Question 1

Expected misstatement is directly related to sample size.

Accepted Answer

This statement is true. As sample size increases, expected misstatement decreases. This is because a larger sample size increases the likelihood of uncovering errors or misstatements in the population, resulting in a more accurate estimate of the total misstatement.

Question 2

In monetary-unit sampling, population size is:
A)the dollar balance in an account.
B)the number of items in an account.
C)unrelated to sample size.
D)included in the denominator of the formula to determine sample size.

Accepted Answer

Population size in monetary-unit sampling refers to the dollar balance of the account being sampled. It is used in the formula to determine sample size, as a larger population size would require a larger sample size. Therefore, option A is the correct answer.

Question 3

Monetary-unit sampling should not be used if:
A)the population includes several large items.
B)the auditor expects overstatement errors.
C)many items in the account are expected to have errors.
D)no items in the account are expected to have errors.

Accepted Answer

Monetary-unit sampling is designed to estimate the monetary value of errors in a population based on a sample of items. Therefore, if many items in the account are expected to have errors, the results obtained from monetary-unit sampling may be unreliable. It is recommended to use other sampling methods in such cases, such as probability-proportional-to-size sampling or simple random sampling.

Question 4

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. Such a situation illustrates the risk of:
A)incorrect rejection.
B)incorrect acceptance.
C)assessing control risk too high.
D)assessing control risk too low.

Accepted Answer

Incorrect rejection occurs when an auditor concludes that a material misstatement exists in a financial statement assertion when, in fact, no such misstatement exists. This leads to potentially unnecessary additional work or adjustments that are not actually required.

Question 5

In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if:
A)monetary-unit sampling (MUS)is used.
B)classical variables sampling is used in order to focus on large items.
C)the auditor's estimated tolerable misstatement is extremely small.
D)the standard deviation of recorded amounts is relatively small.

Accepted Answer

Stratification is a technique used to divide a population into smaller, more homogeneous groups based on specific characteristics. In the context of auditing, stratifying a population can be particularly useful when using classical variables sampling, as it allows the auditor to focus on larger items that are more likely to be significant to the audit. This approach helps in efficiently allocating audit resources to areas of higher risk or value, thereby increasing the effectiveness of the sampling procedure.

Question 6

After a sample is drawn randomly, the allowance for sampling risk must be statistically quantified within a specified level of confidence when using nonstatistical sampling techniques.

Accepted Answer

Nonstatistical sampling does not involve the statistical quantification of sampling risk or the specification of a confidence level; these are characteristics of statistical sampling.

Question 7

Monetary-unit sampling is commonly used by auditors to test controls.

Accepted Answer

Monetary-unit sampling is primarily used for testing the accuracy of financial accounts and the validity of financial statements, rather than testing controls. Testing controls typically involves procedures designed to evaluate the effectiveness of an organization's internal control system.

Question 8

For monetary-unit sampling, the number of items tested is:
A)always equal to sample size.
B)always greater than sample size.
C)always greater than or equal to sample size.
D)always less than or equal to sample size.

Accepted Answer

The answer of For monetary-unit sampling, the number of items...

Question 9

The risk of incorrect acceptance and the risk of overreliance (Type II Errors)relate to the:
A)preliminary estimates of materiality levels.
B)allowable risk of tolerable error.
C)efficiency of the audit.
D)effectiveness of the audit.

Accepted Answer

The risk of incorrect acceptance and the risk of overreliance (Type II Errors) relate to the effectiveness of the audit because they involve the auditor's decision that could potentially accept a financial statement as fair when there are material misstatements present, or rely too much on internal controls when they are not effective.

Question 10

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?
A)Expected amount of misstatement but not the measure of tolerable misstatement.
B)Expected amount of misstatement and the measure of tolerable misstatement.
C)Measure of tolerable misstatement but not the expected amount of misstatement.
D)Neither the expected amount of misstatement nor the measure of tolerable misstatement.

Accepted Answer

The expected amount of misstatement and the measure of tolerable misstatement both influence the sample size for a substantive test of details. The auditor needs to consider how much misstatement is acceptable (tolerable) based on the materiality of the account and then use the expected amount of misstatement to calculate the appropriate sample size. Choice A is incorrect as it only considers one factor. Choice C is incorrect as it flips the focus of the sample from the expected misstatement to the tolerable misstatement, which is not the correct approach. Choice D is incorrect as both factors are important in determining the sample size.

Question 11

The purpose of audit sampling is to draw inferences about the entire population from the results of a sample.

