Deck 8: Audit Sampling: Tests of Internal Controls

Question 1

When controls do not "work"

A)the auditor increases the amount of substantive testing
B)the auditor reduces the amount of substantive testing
C)the auditor increases the amount of substantive testing over what would have been done if the control had been effective in preventing or detecting misstatements in the financial statements
D)the auditor decreases the amount of substantive testing over what would have been done if the control had been effective in preventing or detecting misstatements in the financial statements

Answer 1

C

Question 2

Internal control tests are designed to provide information about

A)whether or not the control has been placed in operation
B)the effectiveness of the control
C)the efficiency of the control
D)the number of deviations for the control

Answer 2

B

Question 3

The basic question to be answered in an internal control test is

A)whether the control has been placed in operation
B)whether the control is a new one
C)whether the control works
D)whether the control is operating efficiently

Answer 3

C

Question 4

Nonsampling risk is the fact that the sample is not representative of the population.

Question 5

If the internal control being tested is management's signature on a purchase order to authorize the purchase,then the signature is the characteristic of interest.

Question 6

Internal control testing is required when

A)the auditor plans to assess risk above minimum for a relevant assertion in a significant account or class of transactions in an audit of the internal controls over financial statements
B)the auditor plans to assess risk below minimum for a relevant assertion in a significant account or class of transactions in an audit of the internal controls over financial statements
C)the auditor plans to assess risk above maximum for a relevant assertion in a significant account or class of transactions in an audit of the internal controls over financial statements
D)the auditor plans to assess risk below maximum for a relevant assertion in a significant account or class of transactions in an audit of the internal controls over financial statements

Question 7

Audit samples for tests of controls may be designed using a fixed sampling plan or a sequential sampling plan.

Question 8

When controls "work"

A)the auditor increases the amount of substantive testing
B)the auditor reduces the amount of substantive testing
C)the auditor increases the amount of substantive testing over what would have been done if the control had been effective in preventing or detecting misstatements in the financial statements
D)the auditor decreases the amount of substantive testing over what would have been done if the control had been effective in preventing or detecting misstatements in the financial statements
E)the auditor reduces the amount of substantive testing over what would have been done if the control had not been effective in preventing or detecting misstatements in the financial statements

Question 9

Auditing sampling is:

A)the selection of a sample of items from a population so that the auditor expects the sample and evaluation to be representative of the population.
B)the selection and evaluation of a sample of items from an account so that the auditor expects the sample to be representative of the account.
C)the selection and evaluation of a sample of items from a population so that the auditor expects the sample to be representative of the population.
D)the selection and observation of a sample of items from a population so that the auditor expects the sample to be representative of the population.

Question 10

The auditor is required to understand statistical sampling theory to calculate sample sizes for tests of controls.

Question 11

The auditor may test internal controls when evaluating internal controls over the financial reporting process for public companies.

Question 12

To use evidence from a sample to make a decision about the population,it is important to have

A)a controlled sample
B)a large sample
C)a random sample
D)a verifiable sample

Question 13

When an auditor uses sampling for tests of controls to gather evidence,he or she applies which of the following internal control procedures to the sample?

A)reperformance
B)recalculation
C)confirmation
D)reconciliations
E)physical controls that limit access to assets

Question 14

If evidence of the control can be observed by the auditor

A)the control is preventing or detecting misstatements in the financial statements
B)the control has the ability to prevent or detect misstatements in the financial statements
C)this is not sufficient to determine if the control is preventing or detecting misstatements in the financial statements
D)this is not sufficient to determine if the control has the ability to prevent or detect misstatements in the financial statements

Question 15

When an auditor performs a test of controls,the evidence he obtains is

A)an observation of segregation of duties.
B)a verification of the transaction.
C)a confirmation of the account balance.
D)only about the control.
E)evidence about whether the class of transactions is materially misstated.

