Deck 7: Sampling and Overview of the Risk Response Phase of the Audit

Question 1

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size,resulting in the sampling interval.

Answer 1

False

Question 2

A disadvantage of statistical sampling is sometimes the costs involved in using the technique

Answer 2

True

Question 3

When conducting substantive testing,an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Answer 3

True

Question 4

Stratification of the population will result in less efficient sampling and increase the sample size required.

Question 5

The permanent file includes detailed descriptions of evidence gathered for a particular year's audit.

Question 6

Tests of controls are audit procedures designed to detect material misstatements at the assertion level.

Question 7

Non-statistical sampling involves random selection and probability theory to evaluate the results.

Question 8

When auditors conclude that an internal control is effective,they will rely on the control to prevent and detect a material misstatement and reduce their detailed substantive procedures.

Question 9

Sampling risk is the risk that the sample chosen by the auditor is not representative of the population available for testing.

Question 10

The permanent file includes client information and documentation that apply to more than one audit.

Question 11

Projected error refers to the extrapolation of the errors detected when testing a sample to the population from which the sample was drawn.

Question 12

The decision of what constitutes sufficient appropriate audit evidence is a matter for professional judgement

Question 13

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

Question 14

The risk that the auditor concludes that a material misstatement exists when it does not is likely to result in an increase in audit effort when it is not required.

Question 15

An advantage of statistical sampling is that it allows an auditor to measure sampling risk.

Question 16

The timing of audit testing refers to the stage of the audit when procedures are performed and the date that audit evidence relates to.

Question 17

An audit program includes the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures.

Question 18

Block selection involves the selection of items that are grouped together within the population of items available.

Question 19

An increase in the number of sampling units in the population will result in a decrease in the sample size.

Question 20

Tolerable error is the minimum error an auditor is willing to accept within the population tested.

Question 21

When testing controls,non-sampling risk is the risk that an auditor:

A)does not select a sample
B)both a and b
C)designs tests that are ineffective
D)none of the above

Question 22

When evaluating sample test results,which of the following statements is in?

A)an auditor will not consider whether the population was stratified before being sampled
B)if an error is considered to be unique it will be removed before projecting remaining errors to the population
C)if an auditor discovers errors when testing transactions or account balances,they will need to project the error to the population being tested
D)if the rate of deviation exceeds the tolerable rate the auditor will extend their testing

Question 23

Non-sampling risk arises when an auditor:

A)uses an inappropriate audit procedure
B)tests all of the items in a population
C)does not use sampling
D)spends too much time testing the accounts most at risk of material misstatement

Question 24

Before selecting a sample,an auditor will use their professional judgement to:

A)set the tolerable error rate
B)select an appropriate population for testing
C)set the required level of confidence
D)all of the above

Question 25

An account is at a higher risk of misstatement when it requires:

A)estimation
B)both a and b
C)complex calculations
D)simple valuation techniques

Question 26

When conducting an audit,statistical sampling involves

A)calculated selections and probability to evaluate results
B)less staff and training,and is less costly than other sampling
C)random selection and probability to evaluate results
D)allows the auditor to select a sample they believe appropriate

Question 27

Which of the following is a factor that influences the sample size when testing controls?

A)an increase in the tolerable rate of deviation
B)stratification of the population when appropriate
C)an increase in the auditor's assessment of the risk of material misstatement
D)an increase in tolerable misstatement

Question 28

Which of the following statements regarding statistical sampling is ?

A)it involves haphazard selection
B)it is generally used for low risk accounts
C)it is easier to use than non-statistical sampling
D)it involves random selection

Question 29

Which sampling method involves the selection of items that are grouped together within the population of items available?

A)haphazard selection
B)random selection
C)systematic selection
D)block selection

Question 30

Sampling is not required when:

A)the auditor is conducting tests of controls
B)an audit procedure is conducted on an entire group of transactions
C)it is the first year that the auditor has done the audit for a client
D)the client requests the auditor not to collect samples of certain transactions

Question 31

Which of the following is not an advantage of non-statistical sampling?

A)it allows an auditor to measure sampling risk
B)it is lower cost than statistical sampling
C)it allows an auditor to select a sample that they believe is appropriate
D)it requires less staff training

Question 32

What impact will there be on sample size for substantive testing when there is an increase in the tolerable misstatement?

A)negligible
B)increase
C)decrease
D)none of the above

Question 33

Which of the following statements is in?