Accepted Answer

The purpose of audit sampling is indeed to draw conclusions about the entire population based on the results of a sample. This is a common practice in auditing, as it is often not feasible or cost-effective to examine every single item in a population. Instead, auditors use statistical sampling techniques to draw a representative sample of items, test them, and then extrapolate the results to the population as a whole. This process allows auditors to gain reasonable assurance about the accuracy and completeness of a population while minimizing the time and resources required for the audit.

Question 12

An auditor is preparing to sample an entity's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is:
A)attribute sampling.
B)ratio-estimation sampling.
C)monetary-unit sampling.
D)mean-per-unit sampling.

Accepted Answer

Monetary-unit sampling is the only sampling method listed that automatically provides stratification when using systematic selection. This method involves selecting individual monetary units, rather than customer accounts, which naturally stratifies the population based on the size of the monetary units. This can be helpful in identifying overstatements in larger balances, which may be more material to the financial statements. Therefore, monetary-unit sampling is the best choice for a sampling method that provides stratification when sampling customer receivables for overstatement.

Question 13

Which of the following statements best describes an inherent limitation of the monetary-unit sampling method?
A)It can only be used for substantive testing of asset accounts.
B)It requires the use of a computer system to perform the required calculations.
C)Misstatement rates must be large and the misstatements must be overstatements.
D)Misstatement rates must be small and the misstatements must be overstatements.

Accepted Answer

Monetary-unit sampling inherently assumes that misstatements are overstatements, which is suitable for tests where understatements are not a concern or are unlikely. It is particularly effective when misstatement rates are expected to be small, as it focuses on the value of transactions, making it more likely to select larger items for testing.

Question 14

Confidence level is inversely related to sample size.

Accepted Answer

Confidence level and sample size are positively related. As the sample size increases, the confidence level also increases.

Question 15

Classical variables sampling uses normal distribution theory to evaluate the characteristics of a population based on sample data.

Accepted Answer

Classical variables sampling does use normal distribution theory to make conclusions about the population based on sample data.

Question 16

The size of the upper limit on misstatement is largely dependent on the sample size, which is inversely related to the desired confidence level.

Accepted Answer

The size of the upper limit on misstatement is largely dependent on the desired confidence level and the results of the audit procedures, not directly on the sample size. While sample size can affect the precision of the audit results, the relationship between sample size and the upper limit on misstatement is not inversely related to the desired confidence level.

Question 17

Monetary-unit sampling is based on attribute sampling concepts.

Accepted Answer

Monetary-unit sampling is a type of statistical sampling method that is based on attribute sampling concept, which involves identifying if a particular item or area in a population possesses a specific attribute or not. However, instead of looking at attributes, monetary-unit sampling uses monetary amounts as the basis for sample selection.

Question 18

The objective of monetary-unit sampling is to test the assertion that no material misstatements exist in an account balance or class of transactions.

Accepted Answer

This is the correct objective of monetary-unit sampling. Monetary-unit sampling is a statistical sampling method used in auditing to test the accuracy of an account balance or class of transactions. By randomly selecting and testing individual monetary units, auditors can extrapolate their findings to the overall population and determine whether any material misstatements exist.

Question 19

A number of 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)Greater reliance on internal controls.
B)Greater reliance on analytical procedures.
C)Smaller expected frequency of misstatements.
D)Smaller measure of tolerable misstatements.

Accepted Answer

A smaller measure of tolerable misstatements means that the auditor is willing to tolerate less misstatement in the account balance, which requires a larger sample size to ensure the reliability of the conclusion. In contrast, choices A and B would lead to a smaller sample size, as reliance on internal controls and analytical procedures reduces the level of substantive testing required. Choice C is irrelevant since it refers to the expected frequency of misstatements, not the sample size.

Question 20

Haphazard selection allows the auditor to select items with bias.

Accepted Answer

Haphazard selection is intended to be random and free from bias, allowing the auditor to select items without any systematic pattern or conscious bias.

Quiz 9: Audit Sampling: An Application to Substantive Tests of Account Balances

Expected misstatement is directly related to sample size.

In monetary-unit sampling, population size is:

Monetary-unit sampling should not be used if:

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. Such a situation illustrates the risk of:

In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if:

After a sample is drawn randomly, the allowance for sampling risk must be statistically quantified within a specified level of confidence when using nonstatistical sampling techniques.

Monetary-unit sampling is commonly used by auditors to test controls.

For monetary-unit sampling, the number of items tested is:

The risk of incorrect acceptance and the risk of overreliance (Type II Errors) relate to the:

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?