Deck 14: Audit Sampling

Question 1

The advantage of systematic sample selection is that:

A) it is easy to use.
B) it is unnecessary to determine if the population is arranged randomly.
C) there is limited possibility of it being biased.
D) all of the above

Answer 1

A

Question 2

The point estimate, by itself, is NOT an adequate measure of the population misstatement because of:

A) sampling error.
B) control risk.
C) population biases.
D) audit risk.

Answer 2

A

Question 3

In audit sampling, an advance estimate of the deviation rate is necessary to plan the appropriate sample size. The relationship of estimated population deviation rate (EPDR) to sample size is:

A) indeterminate.
B) direct (small EPDR = small sample).
C) inverse (small EPDR = large sample).
D) a variable (sometimes small, sometimes large) dependent on other factors present.

Answer 3

B

Question 4

When errors are found, a common assumption in practice is to assume:

A) that the population errors are smaller than the sample errors.
B) that the population errors are larger than the sample errors.
C) that misstatements in the unaudited population are proportional to the misstatements in the sample.
D) a 100% assumption for all errors.

Question 5

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

A) more than the deviation rate in the auditor's sample.
B) less than the risk of assessing control risk too low based on the auditor's sample.
C) more than the risk of assessing control risk too low based on the auditor's sample.
D) less than the deviation rate in the auditor's sample.

Question 6

Which one of the following is an advantage of systematic sample selection over random number sampling?

A) It does not require establishment of correspondence between random numbers and items in the population.
B) It provides a stronger basis for statistical conclusions.
C) There may be correlation between the location of items in the population, the feature of sampling interest and the sampling interval.
D) It enables the auditor to use the more efficient 'sampling with replacement' tables.

Question 7

Which one of the following statements regarding block sampling is NOT true?

A) A 'reasonable number' for most situations is probably at least six blocks from six different months.
B) Once the first item in the block is selected, the remainder of the block is chosen automatically.
C) It is acceptable to use block sampling for tests of transactions only if a reasonable number of blocks are used.
D) Block sampling is the selection of several items in sequence.

Question 8

In monetary- unit sampling, the values of the estimated likely maximum misstatements are referred to as the:

A) point estimates.
B) confidence intervals.
C) misstatement bounds.
D) precision intervals.

Question 9

If the auditor believes that there will be more than just a few exceptions discovered and desires an accurate estimate of the dollar value of the exceptions, he or she will use:

A) attributes sampling.
B) variables sampling.
C) block sampling.
D) monetary- unit sampling.

Question 10

Which of the following factors is generally NOT considered in determining sample size for a test of controls?

A) Population size
B) Expected population deviation rate
C) Risk of assessing control risk too low
D) Tolerable deviation rate

Question 11

When the computed upper deviation rate is greater than the tolerable deviation rate, it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to defend if the auditor is ever subject to review by a court?

A) Revise and relax the tolerable deviation rate (TDR) or the acceptable risk of assessing control risk too low (ARO).
B) Write a letter to management.
C) Expand the sample size.
D) Revise the assessed control risk.

Question 12

An advantage of using statistical sampling techniques is that such techniques:

A) eliminate the need for judgemental decisions.
B) mathematically measure risk.
C) have been established in the courts to be superior to judgmental sampling.
D) define the values of precision and reliability required to provide audit satisfaction.

Question 13

One of the causes of non- sampling error is:

A) the use of inappropriate or ineffective audit procedures.
B) the use of attributes sampling instead of variables sampling.
C) failure to draw a representative sample.
D) failure to draw a random sample.

Question 14

The final step in the evaluation of the audit results is the decision to:

A) decide the acceptability of the population.
B) determine the error in each sample.
C) determine sampling error and calculate the estimated total population error.
D) project the point estimate.

Question 15

Monetary- unit sampling is most commonly used when:

A) the population data are maintained on computer files.
B) a dollar result is desired.
C) zero or few exceptions are expected.
D) all of the above

Question 16

Which one of the following BEST illustrates the concept of sampling risk?

A) The documents related to the chosen sample may not be available for inspection.
B) A randomly chosen sample may not be representative of the population as a whole on the characteristics of interest.
C) An auditor may select audit procedures that are not appropriate to achieve the specific objective.
D) An auditor may fail to recognise errors in the documents examined for the chosen sample.

