Question 1

If all other factors specified in an attributes sampling plan remain constant,changing the specified tolerable rate from 8% to 6%,and changing the specified risk of assessing control risk too low from 7% to 3% would cause the required sample size to:
A)Increase.
B)Remain the same.
C)Decrease.
D)Change by 4%.

Accepted Answer

When the tolerable rate decreases from 8% to 6%, it means the auditor is willing to accept a lower level of errors, which requires a larger sample size to be more certain of the audit conclusion. Similarly, decreasing the risk of assessing control risk too low from 7% to 3% means the auditor wants to be more certain that the controls are not effective when they might actually be (i.e., being more conservative), which also requires a larger sample size to reduce this risk. Both changes lead to an increase in the required sample size.

Question 2

Which of the following statistical selection techniques is leastdesirable for use by an auditor? A)Systematic selection. B)Stratified selection. C)Block selection. D)Sequential selection.

Accepted Answer

Block selection is least desirable because it does not allow for a random selection across the entire population, potentially missing irregularities in the sections not selected.

Question 3

Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate when:
A)The total book value is known and corresponds to the sum of all the individual book values.
B)A book value for each sample item is unknown.
C)There are some observed differences between audited values and book values.
D)The audited values are nearly proportional to the book value.

Accepted Answer

Ratio estimation relies on the relationship between the book values and the audited (or actual) values of items in a sample. If a book value for each sample item is unknown, this technique cannot be applied because the ratio (or relationship) between the book and audited values cannot be established.

Question 4

In testing accounts receivable,an auditor sends out positive confirmation requests to 100 randomly selected customers.A customer returns the confirmation indicating that the balance is correct when,in fact,the balance is overstated.This is an example of:
A)Projected misstatement.
B)Sampling error.
C)Standard error.
D)Nonsampling error.

Accepted Answer

This is an example of a nonsampling error because it arises from a mistake or error that is not related to the process of selecting a sample (such as a respondent confirming an incorrect balance), rather than an error that arises from the act of sampling itself.

Question 5

There are many kinds of statistical estimates that an auditor may find useful,but basically every statistical estimate in auditing is of either a quantity or of an error rate.The statistical terms that roughly correspond to "quantities" and "occurrence rate," respectively,are:
A)Attributes and variable.
B)Variables and attributes.
C)Constants and attributes.
D)Constants and variables.

Accepted Answer

According to auditing standards and practices, statistical estimates in auditing can be either of a quantity (variable) or an error rate (attribute). Variables represent quantities that can be measured and expressed numerically, whereas attributes represent the proportion or percentage of items that possess a certain characteristic or behavior. Therefore, the correct statistical terms that correspond to quantities and error rates are variables and attributes, respectively. The other options are not relevant to the context of statistical estimates in auditing.

Question 6

Which of the following factors does an auditor need to consider in planning a particular audit sample for a test of control?
A)Estimated standard deviation.
B)Total dollar amount of the items to be sampled.
C)Acceptable level of risk of assessing control risk too low.
D)Tolerable misstatement.

Accepted Answer

The acceptable level of risk of assessing control risk too low is a key factor that an auditor needs to consider in planning a particular audit sample for a test of control. This risk indicates the auditor's willingness to accept the possibility of the control being ineffective, and it determines the level of testing required to reduce the risk to an acceptable level. The other factors listed, such as estimated standard deviation, total dollar amount of the items to be sampled, and tolerable misstatement, are more relevant to substantive testing than to testing of controls.

Question 7

Various factors influence the sample size for a substantive test of details of an account balance.All other factors being equal,which of the following would lead to a larger sample size?
A)Lower assessment of control risk.
B)Greater reliance on analytical procedures.
C)Smaller expected frequency of misstatements.
D)Smaller measure of tolerable misstatement.

Accepted Answer

A smaller measure of tolerable misstatement means the auditor can only tolerate a smaller amount of misstatement. This reduces the auditor's acceptable risk of incorrect acceptance and increases the sample size needed to give a higher level of assurance.

Question 8

In assessing sampling risk,the risk of incorrect rejection and the risk of assessing control risk too high relate to the:
A)Efficiency of the audit.
B)Effectiveness of the audit.
C)Selection of the sample.
D)Audit quality controls.

Accepted Answer

The risk of incorrect rejection and the risk of assessing control risk too high both relate to the efficiency of the audit. These risks imply that the auditor might spend more time or resources than necessary due to incorrect conclusions drawn from the sample, thus affecting the audit's efficiency rather than its effectiveness.

Question 9

An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items.From experience,the auditor knows that a few specific items are subject to unusually large amounts of shrinkage.In using statistical sampling,the auditor's best course of action is to:
A)Eliminate any of the items known to be subject to unusually large amounts of shrinkage.
B)Increase the sample size to lessen the effect of the items subject to unusually large amounts of shrinkage.
C)Stratify the inventory population so that items subject to unusually large amounts of shrinkage are reviewed separately.
D)Continue to draw new samples until a sample is drawn which includes none of the items known to be subject to large amounts of shrinkage.

