Question 1

Monetary-unit sampling is not particularly effective at detecting:
A) overstatements.
B) understatements.
C) errors in current assets.
D) errors in noncurrent assets.

Accepted Answer

Monetary unit sampling, also known as dollar-unit sampling, is more effective at detecting overstatements because it has a higher probability of selecting larger value items for testing. Understatements are less likely to be detected because smaller value items, where understatements might be more prevalent, have a lower chance of being selected.

Question 2

In evaluating sample results for tests of details, auditors must evaluate exceptions identified by the performance of audit procedures.

Accepted Answer

The answer of In evaluating sample results for tests of...

Question 3

Attributes sampling tables can be used to evaluate results of tests of details with Acceptable risk of assessing control risk too low (ARACR) being replaced with acceptable risk of incorrect acceptance (ARIA).

Accepted Answer

This statement is true. Attributes sampling tables can be used to evaluate results of tests of details with Acceptable risk of assessing control risk too low (ARACR) being replaced with acceptable risk of incorrect acceptance (ARIA). This is because the principles of attributes sampling apply to both types of risk evaluation.

Question 4

Tolerable misstatement is inversely related to sample size.

Accepted Answer

Tolerable misstatement is inversely related to sample size, meaning as sample size decreases, tolerable misstatement increases and vice versa.

Question 5

The primary factor affecting the auditor's acceptable risk of incorrect acceptance is assessed as inherent risk when quantifying audit risk.

Accepted Answer

The primary factor affecting the auditor's acceptable risk of incorrect acceptance is the auditor's assessment of control risk and detection risk, not inherent risk.

Question 6

Required sample size increases as the auditor's tolerable misstatement for an account balance or class of transactions decreases.

Accepted Answer

This is because as the tolerable misstatement decreases, the auditor needs to have a higher level of assurance, which requires a larger sample size.

Question 7

Acceptable risk of incorrect acceptance (ARIA) and sample size are inversely related; that is, as ARIA increases, sample size decreases.

Accepted Answer

This statement is true. When the acceptable risk of incorrect acceptance (ARIA) increases, it means that the level of risk that the auditor is willing to accept for concluding that the account balance or assertion is not materially misstated is also increasing. To maintain the same level of confidence in the audit conclusion, the auditor would need a larger sample size. Conversely, if the ARIA decreases, the auditor can accept a higher level of risk and therefore would require a smaller sample size to achieve the same level of confidence.

Question 8

In monetary unit sampling, a sampling interval of 900 means that:
A) every 900th item will be selected.
B) every 900th dollar in the account will be sampled.
C) expected misstatement is 900.
D) tolerable misstatement is 900.

Accepted Answer

In monetary unit sampling, a sampling interval represents a monetary value. Therefore, a sampling interval of 900 means that every 900th dollar in the account will be sampled. Option A is incorrect because it implies that every 900th item, not dollar, will be selected. Option C is incorrect because the sampling interval does not represent the expected misstatement. Option D is incorrect because the sampling interval does not represent the tolerable misstatement.

Question 9

The primary factor affecting the auditor's decision about acceptable risk of incorrect acceptance (ARIA) is assessed inherent risk.

Accepted Answer

The primary factor affecting the auditor's decision about acceptable risk of incorrect acceptance (ARIA) is assessed control risk, not assessed inherent risk. Inherent risk is one of the components of overall audit risk along with control risk and detection risk.

Question 10

Acceptable risk of assessing control risk too low (ARACR) and acceptable risk of incorrect acceptance (ARIA) are inversely related; that is, a decrease in ARACR is accompanied by an increase in ARIA.

Accepted Answer

This statement is true as there is an inverse relationship between ARACR and ARIA. If the auditor assesses control risk too low, there is a higher risk of incorrect acceptance of the account balance or assertion, which increases ARIA. Conversely, if the auditor assesses control risk too high, there is a lower risk of incorrect acceptance, which decreases ARIA.

Question 11

Acceptable risk of incorrect acceptance is directly affected by acceptable audit risk.

Accepted Answer

Acceptable risk of incorrect acceptance is one of the components of acceptable audit risk. As acceptable audit risk is the overall risk that the auditor is willing to accept, the extent to which the auditor is willing to accept the risk of incorrect acceptance will be influenced by the acceptable audit risk level. Therefore, the acceptable risk of incorrect acceptance and acceptable audit risk are directly related.

Question 12

An auditor using nonstatistical sampling cannot formally measure sampling error.

Accepted Answer

Nonstatistical sampling does not involve random sampling and therefore does not allow for the calculation of sampling error.

Question 13

Sampling used for tests of details of balances provides results in terms of:
A) exception rates.
B) percentages.
C) dollars.
D) expectation rates.

Accepted Answer

Sampling used for tests of details of balances provides results in terms of dollars, as it focuses on verifying the monetary amounts of account balances.

Question 14

When using nonstatistical sampling, the larger the sample size, the greater the auditor's confidence that the point estimate is close to the true population value.

Accepted Answer

The answer of When using nonstatistical sampling, the larger the...

Question 15

The purpose of stratified sampling is to achieve a greater confidence level (lower risk of incorrect acceptance) for a given sample size.

Accepted Answer

The answer of The purpose of stratified sampling is to...

Question 16

The purpose of stratification is to permit auditors to emphasize certain aspects of a population and deemphasize others.

Accepted Answer

Stratification involves dividing a population into smaller subgroups based on certain criteria, which allows auditors to focus on specific areas of concern and allocate their resources effectively. By emphasizing certain aspects of the population through stratification, auditors can gain a better understanding of the risks and issues facing the organization and prioritize their audit procedures accordingly.

Question 17

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

The answer of Discuss each of the six possible courses...

Question 18

Acceptable audit risk (AAR) and acceptable risk of incorrect acceptance (ARIA) are inversely related; that is, as AAR increases, ARIA decreases.

Accepted Answer

Acceptable audit risk (AAR) and acceptable risk of incorrect acceptance (ARIA) are directly related; as AAR increases, ARIA also increases.

Question 19

Estimated misstatement in the population and sample size are inversely related; that is, as estimated misstatement increases, sample size decreases.

Accepted Answer

As the estimated misstatement in the population increases, auditors typically increase the sample size to obtain a more precise estimate of the actual misstatement, not decrease it.

Question 20

Acceptable risk of incorrect acceptance (ARIA) is directly related to the computed precision interval in difference estimation; that is, as ARIA increases, the computed precision interval decreases.

Accepted Answer

The statement is incorrect. ARIA refers to the maximum risk that an auditor is willing to take of accepting a population that has a deviation rate higher than the tolerable deviation rate. It is not directly related to the computed precision interval in difference estimation. As ARIA increases, the auditor is willing to accept a higher level of risk, which means that the precision interval should increase (i.e., become wider) to accommodate the acceptable level of risk.

Quiz 17: Audit Sampling for Tests of Details and Balances

Monetary-unit sampling is not particularly effective at detecting: