Deck 10: Risk Responseaudit Sampling for Substantive Testing

Question 1

Probability Proportionate to Size (PPS) sampling is an approach that uses firm structure theory to express a conclusion in dollar amounts.

Answer 1

False

Question 2

The choice of statistical or non-statistical sampling affects the selection of procedures or the competence of evidence obtained about individual sample items.

Answer 2

False

Question 3

The auditor is more likely to use audit sampling when internal controls are strong and reliable data does not exist to support audit data analytics (ADA).

Answer 3

False

Question 4

In some cases, it is feasible to audit the entire population.

Question 5

Professional judgment is needed in applying both statistical and non-statistical sampling.

Question 6

Audit sampling can be used for all substantive tests.

Question 7

Probability Proportionate to Size (PPS) evaluation may understate the Allowance for Sampling Risk (ASR) when misstatements are found in the sample.

Question 8

Control risk is the risk that the sample chosen by the auditor is not representative of the population of transactions or items within an account balance and, as a consequence, the auditor arrives at an inappropriate conclusion.

Question 9

Non-sampling risk is typically controlled by a firm's quality control procedures and the review of audit work performed by a manager or partner on the audit team or an engagement quality control reviewer.

Question 10

The tolerable misstatement is equal to or more than the materiality level set for the class of transactions or balances being tested.

Question 11

Applying audit procedures is different for statistical and for non-statistical sampling.

Question 12

Systematic selection involves the selection of a population for testing by dividing the number of items in a population by the sample size, resulting in the sampling interval (n).

Question 13

In the non-statistical sampling method, the sample results are evaluated on the basis of the professional judgment and the auditor's own experience.

Question 14

The ultimate purpose of a test of controls is to obtain reasonable assurance that an assertion is presented fairly in all material respects.

Question 15

Whenever the auditor draws a conclusion about the entire population based on a sample, there is some level of uncertainty about the auditor's conclusion.

Question 16

The choice of using audit sampling vs.audit data analytics (ADA) is often a matter of what is most effective and efficient in determining whether an assertion is presented fairly, in all material respects.

Question 17

When conducting substantive tests, sampling risk is the risk that an auditor concludes that a material misstatement does not exist when it actually does, or an auditor concludes that a material misstatement exists when it actually does not.

Question 18

The most common selection method used in Probability Proportionate to Size (PPS) sampling is systematic selection.

Question 19

The client's data is most reliable when internal controls are weak.

Question 20

It is common to use audit sampling when performing substantive tests on a population of transactions or account balances, such as taking a sample of total sales or a sample of total receivable balances.

Question 21

When auditing a construction company, the auditor might use audit data analytics (ADA) to determine, _______.

A)the likelihood of receiving audit fees upon conclusion of the audit
B)the gross margin on each construction contract
C)the inherent riskiness of the client's industry
D)if appropriate receivables balance confirmations have been returned

Question 22

Which method would the auditor most likely use when the relevant data is clean or can be cleaned up easily?

A)Audit data analytics
B)Audit sampling
C)Statistical sampling
D)Substantive testing

Question 23

The auditor is more likely to use audit sampling _______.

A)when internal controls are weak
B)when internal controls are strong
C)when the audit committee requests the auditor do so
D)if the client agrees to pay extra fees associated with this procedure

Question 24

The choice of using audit sampling _______.

A)is a matter of determining which audit procedure will be most effective, and efficient in the circumstances
B)is a matter of determining which audit procedure will be most cost effective, and efficient in the circumstances
C)should be left to the internal auditors
D)should be confirmed with senior management, before any procedures are undertaken

Question 25

An important audit planning question involves _______.

A)determining whether the auditor plans to use audit data analytics, or audit sampling, to evaluate an audit population
B)determining the estimated amount of audit fees the client will generate
C)deciding the audit opinion to be issued, and collecting evidence to support that opinion
D)contacting the client's creditors to determine pending litigation

Question 26

When creating an audit program and designing audit procedures, _______.

