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Flashcards in Test #5 Deck (65):
1

Also called dollar unit sampling, cumulative monetary amount sampling, or probability proportionate to size

Monetary Unit Sampling

2

What is the most commonly used statistical procedure for test of details of balances?

Monetary unit sampling

3

Facts about MUS

- Statistical sampling
- Developed specifically for use by auditors
- The population is the dollars
- Automatically focuses on units with larger balances
- Stratification occurs automatically

4

Can MUS evaluate unrecorded, zero, or negative balance items?

No

5

Step 1 of MUS

Determine the sample size

6

Sampling Interval (SI) =

Tolerable Misstatement/Confidence factor

7

Sample Size =

Recorded total population/Sampling interval

8

Step 2 of MUS

Select items for sample
Arrange accounts in some order
Start with random dollar amount between 1 and SI
Select items using SI

9

Step 3 of MUS

Calculate projected misstatement

10

If recorded amount is greater than sampling interval, projected misstatement =

The difference found

11

Can accounts be selected twice in MUS?

Yes

12

Which of the following statements is true concerning monetary-unit sampling (MUS), also known as probability-proportional-to-size sampling?

a) The sampling distribution should approximate the normal distribution.
b) Overstated units have a lower probability of sample selection than units that are understated.
c) The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.
d) 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.

13

In a MUS with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audited amount of $4,000. If this were the only misstatement discovered by the auditor, the projected misstatement of this sample is

a) $1,000
b) $2,000
c) $5,000
d) $10,000

b) $2,000

14

Which of the following most likely would be an advantage in using classical variables sampling rather than MUS?

a) An estimate of the standard deviation of the population's recorded amounts is not required.
b) The auditor rarely needs the assistance of a computer program to design an efficient sample.
c) Inclusion of zero and negative balances usually does not require special design considerations.
d) Any amount that is individually significant is automatically identified and selected.

c) Inclusion of zero and negative balances usually does not require special design considerations.

15

In monetary unit sampling, a sampling interval of 900 means that:

a) tolerable misstatement is 900.
b) every 900th dollar in the account will be sampled.
c) every 900th item will be selected.
d) expected misstatement is 900.

b) every 900th dollar in the account will be sampled.

16

Monetary unit sampling is not particularly effective at detecting

a) understatements
b) errors in noncurrent assets
c) errors in current assets
d) overstatements

a) understatements

17

The auditor must consider the possibility that the true population misstatement is greater than the amount of misstatement that is tolerable when the auditor is performing:

a) Nonstatistical - yes MUS - no
b) Nonstatistical - yes MUS - yes
c) Nonstatistical - no MUS - no
d) Nonstatistical - no MUS - yes

d) Nonstatistical - no MUS - yes

18

An accounts receivable population contains a total of four customers. The accounts, the amounts, and the cumulative total are shown below. Monetary unit sampling is to be used.

Account Name Recorded Amount Cumulative Total
Blue $357 $357
Brown $281 $638
Gray $60 $698
Green $574 $1,272

Based on the information above, the population size is:

a) $2,684
b) 4
c) $1,272
d) $574

c) $1,272

19

An auditor uses MUS with a sampling interval of $20,000 and detects an item with a recorded amount of $10,000 with an audited value of $4,000. The projected misstatement of the sample is:

a) $12,000
b) $10,000
c) $6,000
d) $3,000

a) $12,000

20

Which balance-related audit objective cannot be assessed using MUS?

a) Existence
b) Accuracy
c) Completeness
d) All of the above can be assessed using MUS

c) Completeness

21

PPS samples can be obtained in an efficient manner using all but which of the following?

a) Hand selection by the auditor
b) Systematic sampling techniques
c) Computer software
d) Random number tables

a) Hand selection by the auditor

22

The auditor must deal with layers of the computed upper deviation rate from the attributes table because there are different error assumptions for each error. Assume a sample of 100 had found one error, and the computed upper deviation rate is shown in the following table:

Number of Errors Upper Precisions Limit from Table
0 0.023
1 0.038

The precision limit for the layer with one error is:

a) 1.5%
b) 2.3%
c) 6.1%
d) 3.8%

a) 1.5%

23

Which of the following item(s) are needed to determine the sample size using MUS?

A point estimate Recorded pop. Confidence
for misstatements value factor
a) No Yes Yes
b) Yes No Yes
c) No Yes No
d) Yes No No

a) No Yes Yes

24

An estimate of the largest likely overstatement in a population at a given ARIA, using monetary unit sampling is the:

a) Precision intervals
b) Misstatement bounds
c) Confidence intervals
d) Point estimates

b) Misstatement bounds

25

When using MUS, evaluating the likelihood of unrecorded items in the population is:

a) Impossible
b) An automatic outcome of the process
c) Unnecessary
d) Possible but difficult

a) Impossible

26

The statistical methods used to evaluate MUS:

a) Neither exclude nor include units twice
b) Ignore the possibility that a unit may be included in a sample more than once
c) May permit the inclusion of a unit in the sample more than once
d) Do not permit a unit to be included in the sample more than once

c) May permit the inclusion of a unit in the sample more than once

27

Which of the following is not a problem with monetary unit selection?

a) Accounts with small recorded balances that are significantly understated
b) Accounts with negative balances
c) Population items with a zero recorded balance
d) Population items that should have a zero balance but do not

d) Population items that should have a zero balance but do not

28

The allowance for sampling risk when no misstatements are found in the sample is:

a) Confidence factor
b) Population variance
c) Basic precision
d) Tolerable risk of misstatement

c) Basic precision

29

Which of the following is not a disadvantage of MUS?

a) The total misstatement bounds resulting when misstatements are found may be too low to be useful to the auditor.
b) The total misstatement bounds resulting when misstatements are found may be too high to be useful to the auditor.
c) It may be difficult to select samples from large populations without computer assistance.
d) Each of the above is a disadvantage.

a) The total misstatement bounds resulting when misstatements are found may be too low to be useful to the auditor.