Question 16

Sometimes the auditor makes decisions about the sample size for a test of controls related to how often the control occurs.

Question 17

Both statistical and nonstatistical sampling require professional skepticism to plan the sample,perform the procedures,and evaluate the evidence.

Question 18

A random sample for tests of controls is a sample

A)that is representative of the population
B)large enough to reduce sampling error to an acceptable level
C)that includes a monetary amount in the item selected
D)that will be subject to the internal control system of the client
E)where every item in the population has an equal chance of selection
F)both A and C
G)both A and E
H)both B and D

Question 19

Audit risk is

A)the risk that material misstatements occur in the financial statements and are detected by the auditor
B)the risk that misstatements occur in the financial statements and are not detected by the auditor
C)the risk that material misstatements occur in the financial statements
D)the risk that material misstatements occur in the financial statements and are not detected by the auditor

Question 20

Internal control tests are designed to provide information about the effectiveness of a control.

Question 21

Sampling risk is

A)the risk that the sample is not representative of the population
B)the risk that the population is not representative of the sample
C)the risk that material misstatements occur in the financial statements and are not detected by the auditor
D)the risk that material misstatements occur in the financial statements

Question 22

Sampling risk for tests of controls includes

A)the risk of assessing inherent risk too high
B)the risk of assessing control risk too high
C)the risk of assessing control risk too low
D)the risk of assessing inherent risk too low
E)the risk of assessing audit risk too high
F)Both B and C

Question 23

Nonsampling risk includes

A)all aspects of audit risk that are not related to sampling
B)all aspects of audit risk that are related to sampling
C)all aspects of control risk that are not related to sampling
D)all aspects of control risk that are related to sampling

Question 24

The risk of assessing control risk too high is

A)an error that will affect the efficiency of the audit
B)an error that will affect the effectiveness of the audit
C)an error that will affect the reliability of the audit
D)an error that will affect the relevance of the audit

Question 25

Nonstatistical sampling

A)is never a more effective way to gather evidence
B)is a less efficient way to gather evidence
C)may be a less efficient way to gather evidence
D)should be viewed as a less effective way to gather evidence
E)should not be viewed as a less effective way to gather evidence
F)both A and C
G)both B and D
Both C and E

Question 26

Auditors control nonsampling risk for nonstatistical sampling by

A)quantifying the risk
B)planning and supervising employees
C)performing analytical procedures
D)performing tests of controls

Question 27

Statistical sampling and nonstatistical sampling refer

A)to the sample selection procedure
B)to the sample selection method
C)to the way the auditor obtains the sample items
D)to the way the auditor evaluates the sample results
E)to the way the auditor obtains the sample results
F)both A and C
G)both A and E
Both B and D

Question 28

A statistical sample includes

A)a random selection of sample techniques,including the measurement of sampling risk
B)a random selection of sample items
C)the use of a statistical technique to evaluate the sample items,including the measurement of sampling risk
D)the use of a statistical technique to obtain the sample results,including the measurement of sampling risk
E)the use of a statistical technique to evaluate the sample results,including the measurement of sampling risk
F)both A and C
G)both B and E
H)both B and D

Question 29

The auditor should consider which of the following factors in selecting the correct sample size?

A)More testing will be required for manual controls than automated controls because manual controls are more prone to human error.IT controls that have been tested should continue to be reliable.
B)The more transactions in a system,the more items need to be tested.
C)The more assurance we receive from other audit procedures,the less the control is tested.
D)The less susceptible the control is to management override,the more the control is tested.
E)The more frequently a control is performed,the less items are tested.More internal control tests are performed for controls that are performed monthly than for controls performed daily.F.both A and C
G)both B and D
H)both C and E

Question 30

The most important points to understand about gathering evidence based on sampling procedures are:

A)when to use a sample to confirm evidence
B)how to observe a random sample for the test
C)how to perform the audit test
D)how to use the sample results to arrive at a conclusion about the population
E)Both C and D

Question 31

The auditor should consider which of the following factors in selecting the correct sample size?