Question 17

Statistical theory proves that in most types of populations to which audit sampling applies, the population size is:

A) not a consideration in determining sample size.
B) a minor consideration in determining sample size.
C) a major consideration in determining sample size.
D) the determining factor in determining sample size.

Question 18

A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a:

A) statistical sample.
B) judgement sample.
C) representative sample.
D) random sample.

Question 19

The major difference between monetary- unit sampling and attributes sampling is that in MUS:

A) the measure is in dollars.
B) the rate of occurrence is converted to dollars.
C) the measure is the rate of occurrence.
D) the dollars are converted to occurrence rates.

Question 20

When the auditor intends to evaluate a sample statistically, the only acceptable selection method is:

A) block sample selection.
B) haphazard selection.
C) probabilistic selection.
D) judgemental selection.

Question 21

If the result obtained from a particular sample will be critical (that is, the auditor would not be able to render an unqualified opinion unless every item in the population were examined), which of the following is the most important to the auditor?

A) Estimated population deviation rate
B) Tolerable deviation rate
C) Acceptable risk of assessing control risk too low
D) Size of the population

Question 22

When the auditor goes through a population and selects items for the sample without regard to their size, source or other distinguishing characteristics, it is called:

A) block sample selection.
B) haphazard selection.
C) statistical selection.
D) systematic sample selection.

Question 23

Establishing the tolerable deviation rate (TDR) requires:

A) random number tables.
B) statistical frequency probability tables.
C) auditor judgement.
D) a computer program.

Question 24

The appropriate assumption to make regarding the overall percent of error in those population items containing an error is:

A) set after a quantitative analysis of client's internal control system.
B) determined using random number tables.
C) based on statistical analysis using confidence limits.
D) based on the auditor's personal judgement in the circumstances.

Question 25

The initial sample size is so- called because:

A) the deviations must be evaluated before deciding whether the sample is sufficiently large to achieve the objectives.
B) the auditor must take several samples to ensure that the final sample is representative of the population.
C) the auditor must take several samples to ensure randomness.
D) there is always another sample to be done.

Question 26

If the auditor decides to assess control risk at the maximum level, tests of controls are:

A) reduced in number.
B) not performed.
C) unchanged from prior planned settings.
D) increased in number.

Question 27

An increase in the sample size has the effect of decreasing the sampling error if the:

A) actual sample deviation rate does not increase.
B) number of deviations in the sample does not increase.
C) actual sample deviation rate increases.
D) number of deviations in the sample increases.

Question 28

If the size of the sample to be used in a particular test of attributes has NOT been determined by using statistical concepts, but the sample has been chosen in accordance with random selection procedures:

A) the auditor has committed a non- sampling error.
B) the auditor will have to evaluate the results by reference to the principles of discovery sampling.
C) the auditor may or may not achieve the tolerable deviation rate at the acceptable risk of assessing control risk too low.
D) no inferences can be drawn from the sample.

Question 29

A frequency distribution of the results of all possible samples of a specified size that could be obtained from a population containing some specific parameter is the:

A) sample size.
B) population distribution.
C) sample deviation rate.
D) sampling distribution.

Question 30

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

A) Modify planned reliance on the control because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate.
B) Accept the sample results as support for planned reliance on the control because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate
C) Accept the sample results as support for planned reliance on the control because the tolerable rate less the allowance or sampling risk equals the expected population deviation rate
D) Modify planned reliance on the control because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.

Question 31

Difference estimation, ratio estimation and mean- per- unit estimation are all techniques that constitute the general class of methods called:

A) variables sampling.
B) attributes sampling.
C) monetary- unit sampling.
D) block sampling.

Question 32

Sampling risk (sampling error) is an inherent part of sampling which results from:

A) weaknesses in client's internal control system.
B) inappropriate audit procedures.
C) testing less than the entire population.
D) failure to recognise exceptions.

Question 33

A statistical method used to estimate the proportion of items in a population containing a characteristic of interest is:

A) population- proportional- to- size sampling.
B) attributes sampling.
C) variables sampling.
D) estimation sampling.

