Question 1

Place the following steps in their proper order:
1)Analyze exceptions
2)Select the sample
3)Define attributes and exception conditions
4)State the objectives of the audit test
5)Specify the tolerable exception rate
A) 1, 3, 2, 4, 5.
B) 4, 3, 1, 2, 5.
C) 4, 3, 5, 2, 1.
D) 1, 2, 3, 4, 5.

Accepted Answer

The correct sequence for conducting an audit test starts with stating the objectives (4), then defining attributes and exception conditions (3), specifying the tolerable exception rate (5), selecting the sample (2), and finally analyzing exceptions (1). This logical progression ensures a structured approach to auditing, from planning through execution and analysis.

Question 2

The upper limit of the interval estimate is also known as the confidence interval.

Accepted Answer

The upper limit of the interval estimate is a part of the confidence interval, which also includes a lower limit; together, they define the range of values within which a population parameter is estimated to lie with a certain level of confidence.

Question 3

Auditors often use the ________ to determine the estimated population exception rate.
A) current year's audit results
B) tolerable exception rate
C) preceeding year's audit results
D) estimated computed by management

Accepted Answer

The answer of Auditors often use the ________ to determine...

Question 4

The acceptable risk of overreliance:
A) is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are.
B) is less of a concern to the auditors than the risk of underreliance.
C) represents the auditor's measure of sampling risk.
D) is determined by a statistical formula, and not by professional judgment.

Accepted Answer

The acceptable risk of overreliance represents the auditor's measure of sampling risk, which is the risk that the auditor's conclusion based on a sample may be different from the conclusion they would reach if they examined every item in the population. This is a key concept in audit sampling and risk assessment.

Question 5

When the computed upper exception rate is greater than the tolerable exception rate,it is necessary for the auditor to take specific action.Which of the following courses of action would be most difficult to justify?
A) Reduce the tolerable exception rate so as to accept the sample results.
B) Expand the sample size and perform more tests.
C) Revise the assessed control risk.
D) Write a letter to management which outlines the control deficiencies.

Accepted Answer

It would be difficult to justify reducing the tolerable exception rate in order to accept the sample results, as this would essentially lower the auditor's standards and increase the risk of material misstatement going undetected. The auditor should instead explore other options such as expanding the sample size, revising the assessed control risk, or reporting the control deficiencies to management.

Question 6

The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the:
A) finite correction factor.
B) tolerable exception rate.
C) acceptable risk of overreliance.
D) estimated population exception rate.

Accepted Answer

The acceptable risk of overreliance is the level of risk that the auditor is willing to accept that the control is functioning effectively, even though it may not be, resulting in a material misstatement in the financial statements. In other words, it is the risk that the auditor is willing to take to avoid the cost or effort of testing further. The finite correction factor is a statistical term used in sampling, the tolerable exception rate is the maximum number of exceptions the auditor is willing to accept, and the estimated population exception rate is the auditor's best estimate of the true exception rate in the population being tested.

Question 7

What types of exceptions are auditors most concerned with when evaluating populations of accounting data?

Accepted Answer

The answer of What types of exceptions are auditors most...

Question 8

Which of the following must be set prior to testing a sample?
A) Sample exception rate
B) Achieved upper precision limit
C) Computed exception rate
D) Tolerable exception rate

Accepted Answer

The tolerable exception rate must be set prior to testing a sample as it is the maximum rate of exceptions that can be accepted without the conclusion that the control is not operating effectively. The sample exception rate, achieved upper precision limit, and computed exception rate are determined during the testing process.

Question 9

Which of the following represents the best description of the tolerable exception?
A) The highest exception rate the auditor will permit in the control being tested and still conclude it is operating effectively
B) The highest exception rate the auditor expects to find in the population
C) The number of exceptions found in the sample divided by the sample size
D) The highest estimated exception rate in a population at a given EPER

Accepted Answer

The tolerable exception is the highest exception rate that the auditor will allow for a control to still conclude that it is operating effectively. It is a key component in determining the sample size for testing controls. Option B is incorrect because the tolerable exception rate is not an expectation but a limit set by the auditor. Option C is the definition of the sample exception rate. Option D refers to the estimated population exception rate, which is related to the tolerable exception rate but not the same thing.

Question 10

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions,the auditor:
A) can conclude that the sample exception rate is 2%.
B) can conclude that the population exception rate is 2%.
C) can calculate the highest exception rate expected in the population.
D) cannot make any conclusions about either the sample or the population.

Accepted Answer

The answer of If an auditor judgmentally selects a sample...

Question 11

The exception rate the auditor will permit in the population and still be willing to reduce the assessed level of control risk is called the:
A) tolerable exception rate.
B) estimated population exception rate.
C) acceptable risk of overreliance.
D) sample exception rate.

Accepted Answer

Tolerable exception rate is the exception rate that the auditor will allow in the population and still be willing to reduce the assessed level of control risk. It is used in determining the sample size for tests of controls and in evaluating the results of those tests. The other options are important concepts in auditing but do not directly relate to the question asked.

Question 12

If the auditor concludes that the CUER is 5% at a 8% sampling risk,this means that the exception rate in the population is no greater than 5% with an 8% risk of the exception rate exceeding 5%.

Accepted Answer

The statement accurately describes what it means when an auditor concludes that the CUER is 5% at an 8% sampling risk. It means that there is a 92% confidence level that the true exception rate in the population is no greater than 5%, but there is still a small 8% chance that the exception rate in the population may exceed 5%.