A)More testing will be required for manual controls than automated controls because manual controls are more prone to human error.IT controls that have been tested should continue to be reliable.
B)The more frequently a control is performed,the more items are tested.More internal control tests are performed for controls that are performed daily than for controls performed monthly.
C)The more assurance we receive from other audit procedures,the less the control is tested.
D)The more susceptible the control is to management override,the more the control is tested.
E)both A and B
F)both B and C
G)both C and D

Question 32

With nonstatistical sampling,sampling risk is controlled by

A)quantifying sampling risk to keep the risk to an acceptable number
B)quantifying control risk to keep the risk to an acceptable number
C)selecting smaller sample sizes
D)taking a random sample so the sample is representative of the population
E)evaluating sample results to consider control risk in the evaluation of the results

Question 33

The evidence requirement in the auditing standards (AU 350 and ISA 530)is to

A)gather relevant and accurate evidence
B)gather reliable and verifiable evidence
C)gather sufficient appropriate evidence
D)gather current and complete evidence

Question 34

The more serious error of assessing control risk too low or assessing control risk too high is the error related to the

A)relevance of the audit
B)reliability of the audit
C)effectiveness of the audit
D)efficiency of the audit

Question 35

The risk of assessing control risk too low is

A)an error that will affect the efficiency of the audit
B)an error that will affect the effectiveness of the audit
C)an error that will affect the reliability of the audit
D)an error that will affect the relevance of the audit

Question 36

According to the auditing standards (AU 350 and ISA 530)

A)the auditor must document why he did not use statistical sampling
B)the auditor must document why he decided to use nonstatistical sampling
C)evidence gathered by nonstatistical sampling is more reliable than evidence gathered by statistical sampling
D)the auditor can choose to use either statistical or nonstatistical sampling

Question 37

Sampling risk

A)can be estimated when the auditor uses statistical sampling
B)can be calculated when the auditor uses statistical sampling
C)can be assumed when the auditor uses statistical sampling
D)can be reduced when the auditor uses statistical sampling
E)can be calculated when the auditor uses nonstatistical sampling

Question 38

The auditor should consider which of the following factors in selecting the correct sample size?

A)More testing will be required for manual controls than automated controls because manual controls are more prone to human error.IT controls that have been tested should continue to be reliable.
B)The more transactions in a system,the more items need to be tested.
C)The more assurance we receive from other audit procedures,the more the control is tested.
D)The less susceptible the control is to management override,the more the control is tested.
E)The more frequently a control is performed,the more items are tested.More internal control tests are performed for controls that are performed daily than for controls performed monthly.F.both A and C
G)both A and E

Question 39

The most important points to understand about gathering evidence based on sampling procedures are:

A)when to use a sample to gather evidence
B)how to generate a random sample for the test
C)how to validate the audit test
D)how to observe the deviations found in the sample
E)how to use the sample results to arrive at an assumption about the population
F)both A and B
G)both C and D
H)both D and E

Question 40

The auditor should consider which of the following factors in selecting the correct sample size?

A)More testing will be required for automated controls than manual controls because automated controls are prone to computer errors.IT controls that have been tested should continue to be reliable.
B)The more frequently a control is performed,the more items are tested.More internal control tests are performed for controls that are performed daily than for controls performed monthly.
C)The more assurance we receive from other audit procedures,the more the control is tested.
D)The more susceptible the control is to management override,the more the control is tested.
E)The more transactions in a system,the more items need to be tested.F.both A and C
G)both A and E
Both B and D

Question 41

For internal controls testing,

A)the sample size is usually larger than for substantive testing
B)the size of the population usually has no effect on the sample size
C)the sample size is usually smaller than for substantive testing
D)as the size of the population increases,the sample size increases

Question 42

Which of the following is an internal control procedure?