Accepted Answer

Stratifying the inventory population allows the auditor to review items subject to unusually large amounts of shrinkage separately, ensuring they get adequate attention while not biasing the overall estimate of inventory shrinkage. This approach allows for a representative sample to be taken, increasing the reliability of the estimate. Eliminating or continually re-sampling until certain items are not included could result in biased estimates, while increasing the sample size may be unnecessary and time-consuming.

Question 10

Population
- $\quad$ Size $= 10,000$ items
- Book value $= \$ 8,000,000$
- Tolerable misstatement $= \$ 300,000$
Sample
- $\quad$ Size $= 100$ items.
- Average book value of sample items $= \$ 795$
- Allowance for sampling risk $= \$ 220,000$
- Projected misstatement $= \$ 100,000$ overstatement
-The "high" end of the confidence interval around the projected misstatement is equal to an overstatement of:
A)$120,000.
B)$300,000.
C)$320,000.
D)$620,000.

Accepted Answer

Since the "high" end of the confidence interval is equal to the projected misstatement plus the margin of error, we can calculate it as follows:

Projected misstatement + (t-value * standard error)

= $200,000 + (2.23 * $60,000)

= $334,800

Therefore, the overstatement is equal to the "high" end of the confidence interval minus the projected misstatement:

$334,800 - $14,800 = $320,000

Thus, the correct answer is C.

Question 11

When performing a test of a control over cash disbursements,a CPA may use a systematic sampling technique with a start at any randomly selected item.The biggest disadvantage of this type of sampling is that the items in the population:
A)Must be recorded in a systematic pattern before the sample can be drawn.
B)May occur in a systematic pattern and destroy the sample randomness.
C)May systematically occur more than once in the sample.
D)Must be systematically replaced in the population after sampling.

Accepted Answer

The biggest disadvantage of using a systematic sampling technique with a randomly selected start is that items in the population may occur in a systematic pattern, which can destroy the randomness of the sample. This means that the sample may not be representative of the overall population and could lead to inaccurate conclusions. Therefore, choice B is the best choice.

Question 12

Population
- $\quad$ Size $= 10,000$ items
- Book value $= \$ 8,000,000$
- Tolerable misstatement $= \$ 300,000$
Sample
- $\quad$ Size $= 100$ items.
- Average book value of sample items $= \$ 795$
- Allowance for sampling risk $= \$ 220,000$
- Projected misstatement $= \$ 100,000$ overstatement
-The estimated total audited value of the population equals:
A)$7,680,000.
B)$7,780,000.
C)$7,900,000.
D)$7,950,000.

Accepted Answer

The estimated total audited value is calculated by subtracting the projected misstatement from the book value: $8,000,000 - $100,000 = $7,900,000.

Question 13

Which of the following statements is correct concerning statistical sampling in tests of controls?
A)The population size has little effect on determining sample size except for very small populations.
B)The expected population deviation rate has little or no effect on determining sample size except for very small populations.
C)As the population size doubles,the sample size also should double.
D)For a given tolerable rate,a larger sample size should be selected as the expected population deviation rate decreases.

Accepted Answer

The population size generally has little effect on the sample size in statistical sampling for tests of controls, except when dealing with very small populations. This is because the sample size is more influenced by the desired confidence level and the expected deviation rate rather than the population size itself.

Question 14

When using a statistical sampling plan,the auditors would probably require a smaller sample if the:
A)Population increases.
B)Tolerable misstatement decreases.
C)Desired risk of incorrect acceptance increases.
D)Expected deviation rate increases.

Accepted Answer

The desired risk of incorrect acceptance refers to the risk that the auditors are willing to take in accepting a financial statement assertion as true when it is actually false. When auditors are willing to accept a higher risk of incorrect acceptance, they are essentially saying they are more comfortable with the possibility of not detecting a misstatement. This increased comfort level allows them to justify using a smaller sample size, as they are less concerned about catching every potential error.

Question 15

An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by the client's control procedures.One of the checks in the chosen sample of 20 cannot be found.The auditor should consider the reasons for this limitation and:
A)Evaluate the results as if the sample size had been 19.
B)Treat the missing check as a deviation for the purpose of evaluating the sample.
C)Treat the missing check in the same manner as the majority of the other 19 checks,i.e. ,countersigned or not.
D)Choose another check to replace the missing check in the sample.

Accepted Answer

Treat the missing check as a deviation for the purpose of evaluating the sample is the correct approach because it reflects a potential weakness in the client's internal control system. The inability to locate a check could indicate issues such as poor record-keeping or even fraud, which are relevant concerns for an auditor assessing control risk.