A)an auditor also decides how to select appropriate items for testing
B)an auditor also decides how to select appropriate items for removal from the test sample
C)the auditors should defer sample selection to the internal auditors
D)the auditors should consider use of the cheapest statistical selection methods possible, to lower the cost of the audit

Question 27

The choice of using audit sampling vs.audit data analytics (ADA) _______.

A)is typically left up to senior management
B)is often a matter of what is most effective and efficient in determining whether an assertion is presented fairly, in all material respects
C)is often a matter of what is most effective and efficient in determining whether a control is presented fairly, in all material respects
D)should be determined by the client's legal counsel

Question 28

An auditor is most likely to use audit data analytics (ADA) when _______.

A)data is available that is relevant to an audit assertion of interest, whether as a risk assessment procedure or a substantive test
B)the available data is reliable and comes from a strong system of internal controls.
C)the available data is relatively clean and does not require significant work to make it usable.
D)All of these answer choices are correct

Question 29

Audit sampling is when _______.

A)the auditor selects certain accounts to audit from the client's chart of accounts
B)an auditor selects the total population
C)an auditor selects less than 100% of a population
D)a client requests a sample of accounts be audited

Question 30

The auditor may use a classical variables sampling approach in substantive testing.

Question 31

When an audit procedure is tested on an entire group of transactions, _______.

A)sampling is not required
B)non-statistical sampling is required
C)statistical sampling is required
D)the sample should be discarded, and a new random sample drawn

Question 32

The decision to audit an entire population is usually dependent upon _______.

A)the assertion and the evidence available to support the assertion
B)management's express written approval to do so
C)the associated controls and the evidence available to support them
D)the auditors budget plan for the audit

Question 33

The auditor is most likely to use _______ when the data available is relevant to an audit assertion of interest.

A)Audit data analytics
B)Audit sampling
C)Statistical sampling
D)Substantive testing

Question 34

The use of audit sampling _______.

A)is prohibited by the AICPA
B)is mandatory for all publicly-traded companies
C)may be a function of the efficiency and effectiveness of the audit procedure
D)may be a function of the efficiency and effectiveness of the internal auditors

Question 35

In which of the following situations is the auditor most likely to use audit data analytics?

A)The available data is reliable and comes from a strong system of internal controls.
B)Internal controls are weak.
C)Certain audit procedures are required by professional standards.
D)The auditor needs to have data that is relevant to the audit test.

Question 36

A representative audit sample _______.

A)is likely to provide a reasonable basis for drawing a conclusion about an entire population
B)is unlikely to provide a reasonable basis for drawing a conclusion about an entire population
C)should be agreed upon by management and the auditor
D)should not involve the auditor

Question 37

Audit sampling is defined as _______.

A)allowing engagement team members to rotate across different types of audits
B)the probability that the auditor will receive full compensation for all services rendered
C)The selection and evaluation of less than 100 percent of the population such that the auditor expects the items selected (the sample) to be representative of the population, and thus, likely to provide a reasonable basis for conclusions about the population
D)The selection and evaluation of 100 percent of the population such that the auditor expects the items selected (the sample) to be representative of the population, and thus, likely to provide a reasonable basis for conclusions about the population

Question 38

The choice of using audit sampling versus audit data analytics (ADA) is often a matter of _______.

A)determining which method management would prefer the auditor use
B)what is most effective and efficient in determining whether a control is presented fairly, in all material respects
C)what is most effective and efficient in determining whether an assertion is presented fairly, in all material respects
D)which method will be more cost efficient for the client

Question 39

AS 2315 and AU-C 530 on Audit Sampling_______.

A)provide guidance on audit sampling
B)provide guidance on client acceptance
C)relate only to private companies
D)relate only to companies with subsidiaries

Question 40

The auditor's conclusion based on the sample _______.

A)should always be applied to the sample only and not the population
B)should always be applied to the population only and not the sample
C)may be different than the conclusion drawn if the auditor had audited the entire population
D)will always be the same as the conclusion drawn if the auditor had audited the entire population

Question 41

With regard to statistical sampling, _______.