A)segregation of controls
B)authorization procedures
C)documented transaction trails
D)independent recalculations
E)relevant controls that limit access to assets
F)both A and B
G)both B and C
H)both D and E

Question 43

The most important points to understand about gathering evidence based on sampling procedures are:

A)when to use a sample to confirm evidence
B)how to observe a random sample for the test
C)how to validate the audit test
D)how to evaluate the deviations found in the sample
E)how to use the sample results to arrive at a conclusion about the population
F)both A and B
G)both B and C
H)both D and E

Question 44

The most important points to understand about gathering evidence based on sampling procedures are:

A)when to use a sample to gather evidence
B)how to observe a random sample for the test
C)how to perform the audit test
D)how to observe the deviations found in the sample
E)how to use the sample results to arrive at an assumption about the population
F)both A and C
G)both A and E
H)both B and D

Question 45

To determine the sample size for tests of controls,the auditor needs to estimate the following information based on his professional judgment

A)the tolerable rate of deviation for the population to be tested
B)the realizable rate of deviation for the population to be tested
C)the desired level of assurance that the actual rate of deviation is not exceeded by the tolerable rate of deviation
D)the number of sampling units in the population if the population is very large

Question 46

To determine the sample size for tests of controls,the auditor needs to estimate the following information based on his professional judgment

A)the relative rate of deviation for the population to be tested
B)the realizable rate of deviation for the population to be tested
C)the desired level of assurance that the actual rate of deviation is not exceeded by the tolerable rate of deviation
D)the number of sampling units in the population if the population is very small,less than 500

Question 47

Which of the following is an internal control procedure?

A)segregation of controls
B)policies and procedures
C)documented transaction trails
D)independent recalculations
E)physical controls that limit access to assets
F)both A and B
G)both C and E
H)both D and E

Question 48

Which of the following is an internal control procedure?

A)segregation of controls
B)authorization procedures
C)reliable transaction trails
D)independent reconciliations
E)relevant controls that limit access to assets
F)both A and C
G)both A and E
Both B and D

Question 49

For internal control testing related to a financial statement audit,the population is usually

A)all items in the class of transactions or account balance for the year
B)all items in the class of transactions or account balance for the end of the year
C)all items in the class of transactions or account balance during the year
D)all items in the class of transactions or account balance for the beginning of the year

Question 50

The most important points to understand about gathering evidence based on sampling procedures are:

A)when to use a sample to confirm evidence
B)how to generate a random sample for the test
C)how to validate the audit test
D)how to evaluate the deviations found in the sample
E)how to use the sample results to arrive at an assumption about the population
F)both A and C
G)both A and E
H)both B and D

Question 51

To determine the sample size for tests of controls,the auditor needs to estimate the following information based on his professional judgment

A)the relative rate of deviation for the population to be tested
B)the expected rate of deviation for the population to be tested
C)the desired level of assurance that the actual rate of deviation is not exceeded by the tolerable rate of deviation
D)the number of sampling units in the population if the population is very large

Question 52

Which of the following is an internal control procedure?

A)segregation of duties
B)policies and procedures
C)reliable transaction trails
D)independent reconciliations
E)relevant controls that limit access to assets
F)both A and D
G)both A and E
H)both B and D

Question 53

For internal control testing related to a financial reporting process,the population is usually

A)all items in the class of transactions or account balance that the auditor feels are necessary to determine whether controls are effective for the year
B)all items in the class of transactions or account balance that the auditor feels are necessary to determine whether controls are effective at the end of the year
C)all items in the class of transactions or account balance that the auditor feels are necessary to determine whether controls are effective during the year
D)all items in the class of transactions or account balance that the auditor feels are necessary to determine whether controls are effective at the beginning of the year

Question 54

A control deviation occurs when

A)the control has been performed but not efficiently
B)there is no indication that the control has been performed
C)the control has been performed but not effectively
D)there is no indication that the control exists