A)an auditor may decide to stratify the population before selecting a sample from it
B)an auditor will use their professional judgement to determine the tolerable error and required level of confidence
C)when detection risk is set as high,an auditor will require a high level of confidence that the transactions and accounts are not materially misstated
D)an auditor will use their professional judgement when considering what would be considered an error within the population tested

Question 34

Random selection involves:

A)the selection of a sample without the use of a methodical technique
B)the selection of a sample that is free from bias and where each item in a population has an equal chance of selection
C)dividing a population into groups of sampling units with similar characteristics
D)the selection of items that an auditor believes should be included in their sample for testing

Question 35

When testing controls,the tolerable error is:

A)the minimum rate of deviation that an auditor will accept
B)the tolerable rate of deviation that an auditor will accept before concluding that a control is ineffective
C)the tolerable rate of deviation that an auditor will accept before concluding that a control is effective
D)the maximum amount of error in an account balance that an auditor will accept before concluding that an account is materially misstated

Question 36

When testing controls,a decrease in the sample size will occur when there is:

A)a decrease in the tolerable rate of deviation
B)an increase in the extent to which the auditor's risk assessment takes into account relevant controls
C)an increase in the tolerable rate of deviation
D)an increase in the number of sampling units in the population

Question 37

What impact will there be on sample size when there is an increase in the number of sampling units in the population?

A)decrease
B)negligible
C)increase
D)none of the above

Question 38

When testing controls,sampling risk is the risk that the auditor:

A)concludes that their client's internal controls are effective when they are ineffective
B)both a and b
C)concludes that their client's internal controls are ineffective when they are effective
D)none of the above

Question 39

If the total projected error in an account balance was $3 248 and the tolerable error was set at $10 000,the auditor would:

A)decide that further audit work was required
B)conclude that the errors detected are not material
C)conclude that the errors uncovered are material
D)conduct other tests aimed at the assertion being tested

Question 40

Non statistical sampling is easier to use than statistical sampling as it

A)is lower in cost
B)allows the auditor to select a sample they believe is appropriate
C)requires less staff training
D)all of the above

Question 41

When conducting detailed substantive procedures,auditors search for evidence that:

A)all transactions have been recorded in the accounts
B)no fraud has occurred during the year
C)the client's internal control system is operating effectively
D)they have remained independent of their clients

Question 42

Substantive audit procedures include:

A)analytical procedures
B)detailed tests of transactions
C)detailed tests of balances
D)all of the above

Question 43

For high-risk accounts,the timing of most audit procedures will be:

A)at,or after,year-end
B)before year end
C)whenever the client says it is most convenient for them to be conducted
D)during the interim audit testing stage

Question 44

When control risk is high the audit strategy is to:

A)assume the client's management is dishonest and immediately report them to ASIC
B)increase reliance on tests of controls and reduce reliance on substantive testing of transactions and account balances.
C)do little or no tests of controls and increase reliance on substantive testing of transactions and account balances
D)refuse to continue with the remainder of the audit due to the high risk of fraud

Question 45

During the execution stage of the audit,an auditor will document:

A)their understanding of their client
B)related parties identified
C)details of audit tests undertaken
D)analytical procedures used to aid in risk identification

Question 46

An auditor uses their professional judgement when determining the nature,timing and extent of audit procedures to use for each audit.Explain why the nature,timing and extent of audit testing are crucial factors in every audit.

Question 47

An audit working paper generally includes:

A)cross-referencing between working papers
B)a file reference
C)the client's name
D)all of the above

Question 48

A range of sampling techniques are available to auditors.Evaluate the advantages and disadvantages of the major techniques.

Question 49

The most common statistical sample selection method according to the study by Hall et al (2002)is dollar-unit sampling.Explain in detail how this method operates and evaluate the advantages and disadvantages of using it.

Question 50

Describe the major types of sampling techniques available to auditors.

Question 51

Which of the following would not be included in an auditor's permanent file?

A)Copies of long-term contracts
B)Copies of debtors' confirmation letters
C)The client's organisational chart
D)Prior years' audit reports

Question 52

Tests of controls are conducted to establish that:

A)there are no material misstatements in the financial statements
B)controls operate effectively
C)controls operate consistently throughout the period
D)both a and c

Question 53

Explain how auditors evaluate the results of tests of controls conducted on a sample.

Question 54

Control risk is the risk that:

A)an auditor's substantive procedures will not detect material misstatements
B)a client's system of internal controls will not prevent or detect a material misstatement
C)an auditor expresses an inappropriate audit opinion when a financial report is materially misstated
D)none of the above

Question 55

When conducting substantive testing,which of the following is not a factor that influences the sample size?

A)an increase in the auditor's assessment of the risk of material misstatement
B)stratification of the population when appropriate
C)an increase in the tolerable rate of deviation
D)an increase in tolerable misstatement

Question 56

If an auditor decides that a client has internal controls that can reduce the likelihood of a material misstatement for an identified risk,the auditor will:

A)qualify the audit report
B)adopt a predominantly substantive approach
C)test those controls
D)not test those controls

Question 57

Explain sampling risk as it relates to both tests of controls and substantive procedures.

Question 58

Explain the differences between the main objectives of tests of controls and substantive procedures.

Question 59

Identify and explain the factors that influence the sample size for tests of controls.

Question 60

Why do auditors inspect records and documents?

A)For evidence that management have authorised significant purchases
B)To check that a transaction occurred
C)To check the dates of transactions
D)All of the above