30

Calculating the sample size using MUS depends on which of the following factors?

Estimated pop. misstatement Recorded pop. value
a) Yes No
b) No Yes
c) No No
d) Yes Yes

d) Yes Yes

31

Why do auditors find MUS appealing?

a) MUS is easy to use in the audit environment
b) MUS increases the likelihood of selecting a balance of high and low dollar items
c) MUS provides a nonstatistical, rather than a statistical, conclusion
d) When misstatements are found, MUS rarely produces bounds in excess of materiality

a) MUS is easy to use in the audit environment

32

In MUS, the relationship between tolerable misstatement size and required sample size is:

a) varied
b) indeterminable
c) direct
d) inverse

d) inverse

33

When using MUS, the recorded dollar population is a definition of all the items in the:

a) sample which contains errors
b) population
c) population which contains errors
d) population which the auditor has included in the sample

b) population

34

When the sample selection is done using the probability proportional to size sample selection (PPS):

a) population items with a zero recorded balance have no chance of being selected
b) negative balances must be treated as positive balances
c) the actual number of units selected for testing may be more than the computed sample size
d) the auditor must use systematic selection, rather than random selection of dollars

a) population items with a zero recorded balance have no chance of being selected

35

Assertions = CAVE CROC

Completeness
Accuracy
Valuation and allocation
Existence
Cutoff
Rights and obligations
Occurrence
Classification and understandibility

36

Appropriate payroll balances include:

Payroll expense
Inventory (for manufacturing firms (direct labor))
Accrued payroll and vacation
Payroll tax liability
Pension costs and other post-employment (OPEB) costs

37

Key controls of payroll internal controls

Separation of duties
Separate human resources department
Separate authorization from record keeping

38

Tests for completeness - analytical procedures

Compare current expenses with expectations from prior periods
Compare budgets with actual results
Total hours worked with total payroll expense
Payroll ratios with industry

39

Tests for accuracy - inquiries of management

Contractual arrangements with officers
Union contracts
Pension and OPEB costs

40

Tests for valuation and allocations

Trace costs to inventories (manufacturing)
Recalculate pension and OPEB costs

41

Tests for existence

Observe distribution of paychecks

42

Tests for cutoff

Recalculate accruals

43

Tests for rights and obligations

Inspect canceled checks

44

Tests for occurrence

Vouch a sample of transactions to make sure employees worked the number of hours paid

45

Tests for classification and understandibility

Properly allocated to expense?
Properly classified as an asset (manufacturing)?
Liabilities properly current or non-current?
Disclosures adequate?
Read the financial statements and disclosures

46

What standards are followed in governmental auditing?

Generally Accepted Government Auditing Standards (GAGAS)

47

Where are the GAGAS published?

In the yellow book

48

Who established the GAGAS?

Government Accountability Office (GAO)

49

What engagements follow GAGAS?

Involve federal government entities, programs, activities, and functions
State and local governments and not-for-profits that receive federal awards
When required by contract or state or local law
(Hint – wherever the federal money goes)
Stricter than regular auditing standards

50

Types of governmental audits

Financial statement audits
Attestation engagements
Performance audits

51

Governmental financial statement audits are mainly concerned with:

Whether financial statements are presented fairly

52

Governmental financial statement audits also require reporting on internal control and compliance with:

Laws
Regulations
Contracts
Grant agreements

53

Which has a greater scope? A business audit? Or a governmental financial statement audit?

Governmental financial statement audit

54

When do we have to report on internal control for a regular audit?

Accelerated filer
Publicly traded company

55

When do we have to report on internal control for a governmental audit?

Always

56

Examples of attestation government audits:

Investment performance
Descriptions of computer software
Effectiveness of internal control over compliance matters

57

Performance audits may address:

Program effectiveness and results
Economy and efficiency
Internal control
Compliance with legal requirements

58

What are the CPE requirements for governmental auditing?

80 hours in related topics every two years with 24 of those directly related to governmental audits

59

GAGAS beyond GAAP:

CPE requirements
Quality control and assurance - external peer review every 3 years
Additional communication to cognizant legislative committees
Auditors evaluate corrective actions
State whether audit is in conformity with GAGAS
Report any significant instances of noncompliance or abuse
Distributing reports to: those charged with governance, appropriate officials of the audited entity, and appropriate oversight bodies

60

Additions to GAGAS:

Lower materiality levels
Auditors must have quality control system
Compliance auditing
Report must describe scope
Report must present results of compliance tests

61

Lower materiality levels are expected in a governmental audit due to:

Sensitivity of government activities
Public accountancy

62

Compliance auditing

Audit designed to provide reasonable assurance of compliance with laws and regulations

63

Governmental audit reports must describe the scope of:

Tests of compliance
Tests of internal controls

64

Single Audit Act of 1984

Provided for a single coordinated audit of entities that receive less than $500,000 of federal funds from all sources

65

Single Audit Act applies to:

State and local governments
Higher education
Non-profit organizations
Regular school systems