Question 55

The sample size can be determined once the auditor specifies

A)the tolerable rate of exceptions
B)the expected rate of exceptions
C)the desired level of assurance
D)the actual rate of deviation
E)the tolerable rate of deviation
F)both A and B
G)both C and E
H)both D and E

Question 56

The purpose of internal control testing is to gather evidence about

A)internal controls over financial statements
B)internal controls over financial reporting
C)the operating effectiveness of the control
D)whether the control has been placed in operation

Question 57

To determine the sample size for tests of controls,the auditor needs to estimate the following information based on his professional judgment

A)the relative rate of deviation for the population to be tested
B)the realizable rate of deviation for the population to be tested
C)the desired level of assurance that the tolerable rate of deviation is not exceeded by the actual rate of deviation
D)the number of sampling units in the population if the population is very large

Question 58

Which of the following internal control procedures are tested by sampling?

A)segregation of duties
B)authorization procedures
C)documented transaction trails
D)independent recalculations
E)physical controls that limit access to assets
F)both A and C
G)both B and C
H)both D and E

Question 59

Internal control tests are performed to determine if a control that has been identified is working.

A)Usually the test objective is to determine whether the control is effective.
B)Usually the test objective is to determine whether the control is efficient.
C)Usually the test objective is to determine whether the control is present.
D)Usually the test objective is to determine whether the control is reliable.

Question 60

Which of the following is an internal control procedure?

A)segregation of duties
B)policies and procedures
C)documented transaction trails
D)independent recalculations
E)relevant controls that limit access to assets
F)both A and C
G)both B and D
H)both D and E

Question 61

If the deviations in the sample include more deviations than would be acceptable,the auditor would

A)increase inherent risk
B)increase audit risk
C)increase control risk
D)perform more test of controls
E)perform more substantive procedures
F)both A and B
G)both C and E
H)both D and E

Question 62

Internal control testing is typically done

A)at the end of the year
B)after the completion of the year with the financial statements
C)at the beginning of the year
D)during the time for interim fieldwork

Question 63

Which of the following is not a method for selecting a sample for a test of controls?

A)simple random sample
B)haphazard sampling
C)complex random sampling
D)systematic random sampling

Question 64

For a dual-purpose test,the auditor obtains the following evidence

A)is the class of transaction working correctly?
B)is the class of transaction initiated correctly?
C)is the control working?
D)is the control documented?
E)is the class of transaction recorded misstated?
F)both A and B
G)both B and C
Both C and E

Question 65

The auditor may decide to stop internal control testing if

A)the items sampled indicate a lower rate of deviation than planned
B)the items sampled indicate a lower precision rate than planned
C)the items sampled indicate a higher rate of deviation than planned
D)the items sampled indicate a higher precision rate than planned

Question 66

To use systematic random sampling

A)the auditor divides the number of units in the population by the sample size to calculate the sampling interval
B)the auditor divides the number of units in the sample size by the population to calculate the sampling interval
C)the auditor divides the number of units in the population by the sample size to calculate the deviation interval
D)the auditor divides the number of units in the sample size by the population to calculate the deviation interval

Question 67

When the auditor uses a nonstatistical sampling for the internal control test,

A)the auditor uses judgment to determine the allowance for non-sampling risk
B)the auditor uses judgment to determine the allowance for sampling risk
C)the statistical program will calculate an allowance for sampling risk
D)the statistical program will calculate an allowance for non-sampling risk

Question 68

If the sample deviation rate is higher than the tolerable deviation rate,the auditor will

A)increase the amount of control testing
B)assume controls are not working
C)assume the controls are working
D)reduce the amount of substantive testing
E)increase the amount of substantive testing
F)both A and B
G)both A and C
Both B and E

Question 69

The sample size can be determined once the auditor specifies

A)the tolerable rate of exceptions
B)the expected rate of exceptions
C)the desired level of assurance
D)the expected rate of deviation
E)the actual rate of deviation
F)both A and C
G)both A and E
Both C and D

Question 70

Which of the following statements is a correct statement about haphazard sampling?