A)sample size is determined subjectively, or quantitatively, using appropriate statistics
B)sample size is determined objectively, or quantitatively, using appropriate statistics
C)this function should be outsourced by the auditor to a qualified professional
D)management should be heavily involved with sample selection

Question 42

When sampling, the risk always exists _______.

A)that the auditor's conclusion based on the sample may be different than the conclusion drawn if the auditor had audited the entire population.
B)that the auditor's conclusion based on the sample may be the same as the conclusion drawn if the auditor had audited the entire population.
C)that audit fees may be lowered as a result of auditing a sample
D)that management may request a new sample

Question 43

Sometimes an audit population may be sufficiently small so that_______.

A)the auditor can ignore the account in question
B)the auditor can audit every item in the population
C)the account in question can be outsourced to the internal audit function for auditing
D)expressed written assurance from senior management pertaining to the account is satisfactory

Question 44

What is the resulting condition when an audit population is sufficiently small?

A)It is feasible to audit the entire population.
B)It is more efficient to select a sample of population.
C)Auditing the entire population may not give correct results.
D)Randomly selecting a sample representative of the entire population would help.

Question 45

When a customer fails to reply to a confirmation and the auditor is unable to obtain other evidence about the existence of the receivable, _______.

A)the auditor must conclude that these balances are 100% misstatements and project the misstatements on the remaining portion of the population
B)the auditor must conclude that these balances are 50% misstatements and project the misstatements on the remaining portion of the population
C)the auditor must conclude that these balances are 100% misstatements and project the misstatements on the remaining portion of the sample
D)the auditor should notify management of the auditor's intention to withdraw from the engagement

Question 46

Non-sampling risk is typically controlled by _______.

A)the internal audit function
B)a firm's quality control procedures and the review of audit work performed by a manager or partner on the audit team or an engagement quality control reviewer.
C)a client's quality control procedures and the review of audit work performed by a manger or partner on the audit team or an engagement quality control reviewer.
D)an increased confidence level when performing statistical tests

Question 47

In non-statistical sampling, _______.

A)the auditor determines sample size
B)the auditor determines sample selection methods
C)the auditor evaluates the sample results on the basis of the professional judgment and the auditor's own experience.
D)All of these choices are correct

Question 48

A statistical sample _______.

A)should be picked carefully to ensure certain clients are audited
B)should be selected by senior management
C)should be selected randomly so it is the auditor's best estimate of a representative sample
D)should be selected randomly so it is management's best estimate of a representative sample

Question 49

What is sampling risk?

A)The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.
B)The risk that the auditor expresses an opinion on the financial statements based on other audits.
C)The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk.
D)The risk that the auditor concludes that a material misstatement exists when it does not.

Question 50

What is risk of incorrect acceptance?

A)The risk that the auditor concludes that a material misstatement does not exist when it does exist.
B)The risk that the auditor concludes that a material misstatement exists when it does not exist.
C)The risk that the auditor concludes that a material misstatement does not exist when it actually does not.
D)The risk that the auditor concludes that a material misstatement exists when it actually does.

Question 51

Which of the following refers to the selection and evaluation of less than 100 percent of a population of audit relevance such that the auditor expects the items selected to be representative of the population?

A)Audit sampling
B)Audit data analysis
C)Statistical analysis
D)Haphazard sampling

Question 52

Non-sampling risk is the risk that _______.

A)an auditor arrives at an inappropriate conclusion for a reason unrelated to sampling issues
B)an auditor arrives at an inappropriate conclusion for a reason related to sampling issues
C)the auditor inadvertently does not include any sampling procedures in the audit
D)the audit firm does not send sample questionnaires to management related to certain note disclosures

Question 53

In which of the following circumstances must an auditor decide how best to select a sample that is representative of the entire population of items?

A)There are numerous transactions or items within an account balance.
B)An audit population is sufficiently small.
C)A client has a large balance of notes payable and the notes payable are with several banks.
D)There are few transactions or few items within an account balance.

Question 54

Sampling risk is _______.

A)the same thing as audit risk
B)the risk that the sample chosen by the auditor is not representative of the population of transactions or items within an account balance and, as a consequence, the auditor arrives at an inappropriate conclusion
C)the risk that the sample chosen by the auditor is representative of the population of transactions or items within an account balance and, as a consequence, the auditor arrives at an inappropriate conclusion
D)inversely related to inherent risk

Question 55

Risk of incorrect rejection is defined as _______.

A)the risk that the auditor concludes that a material misstatement does not exist when it does exist
B)the risk that the auditor concludes that a material misstatement exists when it does not exist
C)the risk that an auditor incorrectly rejects a client
D)the risk that management may reject the audit opinion issued by the auditor

Question 56

The risk accepted by the auditor with respect to the sample not being representative of the population is known as _______.

A)control risk
B)inherent risk
C)sampling risk
D)audit risk

Question 57

An advantage of statistical sampling _______.

A)is that it allows an auditor to measure control risk, that is, the risk that the sample chosen by the auditor is not representative
B)is that it allows an auditor to measure sampling risk, that is, the risk that the sample chosen by the auditor is not representative
C)is that it allows an auditor to measure inherent risk, that is, the risk that the sample chosen by the auditor is not representative
D)is that it is cheaper to perform, resulting in lower audit fees for the client

Question 58

When conducting substantive tests, sampling risk is _______.

A)ignored, due to substantive tests providing a compensating control
B)considered to be the risk that the random sample selected will be representative of the population
C)the risk that an auditor concludes that a material misstatement does not exist when it actually does, or an auditor concludes that a material misstatement exists when it actually does not
D)the risk that an auditor concludes that a material misstatement does exist when it actually does, or an auditor concludes that a material misstatement exists when it actually does not

Question 59

Risk of incorrect acceptance is defined as _______.

A)the risk that the auditor concludes that a material misstatement does not exist when it does exist
B)the risk that the auditor concludes that a material misstatement does exist when it does exist
C)the risk that an audit firm incorrectly accepts a client
D)the risk that an audit firm incorrectly issued an unmodified opinion

Question 60

According to AU-C 530, Audit Sampling, statistical sampling _______.

A)should only be conducted for public companies
B)is an approach to sampling that involves a random selection of sample items and the use of an appropriate statistical technique to determine sample size and evaluate sample results, including measurement of sampling risk
C)is an approach to sampling that involves a random selection of sample items and the use of an appropriate non-statistical technique to determine sample size and evaluate sample results, including measurement of sampling risk
D)should only be conducted for private companies

Question 61

An important aspect of selecting a sample _______.

A)involves determining the population and sampling unit
B)involves determining the sample and sampling unit
C)involves conferring with senior management with respect to their sampling preferences
D)involves being as subjective as possible

Question 62

A popular way to select a sample is _______.

A)using random number generators
B)asking management to select the sample
C)asking the internal auditors to select a sample
D)to pick accounts with large balances, on the basis that inherent risk related to these accounts is higher

Question 63

The risk that the auditor concludes that a material misstatement exists when it does not is called _______.

A)risk of incorrect rejection
B)risk of incorrect acceptance
C)risk of incorrect statement
D)risk of incorrect valuation

Question 64

Which of the following refers to an approach to sampling that involves a random selection of sample items and the use of an appropriate statistical technique to determine sample size and evaluate sample results?

A)Statistical sampling
B)Non-statistical sampling
C)Haphazard sampling
D)Audit data sampling

Question 65

In non-statistical sampling, _______.

A)the auditor determines samples size, sample selection methods, and evaluates the sample results on the basis of the professional judgment and the auditor's own experience.
B)the auditor determines samples size, sample selection methods, and evaluates the sample results entirely on the basis of predetermined statistical parameters.
C)the auditor uses the internal audit function to gather samples
D)the auditor selects a sample of certain balance sheet accounts and exclusively audits them

Question 66

Non-statistical sampling _______.

