Question 1

What is an auditor's evaluation of a statistical sample for attributes when a test of 100 documents results in 4 deviations if the tolerable rate of deviation is 5%,the expected population deviation rate is 3%,and the allowance for sampling risk is 2%?

Accepted Answer

The auditor should compare the sample deviation rate plus the allowance for sampling risk (which is 4% in this case) to the tolerable rate of deviation (which is 5%). Since the sample deviation rate plus the allowance for sampling risk is less than the expected population deviation rate (which is 3%), the auditor should not modify planned reliance on the control. However, since the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate of deviation, the auditor should modify planned reliance on the control.

Question 2

Which of the following is not true with respect to the use of nonstatistical sampling?

Accepted Answer

The answer of Which of the following is not true...

Question 3

As a result of tests of controls,an auditor assessed control risk too low and decreased the effectiveness of her substantive procedures.This assessment occurred because the true deviation rate in the population was

Accepted Answer

The auditor assessed control risk too low because the true deviation rate in the population was greater than the deviation rate found in the auditor's sample, leading to an incorrect conclusion about the effectiveness of the controls.

Question 4

For which of the following audit tests would an auditor most likely use attributes sampling?

Accepted Answer

Attributes sampling is used to test for the presence or absence of certain attributes, such as approval by supervisors. Therefore, auditing the purchase orders for proper approval by supervisors would be the best choice for attributes sampling. Choices B, C, and D involve testing account balances or transactions, which would be better suited for variable sampling.

Question 5

Assume that the audit team established a tolerable rate of deviation of 5%,an expected population deviation rate of 1%,and desired to control the risk of overreliance to 10%.What is the appropriate sample size in this situation?

Accepted Answer

The answer of Assume that the audit team established a...

Question 6

An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the

Accepted Answer

When the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation, it indicates that there may be a higher level of risk present than initially anticipated. Therefore, reducing the planned reliance on a prescribed control would be the appropriate action to take.

Question 7

The maximum rate of deviation that may exist in the operation of a control policy or procedure before the auditors would reduce reliance on internal control is referred to as

Accepted Answer

The maximum rate of deviation that may exist in the operation of a control policy or procedure before the auditors would reduce reliance on internal control is referred to as the tolerable rate of deviation. This is the level at which auditors consider the risk of material misstatement (control risk) to be acceptable. The acceptable rate of deviation and the upper limit rate of deviation are not commonly used terms in auditing.

Question 8

Lincoln,CPA,selected a sample of 100 items by dividing the population of 100,000 sales invoices by 100.With a random start,she then selected every 1,000^th invoice.This selection process is referred to as

Accepted Answer

The selection process described is systematic random selection, where every nth item in the population is selected after a random start. This is a common method used in sampling where the population has a known and uniform structure. Options A, B, and D do not accurately describe the selection process as they do not involve a systematic approach based on a predetermined sampling interval.

Question 9

Which of the following is the most likely outcome when the upper limit rate of deviation is less than the tolerable rate of deviation?

Accepted Answer

The answer of Which of the following is the most...

Question 10

An auditor wanted to test credit approval on 10,000 sales invoices processed during the year.The auditor designed a statistical sample that would provide a 1% risk of overreliance (99% confidence)that not more than 7% of the sales invoices lacked approval.The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval.A sample of 200 invoices was examined and 7 of them were lacking approval.The auditor then determined the upper limit rate of deviation to be 8%. The allowance for sampling risk was

Accepted Answer

The allowance for sampling risk is the difference between the upper limit rate of deviation (8%) and the estimated percentage of invoices lacking approval from previous experience (2.5%). Therefore, the allowance for sampling risk is 5.5% (8% - 2.5%). The correct answer is B, which represents the only choice that matches this value.

Question 11

Assume that the audit team established a tolerable rate of deviation of 5%,an expected population deviation rate of 1%,and desired to control the risk of overreliance to 5%.What is the appropriate sample size in this situation?

Accepted Answer

The appropriate sample size can be calculated using the formula:
Sample size = ((Z-score)^2 * P*(1-P))/d^2
where Z-score = 1.65 (corresponding to a 95% confidence level)
P = expected population deviation rate = 1%
d = tolerable rate of deviation = 5%

Plugging in the values,
Sample size = ((1.65)^2 * 0.01 * 0.99)/(0.05)^2
Sample size = 92.45 or 93 (rounded up)

Therefore, the appropriate sample size is 93 items which is Option B.

Question 12

Mary Todd is auditing White House Furniture.In selecting a sample of purchases,she finds that a purchase order is missing.She should

Accepted Answer

A missing purchase order is considered a deviation in the audit process, as it indicates a lack of proper documentation and control.

Question 13

When examining the client's internal control,what is the relationship of each of the following with sample size?

Accepted Answer

The answer of When examining the client's internal control,what is...

Question 14

When considering the results of an attributes sampling application,the auditor compares which of the following two measures?

Accepted Answer

The auditor compares the upper limit rate of deviation (which is the highest rate of deviation that would still be acceptable) with the tolerable rate of deviation (which is the maximum rate of deviation that the auditor is willing to accept). This comparison helps the auditor determine whether the results of the sampling application are acceptable or not. The sample rate of deviation is also important in the analysis but is not compared directly to these two measures.

Question 15

Assume that the audit team wishes to determine the extent to which a particular control policy was functioning as intended.Identifying applications of the control throughout the period under audit would be most closely related to which of the following steps in sampling?

Accepted Answer

Identifying applications of the control throughout the period under audit would fall under the step of defining the population, as it involves identifying all instances of the control being applied during the audit period. The other steps listed are not directly related to this task.

Question 16

An auditor wanted to test credit approval on 10,000 sales invoices processed during the year.The auditor designed a statistical sample that would provide a 1% risk of overreliance (99% confidence)that not more than 7% of the sales invoices lacked approval.The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval.A sample of 200 invoices was examined and 7 of them were lacking approval.The auditor then determined the upper limit rate of deviation to be 8%. In evaluating this sample,the auditor decided to increase the level of the preliminary assessment of control risk because the

Accepted Answer

The tolerable rate of deviation (7%) is less than the upper limit rate of deviation (8%), which indicates that the auditor has increased the level of the preliminary assessment of control risk.

Question 17

A sampling plan in which an initial sample is selected and the audit team either draws a final conclusion or selects additional items before drawing a final conclusion is called

Accepted Answer

The sampling plan described in the question is sequential sampling, as the audit team draws additional items before making a final conclusion. Attributes sampling involves testing a population for a specific characteristic, while discovery sampling is used when no prior knowledge exists about the population. Statistical sampling is a broad term that encompasses various sampling techniques based on statistical principles.

Question 18

The sampling plan for nonstatistical sampling is the same as statistical sampling except for which of the following steps?

Accepted Answer

The answer of The sampling plan for nonstatistical sampling is...

Question 19

When an auditor increases the assessed level of control risk because certain control procedures were determined to be ineffective,the auditor would most likely increase the

Accepted Answer

The answer of When an auditor increases the assessed level...

Question 20

An auditor is examining an important internal control in his audit of ABC Company.Because the account balance affected by this control is highly susceptible to fraud,she will reject the sample if even one deviation is discovered.What type of sampling plan should she use?

Accepted Answer

The answer of An auditor is examining an important internal...

Quiz 18: Attributes Sampling