A)the sample is selected without any conscious bias.
B)haphazard sampling can be used for either statistical or non-statistical sampling.
C)haphazard sampling may be used when items in the population are not prenumbered documents.
D)haphazard sampling must be used when items in the population are not prenumbered documents.
E)haphazard sampling can only be used for statistical sampling.F.both A and C
G)both A and D
H)both B and E

Question 71

Which of the following statements is a correct statement about haphazard sampling?

A)the sample is selected without any conscious bias.
B)haphazard sampling can be used for either statistical or non-statistical sampling.
C)haphazard sampling may be used when items in the population are not prenumbered documents.
D)haphazard sampling must be used when items in the population are prenumbered documents.
E)haphazard sampling can only be used for non-statistical sampling.F.both A and C
G)both A and E
H)both B and D

Question 72

Systematic random sampling can only be used when

A)internal controls are present
B)the sampling units are prenumbered
C)internal controls are operating
D)random sampling can be used under any circumstances

Question 73

Which of the following statements is a correct statement about haphazard sampling?

A)the sample is selected without any bias.
B)haphazard sampling can be used for either statistical or non-statistical sampling.
C)haphazard sampling may be used when items in the population are not prenumbered documents.
D)haphazard sampling must be used when items in the population are not prenumbered documents.
E)haphazard sampling can only be used for non-statistical sampling.F.both A and B
G)both A and E
Both D and E

Question 74

The auditing standards require

A)the auditor to list the specific items sampled in the work papers or to describe the sampling method in such a way that another auditor could go back and arrive at the same sample results
B)the auditor to list the specific results obtained in the work papers or to describe the sampling method in such a way that another auditor could go back and pull the same sample
C)the auditor to list the specific results obtained in the work papers or to describe the sampling method in such a way that another auditor could go back and arrive at the same sample results
D)the auditor to list the specific items sampled in the work papers or to describe the sampling method in such a way that another auditor could go back and pull the same sample

Question 75

The sample size can be determined once the auditor specifies

A)the tolerable rate of exceptions
B)the actual rate of deviation
C)the desired level of reliability
D)the expected rate of deviation
E)the tolerable rate of deviation
F)both A and B
G)both C and D
Both D and E

Question 76

If the auditor uses a statistical sampling program for the internal control test,

A)the auditor uses judgment to determine the allowance for non-sampling risk
B)the auditor uses judgment to determine the allowance for sampling risk
C)the statistical program will calculate an allowance for sampling risk
D)the statistical program will calculate an allowance for non-sampling risk

Question 77

For an internal control test,the auditor performs the audit procedure to determine whether the sample items contain

A)deviations from the asserted control
B)deviations from the documented control
C)exceptions to the documented control
D)exceptions to the asserted control

Question 78

If the internal control test is done as a dual-purpose test,the auditor will

A)examine whether there is a deviation from the documented control
B)recalculate the control
C)examine whether the deviation is within the tolerable limit
D)examine whether there is a deviation relevant to the documented control
E)reperform the control
F)both A and B
G)both A and E
H)both C and D

Question 79

The auditing standards require the auditor to consider the qualitative aspects of misstatements.These include

A)amount and cause of the misstatement
B)nature and cause of the misstatement
C)probable relationship of the misstatement to other parts of the audit
D)possible relationship of the misstatement to other parts of the audit
E)probable relationship of the misstatement to other misstatements
F)both A and B
G)both B and C
Both B and D

Question 80

If the sample deviation rate is lower than the tolerable deviation rate,the auditor will

A)reduce the amount of control testing
B)assume controls are not working
C)assume the controls are working
D)reduce the amount of substantive testing
E)increase the amount of substantive testing
F)both A and C
G)both B and E
Both C and D