Deck 10: Audit Sampling

Question 1

Which of the following selection methods is least likely to result in a sample representative of all transactions?

A)Block sampling
B)Random sampling
C)Haphazard sampling
D)Systematic sampling

Answer 1

A

Question 2

The risk of assessing control risk too low can lead to ________.

A)the auditor performing more work than needed,thus wasting resources
B)the auditor failing to do additional work that should be done
C)poor choice of procedures
D)expanding sample sizes required for statistical sampling of account balances

Answer 2

B

Question 3

Non-statistical sampling may be better to use than statistical sampling when ________.

A)the auditor has insufficient knowledge about the population to take a statistical sample
B)the inherent risk of error in the population is low
C)the population is known to be diverse,with a high inherent risk of error
D)auditors are not technically proficient in sampling

Answer 3

C

Question 4

In auditing,anomalies can be defined as: _____.

A)Items that fall outside a statistically set range of possible results.
B)Items that,in the auditor's judgement,should not be projected to the rest of the population.
C)Items that exceed materiality.
D)Items forming part of a specific items sample selection.

Question 5

Each of the elements within the set of all elements that comprise an account balance or a class of transactions is referred to as a ________.

A)sampling unit
B)sample
C)population unit
D)population

Question 6

Which of the following is an advantage of statistical sampling?

A)It permits a less rigid approach to unique audit problems.
B)It uses an evaluation method that allows evaluation of the sample on factors other than the sample evidence.
C)It permits auditors to use a computer to select a random sample.
D)It requires auditors to be exact in their judgments on risk and materiality.

Question 7

The probability that an auditor's conclusion based on a sample might differ from the auditor's conclusion based on an audit of the entire population identifies the concept of ________.

A)sampling risk
B)confidence levels
C)statistical sampling
D)tolerable rate and the expected deviation rate

Question 8

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

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

Question 9

The purpose of tests of controls is to determine whether ________.

A)internal control policies and procedures are working as prescribed
B)substantive testing can be kept to a minimum
C)errors and irregularities are prevented or detected in a timely manner
D)the auditor has an understanding of the control system

Question 10

An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to ________.

A)minimize the failure to detect errors and irregularities
B)eliminate the risk of non-sampling errors
C)reduce the level of audit risk and materiality to a relatively low amount
D)make a preliminary estimate of the appropriate sample size

Question 11

In an auditing context,which of the following scenarios describes a type II error?

A)An auditor applies non-statistical sampling methodology to a randomly selected sample.
B)An auditor fails to uncover a material misstatement in an account that is,in reality,materially misstated.
C)An auditor applies statistical sampling methodology to a non-randomly selected sample.
D)An auditor concludes that an account is materially misstated,when in reality,it is not materially misstated.

Question 12

In addition to population size,which of the following is used in attribute sampling to determine the sample size?

A)Sampling risk,sample deviation rate,and tolerable deviation rate.
B)Sampling risk,sample deviation rate,and expected population deviation rate.
C)Sampling risk,tolerable deviation rate,and expected population deviation rate.
D)Sample deviation rate,tolerable deviation rate,and expected population deviation rate.

Question 13

The risk of assessing control risk too high is the risk that the evidence of compliance with control procedures in the sample indicates ________.

A)low control risk when the actual degree of compliance does not justify a low control risk assessment
B)low control risk when the actual degree of compliance justifies a low control risk assessment
C)high control risk when the actual degree of compliance would justify a lower control risk assessment
D)high control risk when the actual degree of compliance would justify a higher control risk assessment

Question 14

Which of the following audit procedures is NOT typically used in audit sampling applications?

A)Observation of personnel and procedures.
B)Physical count of tangible assets.
C)Recalculation.
D)Confirmation.

Question 15

Which description best illustrates sampling risk?

A)Applying audit procedures which are inappropriate for the audit objectives.
B)Failing to recognize errors or deviations in the documents examined.
C)Arriving at incorrect statistical conclusions because of computational errors.
D)Choosing a sample that does not represent the population.

Question 16

Which of the following is a term used to describe a departure from a prescribed internal control procedure?

A)Exception.
B)Event.
C)Misstatement.
D)Known error.

Question 17

The probability of concluding from a control test sample that the control risk is low,when in fact the risk should be assessed as high,is known as _____.

A)Sampling risk
B)Information risk
C)The risk of assessing the control risk too low
D)Inherent risk

Question 18

In testing controls over invoices,an auditor discovers that in 10% of her statistical sample invoices were for amounts greater than the actual quantity shipped.In such a case,an appropriate response for her would be to __________.