Question 34

The allowable risk of overreliance (ARO) has a significant effect on sample size. The relationship of ARO to sample size is:

A) nonexistent.
B) inverse (larger ARO = smaller sample).
C) variable (sometimes larger, sometimes smaller).
D) direct (larger ARO = larger sample).

Question 35

A most important part of audit sampling is:

A) sample selection.
B) evaluating the results.
C) performing the audit procedures.
D) all of the above

Question 36

Which one of the following statements is NOT correct?

A) It is acceptable for auditors to use nonstatistical sampling methods.
B) An advantage of using statistical sampling is that the cost/benefit ratio is always positive.
C) It is acceptable for auditors to use statistical sampling methods.
D) The primary benefit of statistical sampling methods is the quantification of sampling risk.

Question 37

Before the population can be considered acceptable based on the acceptable risk of assessing control risk too low (ARO), the computed upper deviation rate (CUDR) must be:

A) less than the tolerable deviation rate (TDR).
B) less than or equal to the TDR.
C) greater than or equal to the TDR.
D) greater than the TDR.

Question 38

The tolerable deviation rate (TDR) has a significant effect on sample size. The relationship of TDR to sample size is:

A) direct (larger TDR = larger sample).
B) not determinable.
C) inverse (larger TDR = smaller sample).
D) variable (sometimes larger, sometimes smaller).

Question 39

Since auditors are interested in the occurrence of deviations in populations, they refer to the occurrence rate as:

A) the deviation rate.
B) the probability rate.
C) the confidence level.
D) the populations rate.

Question 40

The risk the auditor is willing to take of accepting a balance as correct when the true error in the balance is greater than the tolerable misstatement is:

A) the lower bound.
B) the tolerable risk.
C) the upper bound.
D) the allowable risk of incorrect acceptance.

Question 41

An auditor using nonstatistical sampling cannot:

A) determine a point estimate for the population.
B) mathematically measure the precision of the point estimate.
C) draw a random sample.
D) do any of the three above.

Question 42

If all other factors specified in a sampling plan remain constant, changing the estimated population deviation rate from 2% to 4% would cause the required sample size to:

A) increase.
B) remain the same.
C) decrease.
D) become indeterminate.

Question 43

In performing a review of his client's cash disbursements, an auditor uses systematic sample selection with a random start. The primary disadvantage of systematic sample selection is that population items:

A) may occur twice in the sample.
B) must be replaced in the population after sampling to permit valid statistical inference.
C) must be reordered in a systematic pattern before the sample can be drawn.
D) may occur in a systematic pattern, thus negating the randomness of the sample.

Question 44

One of the ways to reduce sampling risk is to:

A) carefully design the audit procedures to be used.
B) use variables sampling rather than attributes sampling.
C) provide proper supervision and instruction of the audit team.
D) use an appropriate method of selecting sample items from the population.

Question 45

In monetary- unit sampling, items containing large understatement errors:

A) are of less concern than those with large overstatement errors.
B) may have a small recorded value due to those errors.
C) have an increased probability of being included in the sample.
D) all of the above

Question 46

The relationship between sample size and the acceptable risk of incorrect acceptance is:

A) indeterminate.
B) inverse; that is, larger = smaller.
C) variable; that is sometimes larger = larger and sometimes not.
D) direct; that is, larger acceptable risk = larger sample size.

Question 47

The risk which the auditor is willing to take of accepting a control as being effective when it is not is the:

A) allowable risk of overreliance (ARO).
B) tolerable deviation rate (TDR).
C) sample deviation rate (SDR).
D) estimated population deviation rate.

Question 48

Which one of the following statements regarding the process of defining the population is NOT correct?

A) The population represents the body of data about which the auditor wishes to generalise.
B) The auditor can randomly sample from whatever part of the population that he or she chooses.
C) The auditor can define the population to include whatever data is desired.
D) The auditor may generalise only about that population which has been sampled.

Question 49

The auditor is concerned with the audited value rather than the error amount of each item in the sample when using:

A) monetary- unit sampling.
B) mean- per- unit estimation.
C) difference estimation.
D) ratio estimation.

