Question 1

One of the steps involved in planning the sample for the tests of details of balances is to

Accepted Answer

Defining a misstatement is a planning step that helps determine what constitutes an error or deviation in the context of the audit, which is essential before selecting the sample or performing procedures.

Question 2

When errors are found in a sample, auditors in practice generally assume

Accepted Answer

When auditors find errors in a sample, they generally assume that these errors are representative of the population errors. This assumption is based on the principle that a well-chosen sample reflects the characteristics of the entire population.

Question 3

When analyzing misstatements, the auditor will determine

Accepted Answer

When analyzing misstatements, the auditor will need to consider all of the above factors. The implications of the misstatements can affect other audit areas, such as internal controls and materiality thresholds. The potential impact on the financial statements can be material and require further investigation. Finally, the effect on company operations may be relevant to understanding the root causes of the misstatements and their potential recurrence. Therefore, all options are important considerations when analyzing misstatements.

Question 4

Which of the following conditions would lead to a larger sample size?

Accepted Answer

A high control risk implies that the auditor cannot rely on the client's internal controls, necessitating a larger sample size to gather sufficient audit evidence.

Question 5

If no exceptions were found in the substantive tests of transactions,

Accepted Answer

The answer of If no exceptions were found in the...

Question 6

Which of the following would lead to a larger sample size?

Accepted Answer

Unsatisfactory results in other related substantive procedures would indicate a higher risk of material misstatement, which would require a larger sample size to obtain sufficient assurance. Low inherent risk, low control risk, and larger tolerable misstatement would all decrease the required sample size.

Question 7

If the population is not considered acceptable, one step the auditor is likely to take is to

Accepted Answer

If the population is not considered acceptable, the auditor may ask the client to adjust the account balance to reflect a more accurate financial position.

Question 8

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 not materially misstated. It was, in fact, materially misstated. This situation illustrates the risk of

Accepted Answer

This situation illustrates the risk of incorrect acceptance, where the auditor accepts the account balance as not materially misstated when in fact it is materially misstated. This highlights the importance of the auditor evaluating the risk of incorrect acceptance and designing appropriate tests to minimize this risk.

Question 9

________ is a method of projecting from the sample to the population to estimate the population misstatement. It assumes that misstatements in the unaudited population are proportional to the misstatements found in the sample.

Accepted Answer

The answer of ________ is a method of projecting from...

Question 10

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will

Accepted Answer

As the amount of misstatements expected in the population approaches the tolerable misstatement, auditors perceive a higher risk of material misstatement. To mitigate this risk and gain more assurance, they will plan for a larger sample size to perform a more thorough examination.

Question 11

Factors considered by an auditor to determine the possibility that the true population misstatement exceeds a tolerable amount in a nonstatistical sample include all of the following except for

Accepted Answer

Factors considered by an auditor to determine the possibility that the true population misstatement exceeds a tolerable amount in a nonstatistical sample include the extent to which items in the population have been audited 100%, whether misstatements tend to be offsetting or in only one direction, and the amounts of individual misstatements. Option B is incorrect because the difference between the point estimate and acceptable control risk is not relevant for determining the possibility that the true population misstatement exceeds a tolerable amount in a nonstatistical sample.

Question 12

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is

Accepted Answer

The acceptable risk of incorrect acceptance is the risk that the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement. This risk is determined by the auditor based on professional judgment, and it represents the maximum level of risk the auditor is willing to take when performing an audit. If the actual misstatement in the balance exceeds the tolerable misstatement, the auditor will not be able to detect the misstatement with reasonable assurance, and this may result in an incorrect audit opinion. Therefore, the acceptable risk of incorrect acceptance is a critical factor in determining the appropriate level of audit evidence required to reduce the risk of incorrect acceptance to an acceptable level.

Question 13

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. Which of the following is the least likely auditor reaction to this discovery?

Accepted Answer

Increasing detection risk in the relevant areas is the least likely auditor reaction to the discovery of a material misstatement in the recorded account balance. Increasing detection risk means that the auditor is willing to accept a higher risk of not detecting material misstatements, which is not an appropriate response to a significant finding that the recorded account balance is materially misstated. The auditor should perform expanded audit tests in the relevant areas or increase the sample size to obtain sufficient evidence about the accuracy of the account balance. Taking no action until tests of other audit areas are completed is also not a recommended approach, as it could lead to delayed identification and correction of material misstatements.

Question 14

When defining the population and the sampling unit for tests of details of balances,

Accepted Answer

The answer of When defining the population and the sampling...

Question 15

If analytical procedures are performed with no indications of likely misstatements, ARIA will ________ and the sample size will ________.

Accepted Answer

If analytical procedures show no indications of likely misstatements, the auditor's risk of incorrect acceptance (ARIA) can be increased, allowing for a smaller sample size.

Question 16

An auditor using nonstatistical sampling cannot formally measure sampling error and therefore must subjectively consider the possibility that the true population misstatement exceeds a tolerable amount. Which of the following factors should be considered by the auditor in making this assessment?

Accepted Answer

The answer of An auditor using nonstatistical sampling cannot formally...

Question 17

Which of the following is an accurate statement regarding how the acceptable risk of overreliance (ARO) and the acceptable risk of incorrect acceptance (ARIA) interact to affect evidence accumulation?

Accepted Answer

A lower control risk would allow the auditor to have a higher ARIA. This is because if controls are effective, the risk of incorrect acceptance is lower, and therefore the auditor can tolerate a higher level of ARIA without increasing the overall risk of material misstatement. This would lead to a smaller sample size in the substantive tests of details of balances. Choices A, B, and D do not accurately describe how ARO and ARIA interact to affect evidence accumulation.

Question 18

You are auditing Raji and Company. You discover an item of inventory with an audited value of $5,000 with a recorded amount of $3,000. If this is the only error you discover, the projected misstatement for the sample would be

Accepted Answer

The projected misstatement is calculated as the audited value minus the recorded amount, so $5,000 - $3,000 = $2,000. Therefore, the projected misstatement for the sample would be $2,000.

Question 19

Which of the following needs to be considered when the auditor generalizes from the sample to the population?

Accepted Answer

The answer of Which of the following needs to be...

Question 20

Which of the following is a correct statement?

Accepted Answer

The answer of Which of the following is a correct...

Quiz 17: Audit Sampling for Tests of Details of Balances