A)involves any sample selection and evaluation method that does not have the characteristics of statistical sampling.
B)involves any sample selection and evaluation method that has the characteristics of non-statistical sampling.
C)may only be used for publicly traded companies with market capitalizations of less than a certain threshold
D)may only be used for publicly traded companies with market capitalizations above a certain threshold

Question 67

In which selection method does the person selecting the sample NOT influence the choice of items selected?

A)Random selection
B)Systematical selection
C)Haphazard selection
D)Selection based on professional judgment

Question 68

Stratification is _______.

A)a process of dividing a population into groups of sampling units with similar characteristics that are more heterogeneous
B)a process of dividing a population into groups of sampling units with similar characteristics that are more homogenous
C)unrelated to the work of an auditor
D)used only in non-statistical sampling techniques

Question 69

In which of the following sampling techniques does the auditor not use a formal statistical technique to select the sample or to evaluate the sample results?

A)Non-statistical sampling
B)Statistical Sampling
C)Monetary-unit sampling
D)Block selection

Question 70

An important aspect of selecting a sample _______.

A)involves determining the population and population unit
B)involves determining the population and sampling unit
C)is ensuring certain accounts are selected for audit
D)is ensuring certain accounts are not selected for audit

Question 71

Most audit firms use _______.

A)statistical sampling only
B)non-statistical sampling only
C)a combination of statistical and non-statistical sampling
D)neither statistical or non-statistical sampling

Question 72

Which method of selection appears quite similar to random selection?

A)Haphazard selection
B)Systematic selection
C)Block selection
D)Selection based on professional judgment

Question 73

Random selection requires that _______.

A)the person selecting the sample does not influence the choice of items selected
B)the person selecting the sample influences the choice of items selected
C)the auditors selecting the sample be randomized
D)management be allowed to select the sample

Question 74

Using statistical sampling _______.

A)involves training in the use of the statistical technique and the professional judgments involved in planning and setting up the sample, as well as in evaluating sample results
B)involves training in the use of non-statistical techniques and the professional judgments involved in planning and setting up the sample, as well as in evaluating sample results
C)typically increases inherent risk
D)typically decreases inherent risk

Question 75

Statistical sampling requires _______.

A)the auditor to ignore any sampling issues raised during the sampling process
B)a sample be selected randomly, and the results of the test be evaluated using management theory.
C)a sample be selected randomly, and the results of the test be evaluated using probability theory.
D)a sample be selected randomly, and the results of the test be evaluated using game theory.

Question 76

When performing a substantive test, _______.

A)the population consists of the class of transactions or the account balance to be tested
B)the sample consists of the class of transactions or the account balance to be tested
C)the auditor should confirm acceptance by senior management of the test
D)the auditor should perform the test in conjunction with the internal audit function

Question 77

When performing a substantive test, _______.

A)the population consists of a transaction and the account balance to be tested
B)the population consists of the class of transactions or the account balance to be tested
C)the auditor should report all immaterial findings to management
D)the auditor should withdraw from the engagement if any material misstatements are located

Question 78

Which of the following is a characteristic of non-statistical sampling?

A)It allows selecting an appropriate sample.
B)It helps determine sample size objectively.
C)It allows selecting sample size quantitatively.
D)It allows a random selection of sample items.

Question 79

What is systematic selection?

A)The selection of a sample for testing by dividing the number of items in a population by the sample size, determining a sampling interval (n), and then selecting every nth item in the population.
B)The selection of a sample free from bias, where each item in a population has an equal chance of selection.
C)The selection of a sample without use of a methodical technique.
D)The selection of a sample based on professional judgment and evaluating the evidence obtained by sampling.

Question 80

High levels of assurance mean _______.

A)lower levels of sampling risk that the sample is not representative of the population
B)higher levels of sampling risk that the sample is not representative of the population
C)lower levels of non-sampling risk that the sample is not representative of the population
D)higher levels of non-sampling risk that the sample is not representative of the population