Question 50

The process which requires the calculation of an interval and then selects the items based on the size of the interval is:

A) computerised sample selection.
B) statistical sampling.
C) random sample selection.
D) systematic sample selection.

Question 51

An example of sampling for attributes would be estimating the:

A) probability of losing a patent infringement case.
B) percentage of sales invoices with no accompanying shipping documents.
C) quantity of specific inventory items.
D) dollar value of accounts receivable.

Question 52

The auditor must deal with layers of the computed upper deviation rate (CUDR) from the attributes table because there are different error assumptions for each error. Assume a sample of 100 had found one error, and the computed upper deviation rate is shown in the following table: Number of Errors Upper Precision Limit from Table
0 )023
1 )038
What is the CUDR layer for the first mistake?

A) 2.3%
B) 3.8%
C) 6.1%
D) 1.5%

Question 53

Of the four factors which determine the initial sample size (population size, tolerable deviation rate, acceptable risk of over- reliance and expected population deviation rate), which combination of two factors has the greatest effect on sample size?

A) Expected population deviation rate plus acceptable risk of overreliance
B) Tolerable deviation rate minus expected population deviation rate
C) Population size times expected population deviation rate
D) Acceptable risk of overreliance minus tolerable deviation rate

Question 54

When monetary- unit sampling has been concluded and the population is not considered acceptable, which one of the following courses of action would NOT be appropriate for the auditor?

A) Increase the sample size to see if this may satisfy the auditor's tolerable misstatement requirements.
B) Request the client to correct the population.
C) Refuse to give an unqualified opinion.
D) Increase the tolerable misstatement amounts so that the error bounds are acceptable.

Question 55

The deviation rate the auditor will permit in the population and still be willing to use the assessed level of control risk established during planning is called the:

A) sample deviation rate (SDR).
B) estimated population deviation rate.
C) acceptable risk of overreliance (ARO).
D) tolerable deviation rate (TDR).

Question 56

Which one of the following material occurrences would be most likely to attract the auditor's attention?

A) Deviations from client's established control procedures
B) Monetary errors or irregularities in populations of account balance details
C) Deviations from client's budgeted values
D) Both A and B

Question 57

Based on the information in the table below, the population size is: An accounts receivable population contains a total of four customers. The accounts, the amounts and the cumulative total are shown below. Monetary- unit sampling is to be used.

A) 574.
B) not relevant.
C) 1272.
D) 4.

Question 58

The auditor must consider the possibility that the true population misstatement is greater than the amount of misstatement that is tolerable when the auditor is performing:

A) statistical sampling.
B) nonstatistical sampling.
C) neither A nor B.
D) both A and B.

Question 59

The most commonly used method of statistical sampling for tests of details of balances is:

A) attributes sampling.
B) discovery sampling.
C) monetary- unit sampling.
D) variables sampling.

Question 60

For monetary- unit sampling, normally the estimate of the population deviation rate is:

A) between 6% and 10%, inclusive.
B) between 1% and 5%, inclusive.
C) 0%.
D) greater than 10%.

Question 61

Acceptable risk of assessing control risk too low (ARO) is the auditor's measure of:

A) control risk.
B) sampling risk.
C) inherent risk.
D) non- sampling risk.

Question 62

Audit sampling would be an appropriate method to use on which one of the following procedures in an audit program?

A) Examine a sample of duplicate sales invoices for credit approval by the credit manager.
B) Observe whether the duties of the accounts receivable clerk are separate from handling cash.
C) Review the aged schedule of accounts receivable to determine if receivables from officers are included.
D) Review sales transactions for large and unreasonable amounts.

Question 63

A sample in which the characteristics of the sample are the same as those of the population is:

A) an attributes sample.
B) a variables sample.
C) a representative sample.
D) a random sample.

Question 64

Which one of the following statements is NOT correct regarding probabilistic and non- probabilistic sample selection?

A) It is not acceptable to make nonstatistical evaluations using probabilistic selection.
B) Probabilistic selection is required for all statistical sampling methods.
C) In probabilistic selection, every population item has a known chance of being selected.
D) Both methods are acceptable and commonly used.

Question 65

Which one of the following is NOT a problem with monetary- unit selection?

A) Population items that should have a zero balance but do not
B) Accounts with negative balances
C) Accounts with small recorded balances that are significantly understated
D) Population items with a zero recorded balance

Question 66

In systematic sample selection, the population size is divided by the number of sample items desired in order to determine the:

A) interval.
B) mean.
C) tolerable exception rate.
D) computed upper exceptions rate.

Question 67

When selecting a stratified sample, the sample size is:

A) determined for each stratum and selected from that stratum.
B) determined for each stratum and selected randomly from the entire unstratified population.
C) determined for the unstratified population and then apportioned to each stratum.
D) always larger than if unstratified sampling had been used.

Question 68

When an auditor performs tests of details of balances, the concern is determining:

A) whether the account balance being audited is fairly stated.
B) if the deviation rate in the population is sufficiently low to justify reducing substantive testing.
C) both the effectiveness of controls and the monetary correctness of the transactions.
D) all of the above

Question 69

The variables sampling method which generally results in smaller sample sizes than any other method is:

A) difference estimation.
B) mean- per- unit estimation.
C) monetary- unit sampling.
D) ratio estimation.

Question 70

When using monetary- unit sampling, the recorded dollar population is a definition of:

A) the items in the sample which contain errors.
B) the items in the population which the auditor has included in the sample.
C) the population size.
D) the items in the population which contain errors.

Question 71

When using monetary- unit sampling, evaluating the likelihood of unrecorded items in the population is:

A) necessary.
B) an automatic outcome of the process.
C) possible but difficult.
D) impossible.

Question 72

Which one is NOT a sample selection method commonly associated with nonstatistical audit units?

A) Directed sample selection
B) Probability proportional to size sample selection
C) Block sample selection
D) Haphazard sample selection

Question 73

The method used to measure the estimated total error amount in a population where there is both a recorded value and an audited value for each item in the sample is:

A) ratio estimation.
B) mean- per- unit estimation.
C) difference estimation.
D) monetary- unit sampling.

Question 74

Which one of the following statements regarding monetary- unit sampling (MUS) is NOT true?

A) There is no need to use stratified sampling with MUS. It occurs automatically.
B) An account with a large balance has a greater chance of being included in the sample than an account with a small balance.
C) MUS automatically places emphasis on physical units with larger recorded balances.
D) The sampling unit in MUS is the account balance.

Question 75

One of the ways to eliminate non- sampling risk is through:

A) controls which ensure that the sample drawn is random and representative.
B) proper supervision and instruction of the client's employees.
C) proper supervision and instruction of the audit team.
D) the use of attributes sampling rather than variables sampling.

Question 76

Which one of the following statements is a valid criticism of the use of nonstatistical sampling methods?

A) Nonstatistical sampling does not differ substantially from statistical sampling methods.
B) The cost of performing random selection of testing often exceeds the benefits.
C) Conclusions may be drawn in more precise ways when using statistical sampling methods.
D) Many audit texts, such as footing of journals, must be performed outside a statistical sampling context.

Question 77

Whenever a statistical method is used, a decision rule determines whether the population is acceptable. The decision rule for monetary- unit sampling is 'Accept the conclusion that the book value is NOT misstated by a material amount if:

A) both the understatement and overstatement tolerable misstatement amounts fall between the upper and lower misstatement bound.'
B) both the lower and upper misstatement bound falls between the understatement and overstatement tolerable misstatement amounts.'
C) the overstatement tolerable misstatement amount falls between the lower and upper misstatement bound.'
D) the upper misstatement bound falls between the understatement and overstatement tolerable misstatement amounts.'

Question 78

A method of sampling in which all the items in the population are divided into two or more subpopulations is:

A) variables sampling.
B) divisible sampling.
C) attributes sampling.
D) stratified sampling.

Question 79

The deviation rate in a representative sample is:

A) the auditor's calculation of the error rate in the population.
B) the number of items in the population containing a particular attribute.
C) the auditor's best estimate of the deviation rate.
D) none of the above

Question 80

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

A) incorrect acceptance.
B) incorrect rejection.
C) assessing control risk too high.
D) assessing control risk too low.