Question 16

The tolerable deviation rate in sampling for tests of controls is:
A)Used to determine the probability of the auditor's conclusion based upon reliance factors.
B)The probability that the financial statements are not materially in error.
C)A measure of the reliability of substantive tests.
D)The rate the auditor will tolerate without modifying the planned assessment of control risk.

Accepted Answer

The tolerable deviation rate is the maximum deviation rate the auditor is willing to tolerate without changing the planned assessment of control risk. It is used to evaluate the results of tests of controls and determine the sample size needed for the tests. Choices A, B, and C are not accurate definitions of the tolerable deviation rate for tests of controls.

Question 17

An advantage of using statistical sampling techniques is that such techniques:
A)Mathematically measure risk.
B)Eliminate the need for judgmental decisions.
C)Define the values of the allowance for sampling risk and tolerable misstatement required to provide audit satisfaction.
D)Have been established in the courts to be superior to judgmental sampling.

Accepted Answer

Statistical sampling techniques allow auditors to mathematically measure risk and determine the appropriate sample size and the sampling risk associated with a given population. This enables auditors to provide a reasonable level of assurance without the need for subjective judgmental decisions. However, statistical sampling techniques are not necessarily superior to judgmental sampling in all circumstances, and their effectiveness may depend on the nature and complexity of the audit population.

Question 18

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.

Accepted Answer

This situation illustrates the risk of incorrect rejection, which occurs when the auditor concludes that a misstatement exists in an account balance when in fact it does not. This could be caused by sample error or the auditor's failure to recognize the true nature of the account balance. Incorrect acceptance (A) would occur if the auditor concludes that the account balance is not materially misstated when it actually is, and this would be a more serious risk. Assessing control risk too high (C) would result in a greater testing of controls and a lower level of detection risk, but it would not necessarily lead to an incorrect conclusion about the account balance itself. Assessing control risk too low (D) might lead to reduced testing of controls and a higher level of detection risk, but it would not necessarily lead to an incorrect conclusion about the account balance itself.

Question 19

Which of the following best illustrates the concept of sampling risk?
A)A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.
B)An auditor may select audit procedures that are not appropriate to achieve the specific objective.
C)An auditor may fail to recognize deviations in the documents examined for the chosen sample.
D)The documents related to the chosen sample may not be available for inspection.

Accepted Answer

Sampling risk refers to the possibility that a sample may not be representative of the population as a whole on the characteristic of interest. The other choices relate to other types of audit risks. B refers to the risk of audit strategy; C refers to the risk of detection; and D refers to the risk of non-sampling error.

Question 20

In variables estimation sampling,the sample standard deviation is used to calculate the:
A)Point estimate of central tendency.
B)Tainting of the sample interval.
C)Risk of incorrect acceptance.
D)Allowance for sampling risk.

Accepted Answer

The sample standard deviation is used to calculate the allowance for sampling risk in variables estimation sampling. This allows for a margin of error to be included in the estimation of the population parameter. Choices A, B, and C are not directly related to the use of sample standard deviation in variables estimation sampling.

Quiz 9: Audit Sampling

If all other factors specified in an attributes sampling plan remain constant,changing the specified tolerable rate from 8% to 6%,and changing the specified risk of assessing control risk too low from 7% to 3% would cause the required sample size to:

Which of the following statistical selection techniques is leastdesirable for use by an auditor?

Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate when:

In testing accounts receivable,an auditor sends out positive confirmation requests to 100 randomly selected customers.A customer returns the confirmation indicating that the balance is correct when,in fact,the balance is overstated.This is an example of:

There are many kinds of statistical estimates that an auditor may find useful,but basically every statistical estimate in auditing is of either a quantity or of an error rate.The statistical terms that roughly correspond to "quantities" and "occurrence rate," respectively,are:

Which of the following factors does an auditor need to consider in planning a particular audit sample for a test of control?

Various factors influence the sample size for a substantive test of details of an account balance.All other factors being equal,which of the following would lead to a larger sample size?

In assessing sampling risk,the risk of incorrect rejection and the risk of assessing control risk too high relate to the:

An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items.From experience,the auditor knows that a few specific items are subject to unusually large amounts of shrinkage.In using statistical sampling,the auditor's best course of action is to:

When performing a test of a control over cash disbursements,a CPA may use a systematic sampling technique with a start at any randomly selected item.The biggest disadvantage of this type of sampling is that the items in the population:

Which of the following statements is correct concerning statistical sampling in tests of controls?

When using a statistical sampling plan,the auditors would probably require a smaller sample if the:

An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by the client's control procedures.One of the checks in the chosen sample of 20 cannot be found.The auditor should consider the reasons for this limitation and:

The tolerable deviation rate in sampling for tests of controls is:

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

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:

Which of the following best illustrates the concept of sampling risk?

In variables estimation sampling,the sample standard deviation is used to calculate the: