Question 1

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

Accepted Answer

Probability Proportionate to Size (PPS) sampling is a method of selecting a sample from a population in which the probability of selecting an individual unit is proportional to its size or value. It is commonly used in auditing and surveys. It is not related to firm structure theory or expressing conclusions in dollar amounts.

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.

Accepted Answer

The choice between statistical and non-statistical sampling affects the method of sample selection and evaluation, but not the procedures or the competence of evidence obtained.

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).

Accepted Answer

The statement is incorrect. The auditor is more likely to rely on ADA when internal controls are strong and reliable data exists, as this provides the opportunity to perform more extensive and precise analysis. Audit sampling is more commonly used when there are weaker internal controls or limited data availability.

Question 4

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

Accepted Answer

It is possible to audit the entire population in certain situations where the population is small and manageable, and the cost and time required for auditing are reasonable. However, in most cases, due to the large size of the population and limited resources, auditors use various sampling techniques to select a representative sample for audit testing.

Question 5

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

Accepted Answer

Professional judgment is essential in deciding the appropriate sampling method, selecting the sample size, determining the sampling risk, assessing the reliability of the data, and interpreting the results. Both statistical and non-statistical sampling methods require professional judgment to ensure the validity and accuracy of the sampling process.

Question 6

Audit sampling can be used for all substantive tests.

Accepted Answer

Audit sampling is a technique used in auditing to test financial information by examining a less than 100% sample of a total population. However, it may not be suitable for all substantive tests, especially when the auditor needs to examine critical or high-risk areas in detail, or when the population size is small, making a 100% examination more practical and necessary.

Question 7

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

Accepted Answer

The answer of Probability Proportionate to Size (PPS) evaluation may...

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.

Accepted Answer

Control risk is the risk that a misstatement that could occur in an account balance or class of transactions and that could be material, either individually or when aggregated with misstatements in other balances or classes, will not be prevented, or detected and corrected, on a timely basis by the entity's internal control. The risk described in the question pertains to sampling risk, which is a different concept.

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.

Accepted Answer

Non-sampling risk cannot be controlled by increasing sample size, as opposed to sampling risk. It is typically managed through quality control procedures and review of audit work by higher-level personnel.

Question 10

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

Accepted Answer

Tolerable misstatement is generally set at a lower level than overall materiality because it represents the maximum error in a population that the auditor is willing to accept, allowing for a margin below the overall materiality level to manage the risk of material misstatement.

Question 11

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

Accepted Answer

The answer of Applying audit procedures is different for statistical...

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).

Accepted Answer

This is true. Systematic selection involves selecting every nth item in a population based on a sampling interval determined by dividing the population size by the sample size.

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.

Accepted Answer

Non-statistical sampling method relies on the auditor's professional judgment and experience to evaluate the sample results.

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.

Accepted Answer

The ultimate purpose of a test of controls is to evaluate the effectiveness of an entity's internal control over financial reporting, not directly to assure the fairness of financial statement assertions.

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.

Accepted Answer

This is known as sampling risk and is an inherent part of the auditing process. The level of sampling risk can be reduced by increasing the sample size or using more rigorous sampling techniques.

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.

Accepted Answer

The statement accurately reflects the considerations involved in choosing between audit sampling and audit data analytics for determining the fairness of assertions. It is a matter of determining what is most effective and efficient in achieving the objectives of the audit.

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.

Accepted Answer

This statement accurately describes sampling risk in the context of substantive testing. Sampling risk exists because auditors cannot test every single transaction or account balance, so they must rely on samples to draw conclusions about the population as a whole. Therefore, there is always a risk that the sample selected may not be truly representative of the entire population, leading to incorrect audit conclusions.

Question 18

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

Accepted Answer

Systematic selection is the most common method used in PPS sampling as it is efficient and easy to implement.

Question 19

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

Accepted Answer

Weak internal controls increase the risk of errors, fraud, and data manipulation, making the client's data less reliable. Strong internal controls, on the other hand, increase the likelihood of accurate and reliable financial information.

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.

Accepted Answer

This statement is true. Audit sampling is commonly used in performing substantive tests to obtain a representative sample of a population of transactions or account balances. This allows auditors to draw conclusions about the entire population based on the characteristics of the sample.

Quiz 10: Risk Responseaudit Sampling for Substantive Testing