answer 34

the dollar amount of the misstatement is expected to relate to the dollar amount of items tested.

Question 35

Which one of the following statements is TRUE regarding two random samples, drawn in the same way, from the same population, one of size 30 and one of size 300? Multiple Choice The two samples are expected to have the same sample mean. The larger sample is more likely to produce a large sample mean. The smaller sample will have a smaller 95% confidence interval for the mean. The smaller sample will, on average, produce a lower estimate of the variance of the population.

Answer 35

The two samples are expected to have the same sample mean.

Question 36

The accounting department reports that the balance of accounts receivable is $210,000. You are willing to accept that balance if audit sampling suggests it is within $15,000 of the actual balance. Using a classical variables sampling plan, you compute a 95% confidence interval of $208,000 to $225,000. You would therefore: Multiple Choice not be able to determine the acceptability of the receivable balance. accept the balance but with a lower level of confidence. take a larger sample before totally rejecting the balance and requiring adjustments. accept the $210,000 balance because the confidence interval is within the materiality limits.

Answer 36

accept the $210,000 balance because the confidence interval is within the materiality limits.

Question 37

In a monetary-unit 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 misstatement of this sample was: Multiple Choice $3,000. $4,000. $6,000. $8,000.

Answer 37

$6,000.

Question 38

An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population of 1,000 items that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that: Multiple Choice there is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. there is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. the asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. the asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.

Answer 38

there is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.

Question 39

An auditor is performing substantive procedures of pricing and extension of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension errors. Which of the following approaches is most appropriate? Multiple Choice Unstratified mean-per-unit. Monetary-unit sampling. Stop or go. Difference projection.

Answer 39

Difference projection.

Question 40

Which of the following is NOT an advantage of monetary-unit sampling? Multiple Choice MUS does not require the user to make any assumptions about the distribution of misstatements. MUS automatically results in a stratified sample because sampled items are selected in proportion to their dollar amounts. MUS usually results in a smaller sample size than classical variables sampling in situations with little or no expected misstatements. MUS requires special design consideration for the selection of zero or negative balances.

Answer 40

MUS requires special design consideration for the selection of zero or negative balances.

Question 41

When determining sample size for a non-statistical sampling sample size, which of the following variables is NOT used in the formula? Multiple Choice Confidence factor. Sampling population book value. Confidence coefficient. Tolerable misstatement.

Answer 41

Confidence coefficient.

Question 42

When determining sample size for classical variable samples, which of the following variables is NOT used in the formula? Multiple Choice Tolerable Misstatement. Confidence factor. Estimated standard deviation of audit difference. Estimated misstatement.

Answer 42

Confidence factor.