A)increase her sample size to determine the extent of the control weakness
B)recalculate control risk to determine if there is any effect on the nature,timing,or extent of her year-end procedures
C)conclude that controls are working at 90% effectiveness and classify control risk as low
D)consult with her partner to consider launching a fraud investigation

Question 19

When performing the substantive tests on an account balance,the auditor is concerned about two aspects of sampling-based decision errors: (1)the risk of incorrect rejection (RIR)and (2)the risk of incorrect acceptance (RIA).Which of the following is true about RIR and RIA?

A)RIR is of greater concern to the auditor than the RIA.
B)RIA is of greater concern to the auditor than the RIR.
C)RIA and the RIR are of equal importance to the auditor.
D)Neither the RIR nor the RIA need be considered by the auditor.

Question 20

For which of the following audit tests is an auditor most likely to use attribute sampling?

A)Making an independent estimate of the amount of a FIFO inventory.
B)Examining invoices in support of the valuation of fixed asset additions.
C)Selecting accounts receivable for confirmation of account balances.
D)Inspecting employee time cards for proper approval by supervisors.

Question 21

An example of non-sampling risk is the selection of a random sample that is not representative of the population.

Question 22

The total amount of monetary error that is found in a sample is referred to as the ________.

A)projected likely misstatement
B)tolerable misstatement
C)known misstatement
D)possible misstatement

Question 23

Non-statistical sampling is audit sampling in which auditors do not use the probability calculations to express the results.

Question 24

Analytical procedures,such as vertical analysis,ratio calculations,and time series analysis,are usually done on a sample basis.

Question 25

When auditors perform procedures using statistical sampling and obtain sufficient evidence,a conclusion about the population characteristics will not be wrong.

Question 26

The amount by which a projected likely misstatement differs from an actual misstatement is usually the result of ________.

A)a misunderstanding of accounting principles
B)sampling error
C)management override of an internal control procedure
D)risk of incorrect acceptance

Question 27

The determination of an appropriate sample on a representative basis must be made using statistical methods.

Question 28

After extrapolating the results of performing substantive tests on a sample of accounts from the accounts receivable subsidiary ledger,Allen CPA concluded that the accounts receivable balance was materially misstated.In fact,the balance was materially correct.This situation illustrates the risk of ________.

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

Question 29

A test of balance procedure is being performed on the spare parts inventory listing.The listing consists of 10 items that equal or exceed performance materiality and 55 items that are less than materiality.What would be an appropriate sampling approach in this case?

A)Select a randomly sample from all 65 items contained in the inventory list.
B)Select a small sample from 10 items over materiality and a larger sample from the remaining 55 items.
C)Test all 10 items at or above materiality,then select a random sample from the remaining 55 items.
D)Test all 10 items at or above materiality only,as the remaining items are each immaterial.

Question 30

The standard deviation of a population of data is a statistical measure of ________.

A)how much data are skewed
B)how much data are correlated
C)the population variability
D)the average value of data items

Question 31

If statistical calculations were not applied,then a sampling method would be considered non-statistical,even though a random sample was selected.

Question 32

In a sample of confirmations sent to the auditee's customers,one customer failed to respond,despite the mailing of a second request.In this case,which of the following would NOT be an appropriate response?

A)When the auditor concludes from the confirmations received that accounts receivable is fairly stated and the customer's balance from the nonresponse could impact on that assessment,expand the sample,performing alternative procedures on the additional balances selected.
B)When the auditor concludes from the confirmations received that accounts receivable is fairly stated and the customer's balance from the nonresponse is insignificant,it can be ignored.
C)When the auditor concludes from the confirmations received that accounts receivable is materially misstated and the customer's balance from the nonresponse is insignificant,it can be ignored.
D)Increase the initial assessment of incorrect acceptance and revise the sample size accordingly.

Question 33

Which of the following courses of action is an auditor most likely to follow in designing a sampling plan for cash disbursements if the auditor is aware of several unusually large cash disbursements?

A)Increase the sample size to reduce the effect of the unusually large disbursements.
B)Continue to draw new samples until all the unusually large disbursements are included in the sample.
C)Set the tolerable deviation rate at a lower level than originally planned.
D)Stratify the cash disbursements population so that all of the unusually large disbursements are selected.

Question 34

In the audit of account balances,the sample size will tend to be smaller when the ________.

A)risk of incorrect acceptance is lower
B)risk of incorrect rejection is lower
C)tolerable misstatement is smaller
D)population variability is smaller

Question 35

Green CPA audited the inventory of ABC Company on a sample basis.Green audited a sample of 120 items and found a net overstatement of $600.The audited sample had a recorded value of $12,000.The entire inventory contained 2,400 items with a total book value of $280,000.The projected likely overstatement using the average difference method is ________.

A)$12,000
B)$14,000
C)$48,000
D)$56,000

Question 36

Sampling risk is the risk that the auditor chooses the wrong sample selection method.

Question 37

An appropriate level of effectiveness risk for a substantive test is:

A)Inversely related to the assessed inherent risk and control risk and directly related to the analytical procedures risk.
B)Inversely related to the assessed inherent risk,control risk,and analytical procedures risk.
C)Directly related to the assessed inherent risk and control risk and indirectly related to the analytical procedures risk.
D)Directly related to the assessed inherent risk,control risk,and analytical procedures risk.

Question 38

A number of factors can affect the size of a sample for a substantive audit of the details of an account balance.All other factors being equal,which of the following would lead to a larger sample size?

A)A lower assessed level of control risk.
B)Using a larger number of effective analytical procedures to obtain evidence about particular assertions.
C)Smaller expected frequency of account item errors.
D)Smaller measure of tolerable misstatement.

Question 39

When evaluating the results of substantive audit procedures,auditors run the sampling risk(s)of ________.

A)assessing control risk too high or too low
B)incorrect acceptance and incorrect rejection of the population
C)assessing control risk too low only
D)incorrect acceptance of the population only

Question 40

Under CAS 520 efficiency risk is the risk of concluding from a sample or test that a material misstatement exists when in fact it does not.

Question 41

Attribute sampling is audit sampling in which auditors look for the presence or absence of a control condition.

Question 42

Efficiency risk exists only in non-statistical sampling.

Question 43

Using the audit risk model: If audit risk is 0.05,inherent risk is 1.0,control risk is 0.20,and analytical procedures risk is 1.0,the risk of incorrect acceptance is 0.25.

Question 44

The sample deviation rate is the best single-point estimate of the actual,but unknown,deviation rate in the population.

Question 45

Calculate the projected likely misstatement (PLM)for the data given below using the average difference method and the ratio method.(Round to the nearest dollar. )

Question 46

Assume several auditors selected various unrestricted,unstratified random samples from a population of 1,200 customers' accounts receivable with a recorded value of $480,000.The results of their tests are shown in the table below.
Projected Likely Misstatement
Overstatement (Understatement)

Question 47

In specifying the objectives for substantive testing of accounts receivable,an auditor hypothesizes that the company does not have a right to collect the money,and looks for evidence that they do.

Question 48

When the projected likely misstatement is greater than the tolerable misstatement in a sample-based audit of an account balance,the auditor can decide that the account balance is materially misstated and therefore run the risk of incorrect rejection.

Question 49

Assessing control risk too low threatens the efficiency of the audit but not the effectiveness.

Question 50

Non-sampling risk exists in both statistical and non-statistical sampling.

Question 51

Huey and Duey,PAs audited the accounts receivable of Grando Limited on a sample basis.There were 2,000 customer accounts in the subsidiary ledger with a total recorded value of $450,000.As part of the audit program,Huey and Duey selected a sample of 100 accounts having a recorded value of $25,000.They performed the audit procedures and determined that the audited amount of the sample totaled $24,000.
Required:

A)Calculate the projected likely misstatement (PLM)using (1)the average difference method and (2)the ratio method.
B)Evaluate the results of the calculation in part (A).Assume that Huey and Duey set the tolerable misstatement for accounts receivable at $28,000.

Question 52

In making a decision about the extent of misstatement in a population,the known misstatement in the sample must be projected to the population.

Question 53

Jack and Jill,two auditors who have separate accounting practices,have independently assessed the risks associated with the accounts receivable of their respective clients.The appropriate audit risk for both is determined to be.02.Both agree that inherent risk should be set at the maximum (1.0)and that no analytical procedures will be performed.Jack evaluates control risk as moderate (.40),while Jill assesses it as relatively low (.20).Using the audit risk model,answer the following questions.
Required:

A)What is the risk of incorrect acceptance (RIA)for Jack and for Jill?
B)Based on your answer in part (A),which auditor will have to collect the most evidence? Explain your reasoning.
C)What effect does differing assessments of control risk have on the sample size of accounts receivable? Explain.

Question 54

Auditing a larger sample reduces the probability of reaching a wrong conclusion about the effectiveness of an internal control.