Question 13

In testing controls,an overreliance on internal controls that reduces substantive tests and increases the likelihood of not detecting a material misstatement occurs because:
A)Deviation in the population was less than the sample.
B) true deviation in the population was greater than the sample.
C) auditor judgment was flawed.
D) it is inherent in the audit risk model.

Accepted Answer

Overreliance on internal controls can lead to an increased risk of not detecting material misstatements if the true deviation in the population is greater than what was observed in the sample. This means that substantive testing should be conducted to ensure the accuracy of the financial statements. Deviations that are less than the sample or flawed auditor judgment do not necessarily lead to an increased risk of not detecting material misstatements. It is inherent in the audit risk model to consider both controls and substantive tests to address the risk of material misstatements.

Question 14

The relationship of tolerable exception rate (TER)to sample size is:
A) direct (larger TER = larger sample).
B) inverse (larger TER = smaller sample).
C) variable (sometimes larger, sometimes smaller).
D) not determinable.

Accepted Answer

The larger the tolerable exception rate (TER) the smaller the sample size, as the acceptable risk of errors or exceptions is lower and a smaller sample size is necessary to ensure that the TER is not exceeded.

Question 15

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated?
A) Sample exception rate
B) Estimated population exception rate
C) Computed upper exception rate
D) Exception

Accepted Answer

The answer of Which of the following is not a...

Question 16

When analyzing exceptions,the auditor should keep in mind that:
A) all exceptions must be reported to management.
B) they should determine the breakdown in the internal controls that allowed the exceptions to occur.
C) the nature of an exception and its causes have no effect on the qualitative evaluation of the system.
D) exceptions do not need to be analyzed if it is too costly.

Accepted Answer

When analyzing exceptions, the auditor should determine the breakdown in the internal controls that allowed the exceptions to occur. This will help the auditor provide recommendations to management on how to address the internal control weaknesses that led to the exceptions. Reporting all exceptions to management is also important, but not the only consideration. The nature of an exception and its causes can affect the qualitative evaluation of the system, so it is important to analyze them. Exceptions should not be ignored solely because of cost.

Question 17

The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the:
A) acceptable exception rate.
B) estimated population exception rate.
C) sample exception rate.
D) tolerable exception rate.

Accepted Answer

The term "tolerable exception rate" is used in auditing to refer to the maximum rate of errors, omissions or exceptions in a given population that can be tolerated by the auditor without modifying the risk assessment. The tolerable exception rate is determined by the auditor based on factors such as the importance of the account being audited, the size of the population being audited and the materiality of any exceptions found. Therefore, option D (Tolerable exception rate) is the correct answer.

Question 18

If the auditor decides to assess control risk at the moderate level in a private company audit,when in previous years the auditor set control risk at the maximum level,then tests of controls for the current year would be:
A) increased in number.
B) reduced in number.
C) not performed.
D) unchanged from prior planned settings.

Accepted Answer

If the auditor decides to assess control risk at the moderate level instead of the maximum level, it means that the auditor believes the controls in place are more effective than in previous years. Therefore, the auditor can reduce the number of substantive tests performed, but should increase the number of tests of controls to ensure that their assessment of control risk is accurate. Therefore, the tests of controls for the current year would be increased in number.

Question 19

Which of the following is the exception rate that the auditor expects to find before testing?
A) Sample exception rate
B) Estimated population exception rate
C) Computed exception rate
D) Tolerable exception rate

Accepted Answer

The answer of Which of the following is the exception...

Question 20

Which of the following would have the least impact in determining sample size?
A) Acceptable risk of overreliance
B) Risk of assessing control risk too low
C) Tolerable exception rate
D) Population size

Accepted Answer

Population size may have a slight impact on sample size calculations, but it is generally not a significant factor compared to other variables such as acceptable risk of overreliance, risk of assessing control risk too low, and tolerable exception rate.

Quiz 15: Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Place the following steps in their proper order: 1) Analyze exceptions 2) Select the sample 3) Define attributes and exception conditions 4) State the objectives of the audit test 5) Specify the tolerable exception rate

The upper limit of the interval estimate is also known as the confidence interval.

Auditors often use the ________ to determine the estimated population exception rate.

The acceptable risk of overreliance:

When the computed upper exception rate is greater than the tolerable exception rate,it is necessary for the auditor to take specific action.Which of the following courses of action would be most difficult to justify?

The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the:

What types of exceptions are auditors most concerned with when evaluating populations of accounting data?

Which of the following must be set prior to testing a sample?

Which of the following represents the best description of the tolerable exception?

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions,the auditor:

The exception rate the auditor will permit in the population and still be willing to reduce the assessed level of control risk is called the:

If the auditor concludes that the CUER is 5% at a 8% sampling risk,this means that the exception rate in the population is no greater than 5% with an 8% risk of the exception rate exceeding 5%.

In testing controls,an overreliance on internal controls that reduces substantive tests and increases the likelihood of not detecting a material misstatement occurs because:

The relationship of tolerable exception rate (TER) to sample size is:

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated?

When analyzing exceptions,the auditor should keep in mind that:

The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the:

If the auditor decides to assess control risk at the moderate level in a private company audit,when in previous years the auditor set control risk at the maximum level,then tests of controls for the current year would be:

Which of the following is the exception rate that the auditor expects to find before testing?

Which of the following would have the least impact in determining sample size?