Question 1

Which of the following factors is most likely established based on the results of prior audit examinations?

Accepted Answer

Expected misstatement is a factor that is typically determined based on the results of prior audit examinations. It represents the amount of potential misstatement that the auditor would expect to find in the current period based on past experience. The other factors listed (population size, risk of incorrect acceptance, and tolerable misstatement) are important considerations in the audit process, but are typically established through other means such as risk assessment procedures or client discussions.

Question 2

Which of the following components of the upper limit on misstatements is determined by multiplying the sampling interval by the confidence factor for the acceptable risk of incorrect acceptance?

Accepted Answer

The answer of Which of the following components of the...

Question 3

A number of factors influence the sample size for a variables sampling application.All other factors held constant,which of the following would lead to a larger sample size?

Accepted Answer

Lower levels of tolerable misstatement mean that the auditor is willing to accept less misstatement in the financial statements, which leads to a larger sample size to achieve a higher level of assurance.

Question 4

How does the auditor establish the level of tolerable misstatement in a variables sampling application?

Accepted Answer

In variables sampling, the auditor establishes the level of tolerable misstatement based on the recorded amount of the account balance as well as the relationship of the account balance with important financial statement subtotals. The auditor does not base the level of tolerable misstatement on prior assessments of audit risk, analytical procedures risk, or findings in prior audits. Additionally, the anticipated cost of conducting additional substantive procedures is considered in deciding the sample size, not in establishing the level of tolerable misstatement.

Question 5

In a classical variables sampling application,the sample size will be smaller when the

Accepted Answer

When population variability is lower, the sample size needed to obtain a certain level of precision is also lower. This is because a lower variability in the population means that the values in the sample are likely to be more similar, and therefore, fewer observations are needed to understand the overall characteristics of the population. This means that a smaller sample size can still provide reasonable assurance of the accuracy of the results, making it the best choice for reducing sampling costs while still maintaining an acceptable level of risk.

Question 6

Under monetary unit sampling,the sampling interval is determined by dividing the _____ by the _____.

Accepted Answer

The answer of Under monetary unit sampling,the sampling interval is...

Question 7

Which of the following factors has a direct relationship with sample size in a variables sampling application?

Accepted Answer

Sample size in a variables sampling application has a direct relationship with expected misstatement, but not with tolerable misstatement. Tolerable misstatement is determined by the auditor and is not impacted by sample size, whereas expected misstatement is estimated based on the sample size chosen. Therefore, the correct choice is B where "Tolerable misstatement: No; Expected misstatement: Yes."

Question 8

What is the auditor's normal course of action if a "logical unit" is selected twice in monetary unit sampling?

Accepted Answer

If a logical unit is selected twice in monetary unit sampling, the auditor should count it as two selections and proceed as normal. This is because the duplicate selection increases the likelihood of finding misstatements in that logical unit, making it appropriate to count it twice.

Question 9

Which of the following expresses the relationship between changes in the factors and changes in sample size in variables sampling?

Accepted Answer

In variables sampling, as the tolerable misstatement decreases, the expected misstatement increases, and as the expected misstatement increases, the risk of incorrect rejection decreases. Therefore, the relationship between changes in the factors is as follows: Tolerable misstatement and expected misstatement are inversely related, while expected misstatement and risk of incorrect rejection are directly related.

Question 10

Which of the following is found by dividing the amount of misstatement noted in a logical unit by the recorded amount of that logical unit?

Accepted Answer

The answer of Which of the following is found by...

Question 11

All other factors being equal,as the risk of incorrect acceptance and tolerable misstatement increase,the sample size will

Accepted Answer

As the risk of incorrect acceptance and tolerable misstatement increase, the sample size will decrease because the auditor is willing to accept a higher level of risk and error, thus requiring a smaller sample size.

Question 12

Which of the following components of the upper limit on misstatements will exist in all monetary unit sampling applications,even in those where no misstatements are found?

