Question 1

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

Accepted Answer

Increasing the estimated population exception rate (EPER) from 2% to 4% would increase the required sample size. This is because a higher exception rate means more errors or deviations that need to be captured in the sample for accurate representation of the population.

Question 2

An auditor used sampling that has the statistical simplicity of attribute sampling yet provides a statistical result expressed in dollars.The auditor is using what type of sampling?

Accepted Answer

Monetary unit sampling (MUS) is a statistical sampling technique that involves selecting a dollar amount from a population of financial transactions, rather than selecting individual items as in attribute sampling. MUS combines the benefits of statistical sampling with the simplicity of attribute sampling to provide a statistical estimate of errors in the financial statements expressed in dollars. This makes it a suitable method for auditors who want to focus on materiality and obtain results that are easy to interpret and communicate to management. The other options (A, B, and D) do not fit the description of the sampling method used by the auditor.

Question 3

You have just been given the approval to conduct statistical sampling for the audit of capital assets acquisitions.Previously,this work was completed using a judgmental sample.
Required:
Explain the key areas where decisions need to be made when conducting audit work using a statistical sample.

Accepted Answer

The answer of You have just been given the approval...

Question 4

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

Accepted Answer

An increase in sample size generally leads to a decrease in sampling error because it allows for a more accurate estimation of the population parameter. This effect is independent of whether the actual sample exception rate increases or not.

Question 5

The acceptable risk of incorrect acceptance (ARIA)has a significant effect on sample size.The relationship of ARIA to sample size is

Accepted Answer

ARIA refers to the risk of accepting a hypothesis or claim when it is actually false. A larger ARIA means a higher risk of making an incorrect acceptance. To minimize this risk, a smaller sample size is required. Therefore, the relationship between ARIA and sample size is inverse - as ARIA increases, sample size decreases.

Question 6

An auditor who uses statistical sampling for attributes in testing internal controls should increase the assessed level of control risk when the

Accepted Answer

The auditor should increase the assessed level of control risk when the sample rate of exceptions plus the allowance for sampling risk exceeds the tolerable exception rate. This indicates that the actual level of exceptions in the population might be higher than what the auditor is willing to accept, suggesting that the controls are less effective than initially assessed.

Question 7

Kyle is performing a test of detail using a nonstatistical sample.A)Can Kyle formally measure sampling error? B)What should Kyle consider in determining the sampling error?

Accepted Answer

The answer of Kyle is performing a test of detail...

Question 8

You are working on the testing of internal controls over price changes in the inventory system.You completed the controls testing to determine whether all price changes were approved by the senior accountant,by reference to master file change forms.In order to place reliance on this control,your audit supervisor has decided that the error rate in the population should be less than 1%.When you calculated your sample size,you used a confidence level of 90% and predicted an error rate of less than one percent.Based on these decisions,you examined 150 inventory price master file change forms.In your testing you uncovered two deviations.Based on these results,you calculate that the actual error rate in the population could be as high as 2.33%.
Required:A)What actions are available to you regarding your planned reliance on the master file change controls? B)What are the advantages and disadvantages of each action? C)How would you decide which action to take?

Accepted Answer

The answer of You are working on the testing of...

Question 9

To ensure that all the population items will be properly subjected to the sample selection process,the auditor should

Accepted Answer

Testing the population for completeness ensures that all items are included in the sample selection process, which is crucial for the accuracy and reliability of the audit.

Question 10

In attribute sampling,an advance estimate of the expected population exception rate is necessary to plan the appropriate sample size.The relationship of expected population exception rate (EPER)to sample size is

Accepted Answer

A smaller expected population exception rate (EPER) means fewer exceptions are anticipated, allowing for a smaller sample size to achieve the desired confidence level and precision.

Question 11

In statistical terms,acceptable risk of assessing control risk too low (ARIA)corresponds with

Accepted Answer

Acceptable risk of assessing control risk too low (ARIA) is associated with sampling risk, which arises from the possibility that the auditor's conclusion might be different if the entire population were audited instead of a sample.

Question 12

After the auditor has completed all the procedures,it is important that the auditor document the work performed and review the evidence to assess the conclusion reached.This is a highly subjective process that relies heavily on

Accepted Answer

The process of documenting the work performed and reviewing the evidence to assess the conclusion reached is subjective and relies heavily on the auditor's professional judgment. The auditor must exercise professional skepticism and evaluate the evidence to determine whether the financial statements are presented fairly in all material respects. While the generally accepted accounting principles (B), generally accepted auditing standards (C), and Rules of Professional Conduct (D) provide guidance for auditors, it is ultimately up to the auditor to use their judgment in applying the appropriate standards and principles to the specific audit engagement.

Question 13

What are the advantages and disadvantages of monetary unit sampling?

Accepted Answer

The answer of What are the advantages and disadvantages of...

Question 14

During the audit of the fixed asset section,the auditor decided to inspect source documents supporting all fixed asset additions exceeding $3000.This type of audit procedure is called a

Accepted Answer

This procedure is called a census of the strata over $3000 because the auditor is examining all transactions (or items) that exceed a certain threshold (in this case, $3000), rather than selecting a sample. This approach is used to focus on higher-value transactions that are more likely to have a significant impact on the financial statements.

Question 15

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

Accepted Answer

The decision rule for dollar-unit sampling is to accept the conclusion that the book value is not misstated by a material amount if both the lower and upper error bounds fall between the understatement and overstatement tolerable misstatement amounts.

Question 16

You are analyzing the exceptions that arose after your control testing of credit limit approvals.There were four exceptions where credit had not been approved.One was for a customer that was subsequently placed on C.O.D.(cash on delivery),and three occurred while the business was in the middle of its busy season,processing three times more transactions than most other times of the year.The company's busy season normally lasts about two months.
Required:A)What is an anomaly? B)Are any of the exceptions that you found anomalous? Why or why not? C)Provide an example of a credit approval testing exception that would be anomalous.

Accepted Answer

The answer of You are analyzing the exceptions that arose...

Question 17

There are 14 steps to audit sampling,divided into four sections: plan the sample,select the sample,perform the audit procedures,and evaluate the results.Discuss each of the steps that comprise the "plan the sample" section for attribute sampling.

Accepted Answer

The answer of There are 14 steps to audit sampling,divided...

Question 18

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

Accepted Answer

In monetary unit sampling, the estimated likely maximum misstatements are referred to as misstatement bounds. These bounds provide an estimate of the range within which the true misstatement is likely to fall.

Quiz 11: Audit Sampling Concepts

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