Question 1

Consider the steps in sampling for tests of details and for tests of controls.Explain the differences in applying sampling to these two types of tests.

Accepted Answer

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Question 2

The AICPA audit sampling formula for computing nonstatistical tests of details of balances sample size is to multiply the population recorded amount by the ________ and then divide by the ________.
A) confidence factor, ARIA
B) confidence factor, tolerable misstatement
C) ARO, tolerable misstatement
D) risk of incorrect acceptance, confidence factor

Accepted Answer

The AICPA audit sampling formula for nonstatistical tests of details of balances sample size is to multiply the population recorded amount by the confidence factor (which is determined based on the desired level of assurance and the assessed level of risk) and then divide by the tolerable misstatement (which is the maximum amount of misstatement that the auditor is willing to accept without modifying their opinion). Therefore, choice B (confidence factor, tolerable misstatement) is the correct answer.

Question 3

Which of the following needs to be considered when the auditor generalizes from the sample to the population?
A) 
B) 
C) 
D)

Accepted Answer

The answer of Which of the following needs to be...

Question 4

If analytical procedures are performed with no indications of likely misstatements,ARIA will ________ and the sample size will ________.
A) remain the same, increase
B) decrease, decrease
C) increase, decrease
D) decrease, increase

Accepted Answer

The answer of If analytical procedures are performed with no...

Question 5

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.Which of the following is the least likely auditor reaction to this discovery?
A) Perform expanded audit tests in the relevant areas.
B) Increase detection risk in the relevant areas.
C) Increase the sample size.
D) Take no action until tests of other audit areas are completed.

Accepted Answer

If the auditor determines that the recorded account balance is materially misstated, the least likely reaction is to increase the detection risk in the relevant areas. Detection risk is the risk that the auditor does not detect a material misstatement in the financial statements. By increasing the detection risk, the auditor is accepting a higher level of risk that a material misstatement may not be detected. Instead, the auditor should perform expanded audit tests in the relevant areas, increase the sample size, or take other appropriate actions to address the potential misstatement. Taking no action until tests of other audit areas are completed is also not a suitable response as it would compromise the accuracy and reliability of the financial statements.

Question 6

Identify each of the seven factors that influence sample size for nonstatistical tests of details of balances,and state whether each factor is directly or inversely related to sample size.

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Question 7

When selecting a stratified sample,the sample size is:
A) determined for the unstratified population and then apportioned to each stratum.
B) determined for each stratum and selected from that stratum.
C) determined for each stratum and selected randomly from the entire unstratified population.
D) always larger than if unstratified sampling had been used.

Accepted Answer

When selecting a stratified sample, the sample size is determined for each stratum and selected from that stratum. This allows for a more accurate representation of each stratum in the sample and can result in a smaller sample size overall.

Question 8

If no exceptions were found in the substantive tests of transactions:
A) ARIA would stay the same.
B) the sample size would stay the same.
C) ARIA would increase.
D) the sample size would increase.

Accepted Answer

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Question 9

When using nonstatistical sampling,the auditor must subjectively consider whether the true population misstatement exceeds a tolerable amount.This is done by considering five factors.One factor is the difference between the point estimate and tolerable misstatement.State the other four factors the auditor must consider.

Accepted Answer

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Question 10

Factors considered by an auditor to determine the possibility that the true population misstatement exceeds a tolerable amount in a nonstatistical sample include all of the following except for:
A) the extent to which items in the population have been audited 100%.
B) the difference between the point estimate and acceptable control risk.
C) whether misstatements tend to be offsetting or in only one direction.
D) the amounts of individual misstatements.

Accepted Answer

The factors considered by an auditor to determine the possibility that the true population misstatement exceeds a tolerable amount in a non-statistical sample include the extent to which items in the population have been audited 100%, whether misstatements tend to be offsetting or in only one direction, and the amounts of individual misstatements. However, the difference between the point estimate and acceptable control risk is not a factor that is considered in determining the possibility that the true population misstatement exceeds a tolerable amount in a non-statistical sample.

Question 11

When defining the population and the sampling unit for tests of details of balances:
A) the population is defined as all of the transactions in the journal for the period.
B) the sampling unit must be the same for all balance sheet accounts.
C) if sampling for completeness, the sampling unit will be customers with zero balances.
D) if sampling for completeness, the sampling unit will be the items making up the recorded population.

Accepted Answer

The answer of When defining the population and the sampling...

Question 12

Which of the following is a correct statement?
A) When internal controls are effective, control risk can be reduced, and therefore the auditor will decrease the ARIA.
B) There is a direct relationship between ARIA and the required sample size.
C) A lower control risk risk requires a lower ARO in testing the controls.
D) ARO measures the auditor's desired assurance for an account balance.

Accepted Answer

The answer of Which of the following is a correct...

Question 13

If the population is not considered acceptable,one step the auditor is likely to take is to:
A) retest all internal controls.
B) ask the client to adjust the account balance.
C) test the entire population.
D) decrease inherent risk.