Accepted Answer

The basic allowance for sampling risk is a component of the upper limit on misstatements that exists in all monetary unit sampling applications, regardless of whether or not any misstatements are actually found. This is because it reflects the inherent risk associated with using a statistical sampling approach, and must be factored into the calculation of the upper limit on misstatements for the results to be meaningful. The other components listed (computed allowance for sampling risk, incremental allowance for sampling risk, and projected misstatement) are only relevant when misstatements are actually found during the sampling process.

Question 13

The amount by which a projected misstatement in an account balance or class of transactions differs from an actual misstatement as a result of the sample not being representative of the population would typically arise from

Accepted Answer

The amount by which a projected misstatement in an account balance or class of transactions differs from an actual misstatement as a result of the sample not being representative of the population is known as sampling risk. It is the risk that the sample is not an accurate representation of the entire population and therefore, the results obtained from the sample cannot be relied upon to represent the actual population. Sampling risk is one of the inherent risks of auditing and can be reduced by increasing the sample size or by selecting a more representative sample.

Question 14

Which of the following is not considered in establishing the sample size in a monetary unit sampling application?

Accepted Answer

All of these factors are considered in establishing the sample size in a monetary unit sampling application. Expected misstatement is used to determine the precision and reliability of the sample results. Population size can impact the sample size needed to represent the population adequately. The risk of incorrect acceptance is used to determine the level of assurance desired and can impact the sample size as well. Therefore, all of these factors should be considered when determining the appropriate sample size.

Question 15

What is the projected misstatement?

Accepted Answer

The answer of What is the projected misstatement?
...

Question 16

Brown,CPA,was using monetary unit sampling to audit an inventory of $3,000,000 that was comprised of 6,000 items.A sample size of 500 was determined and a tolerable misstatement of $20,000 was established.The sampling interval would be

Accepted Answer

The answer of Brown,CPA,was using monetary unit sampling to audit...

Question 17

Using an incremental confidence factor of 1.58 (corresponding to the risk of incorrect acceptance of 10%),what is the incremental allowance for sampling risk?

Accepted Answer

To calculate the incremental allowance for sampling risk, we need to use the following formula:

Incremental allowance for sampling risk = (incremental confidence factor) x (standard deviation of the population)

We are given the incremental confidence factor as 1.58. We do not have the standard deviation of the population, so we cannot calculate the exact incremental allowance for sampling risk. However, we can estimate it based on the answer choices.

We can see that the incremental allowance for sampling risk must be greater than $5,000, since answer choice A is too low. It must also be greater than $7,900, since answer choice B is too low.

Answer choice C is $8,700. This is a plausible estimate for the incremental allowance for sampling risk, since it is higher than the previous two answer choices.

Answer choice D is $23,700. This is too high to be a plausible estimate for the incremental allowance for sampling risk, since it is more than twice the amount of answer choice C.

Question 18

Which of the following set of conditions would provide the auditor with the smallest sample size under monetary unit sampling (RIA = risk of incorrect acceptance,EM = expected misstatement,TM = tolerable misstatement,PS = population size)?

Accepted Answer

The sample size in monetary unit sampling is determined by the equation: Sample Size = (PS * TM) / EM. Therefore, to obtain the smallest sample size, we need to have a lower expected misstatement and a higher population size. Additionally, maintaining the RIA and TM values equal across all options, option C has the lowest expected misstatement of $2,000 and the population size of $100,000 which would lead to the smallest sample size.

Question 19

Which of the following factors that affect sample size can be determined by considering the recorded account balance of the account or class of transactions as well as the relationship between the recorded account balance or class of transactions with important financial statement subtotals?

Accepted Answer

The answer of Which of the following factors that affect...

Question 20

What is the appropriate sampling interval?

Accepted Answer

The answer of What is the appropriate sampling interval?
...

Quiz 19: Variables Sampling