Accepted Answer

The answer of If the population is not considered acceptable,one...

Question 14

Which of the following conditions would lead to a larger sample size?
A) Larger tolerable misstatement
B) Low inherent risk
C) High control risk
D) Smaller account balance

Accepted Answer

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Question 15

There are 14 steps to audit sampling for details of balances,divided into three sections:
 plan the sample,select the sample and perform the audit procedures,and evaluate the results.Discuss 5 of the 9 steps included in the "plan the sample" section for nonstatistical sampling.

Accepted Answer

The answer of There are 14 steps to audit sampling...

Question 16

When errors are found in a sample,auditors in practice generally make the assumption:
A) of a 100% assumption for all errors.
B) that the population errors are larger than the sample errors.
C) that the population errors are smaller than the sample errors.
D) that the actual sample errors are representative of the population errors.

Accepted Answer

Auditors generally assume that the actual sample errors are representative of the population errors. This assumption is reasonable because all items in the sample are randomly selected from the population, and the sample size is usually large enough to provide a reasonable estimate of the population error rate. However, auditors should also consider the possibility that there may be errors in the population that were not detected in the sample.

Question 17

The client's trial balance has a balance of $410,000 for merchandise inventory.As the auditor you are willing to accept a balance that is within $20,000 of either side of the recorded balance.You compute a 95% confidence interval of $395,000 to $425,000.You could therefore:
A) reject the trial balance amount.
B) accept the trial balance amount.
C) increase the sample size to assure more precision.
D) use alternative audit procedures to satisfy yourself as to the correct balance.

Accepted Answer

The computed 95% confidence interval ($395,000 to $425,000) includes the recorded balance of $410,000. Therefore, it is reasonable to accept the trial balance amount without further investigation or alternative audit procedures. Increasing the sample size would provide more precision but is not necessary in this case since the computed confidence interval meets the auditor's criteria of being within $20,000 of the recorded balance.

Question 18

There are 14 steps to audit sampling for details of balances,divided into three sections:
 plan the sample,select the sample and perform the audit procedures,and evaluate the results.Discuss each of the steps included in the "evaluate the results" section for nonstatistical sampling.

Accepted Answer

The answer of There are 14 steps to audit sampling...

Question 19

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 not materially misstated.It was,in fact,materially misstated.This situation illustrates the risk of:
A) incorrect rejection.
B) incorrect acceptance.
C) assessing control risk too low.
D) assessing control risk too high.

Accepted Answer

This situation illustrates the risk of incorrect acceptance, where the auditor concludes that the account balance is not materially misstated based on the sample results, but in reality, it is materially misstated. This may happen due to several factors such as ineffective sampling methods, errors in data analysis, or lack of understanding of the client's business processes. It is important for auditors to remain skeptical and exercise professional judgment throughout their audit procedures to minimize the risk of incorrect acceptance.

Question 20

Discuss each of the six possible courses of action the auditor can take when he or she has concluded that the population is misstated by more than a tolerable amount.

Accepted Answer

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Quiz 17: Audit Sampling for Tests of Details of Balances

Consider the steps in sampling for tests of details and for tests of controls.Explain the differences in applying sampling to these two types of tests.

The AICPA audit sampling formula for computing nonstatistical tests of details of balances sample size is to multiply the population recorded amount by the and then divide by the .

Which of the following needs to be considered when the auditor generalizes from the sample to the population?

If analytical procedures are performed with no indications of likely misstatements,ARIA will and the sample size will .

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.Which of the following is the least likely auditor reaction to this discovery?

Identify each of the seven factors that influence sample size for nonstatistical tests of details of balances,and state whether each factor is directly or inversely related to sample size.

When selecting a stratified sample,the sample size is:

If no exceptions were found in the substantive tests of transactions:

Factors considered by an auditor to determine the possibility that the true population misstatement exceeds a tolerable amount in a nonstatistical sample include all of the following except for:

When defining the population and the sampling unit for tests of details of balances:

Which of the following is a correct statement?

If the population is not considered acceptable,one step the auditor is likely to take is to:

Which of the following conditions would lead to a larger sample size?

There are 14 steps to audit sampling for details of balances,divided into three sections: plan the sample,select the sample and perform the audit procedures,and evaluate the results.Discuss 5 of the 9 steps included in the "plan the sample" section for nonstatistical sampling.

When errors are found in a sample,auditors in practice generally make the assumption:

The client's trial balance has a balance of $410,000 for merchandise inventory.As the auditor you are willing to accept a balance that is within $20,000 of either side of the recorded balance.You compute a 95% confidence interval of $395,000 to $425,000.You could therefore:

There are 14 steps to audit sampling for details of balances,divided into three sections: plan the sample,select the sample and perform the audit procedures,and evaluate the results.Discuss each of the steps included in the "evaluate the results" section for nonstatistical sampling.

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 not materially misstated.It was,in fact,materially misstated.This situation illustrates the risk of:

Discuss each of the six possible courses of action the auditor can take when he or she has concluded that the population is misstated by more than a tolerable amount.