Question 1

The tolerable deviation rate for a test of controls is generally
A) Lower than the expected rate of deviations in the related accounting records.
B) Higher than the expected rate of deviations in the related accounting records.
C) Identical to the expected rate of deviations in the related accounting records.
D) Unrelated to the expected rate of deviations in the related accounting records.

Accepted Answer

The tolerable deviation rate for a test of controls is generally higher than the expected rate of deviations in the related accounting records. This is because the auditor wants to have a lower risk of concluding that the control is effective when it is actually not (Type II error), and a higher risk of concluding that the control is not effective when it actually is not (Type I error). Therefore, the auditor sets a higher threshold for the tolerable deviation rate to ensure that the control is working effectively.

Question 2

A Type I error is the risk of incorrect acceptance.

Accepted Answer

A Type I error is the risk of incorrect rejection of a true null hypothesis, also known as a "false positive."

Question 3

An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the entity's internal 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

The missing check should be treated as a deviation because its absence could indicate a potential control weakness or issue, and it is important to consider it as such when evaluating the sample results.

Question 4

The likelihood of assessing control risk too high is the risk that the sample selected to test controls
A) Does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment.
B) Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes.
C) Contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole.
D) Does not support the tolerable misstatement for some or all of management's assertions.

Accepted Answer

If the sample selected to test controls does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment, then the auditor may assess control risk too high. This means that the auditor may conclude that internal controls are not effective in preventing or detecting material misstatements when they actually are effective, leading to an incorrect assessment of control risk. Choices B, C, and D describe other risks but do not relate specifically to assessing control risk too high.

Question 5

A Type II error is the risk of incorrect acceptance.

Accepted Answer

The answer of A Type II error is the risk...

Question 6

Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%. In the review of client invoices, Jones should use
A) Discovery sampling.
B) Attributes sampling.
C) Stratified sampling.
D) Variables sampling.

Accepted Answer

Attributes sampling is best suited for this scenario, as Jones wants to determine whether the incidence of the billing error falls within an acceptable range or not. Attributes sampling focuses on identifying the presence or absence of a particular attribute (in this case, billing errors) within the population, which aligns with Jones' objectives. The sample size and the number of errors found will determine whether a significant deviation exists from the tolerable rate.

Question 7

Attribute sampling is used to estimate the proportion of a population that possesses a specified characteristic.

Accepted Answer

Attribute sampling is commonly used to estimate the proportion of a population that has a specific characteristic, such as compliance with a particular control procedure.

Question 8

The risk of incorrect acceptance relates to the
A) Effectiveness of the audit.
B) Efficiency of the audit.
C) Preliminary estimates of materiality levels.
D) Tolerable misstatement.

Accepted Answer

The risk of incorrect acceptance affects the effectiveness of the audit because it refers to the possibility that the auditor will conclude that a material misstatement does not exist when it actually does, leading to an ineffective audit.

Question 9

Auditing standards permit both statistical and nonstatistical methods of audit sampling.

Accepted Answer

Auditing standards recognize that both statistical and nonstatistical methods of audit sampling may be appropriate in certain circumstances. The auditor should choose a method that is most appropriate for the particular audit objective and the nature of the population being sampled.

Question 10

Confidence level and sampling risk are related to sample size.

Accepted Answer

A larger sample size generally increases the confidence level and decreases the sampling risk.

Question 11

With a nonstatistical sampling application, the auditor relies on professional judgment rather than the laws of probability to reach a conclusion about the audit test.

Accepted Answer

Nonstatistical sampling is a method of sampling that is based on the auditor's professional judgment rather than statistical theory. Hence, the statement is true.

Question 12

Audit sampling is commonly used to gather confirmation audit evidence.

Accepted Answer

Audit sampling is a technique used by auditors to select a sample of transactions or balances from a population with the aim of gathering sufficient and appropriate audit evidence to support the conclusions reached by the auditor. Confirmation audit evidence is one of the types of evidence that can be gathered through audit sampling.

Question 13

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 (regarding the characteristic being tested).
B) An auditor may select audit procedures that are not appropriate to achieve the specific objective.
C) An auditor may fail to recognize errors 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 is the risk that a sample may not be representative of the population as a whole. Choice A best illustrates this concept. Choice B is an example of detection risk, which is the risk that audit procedures will not detect material misstatements. Choice C is an example of inherent risk, which is the risk that material misstatements will occur in the financial statements. Choice D is an example of non-sampling risk, which is the risk that arises from factors other than sample selection, such as the quality of the data or the auditor's judgment.

Question 14

Harvey Jones, CPA, uses statistical sampling to test control procedures. What is a benefit of using statistical sampling?
A) It provides a means of mathematically measuring the sampling risk that result from examining only a part of the data.
B) It eliminates the use of judgment required of Jones because the AICPA has established numerical criteria for this type of testing.
C) It increases Jones' knowledge of the entity's prescribed procedures and their limitations.
D) It is required by generally accepted auditing standards.

Accepted Answer

Using statistical sampling allows Harvey Jones to measure the sampling risk associated with only examining a part of the data. This provides a more reliable and accurate assessment of control procedures than relying solely on judgment or randomly selecting items without any mathematical basis. It is not necessarily required by generally accepted auditing standards, but it is a common and effective approach to testing control procedures.

Question 15

For which of the following audit tests would an auditor most likely use attributes sampling?
A) Making an independent estimate of the amount of LIFO inventory.
B) Examining invoices in support of the valuation of fixed asset additions.
C) Selecting accounts receivable balances for confirmation.
D) Inspecting employee time cards for proper approval by supervisors.

Accepted Answer

The answer of For which of the following audit tests...

Question 16

An underlying feature of random-based selection of items is that each
A) Stratum of the accounting population be given equal representation in the sample.
B) Item in the accounting population be randomly ordered.
C) Item in the accounting population should have an opportunity to be selected.
D) Item must be systematically selected using replacement.

Accepted Answer

Random-based selection ensures that each item in the accounting population has an opportunity to be selected. This helps to reduce bias and increase the representativeness of the sample. Options A and D are not necessarily features of random-based selection, while option B is not relevant to the sampling process.

Question 17

Confidence level is the complement of sampling risk.

Accepted Answer

Confidence level and sampling risk are inversely related. The higher the confidence level, the lower the sampling risk and vice versa. Therefore, confidence level and sampling risk are not complements, but rather they are related in their effect on the sample size and the degree of accuracy of the results.

Question 18

Audit sampling is commonly used to gather scanning audit evidence.

Accepted Answer

Audit sampling is used to gather audit evidence through testing a representative sample of a population, not specifically for scanning purposes.

Question 19

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was
A) The only deviation discovered in the sample.
B) Identical to a deviation discovered during the prior year's audit.
C) Caused by an employee's oversight.
D) Initially concealed by a forged document.

Accepted Answer

Deviations that are initially concealed by forged documents raise concerns about the integrity of management and may indicate a material misstatement. Therefore, auditors would give broader consideration to such deviations compared to other options listed.

Question 20

The larger the sample, the lower the confidence level and the lower the sampling risk.

Accepted Answer

The larger the sample, the higher the confidence level and the lower the sampling risk. This is because a larger sample size provides a more accurate representation of the population being studied.

Quiz 8: Audit Sampling: An Overview and Application to Tests of Controls

The tolerable deviation rate for a test of controls is generally

A Type I error is the risk of incorrect acceptance.

An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the entity's internal 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 likelihood of assessing control risk too high is the risk that the sample selected to test controls

A Type II error is the risk of incorrect acceptance.

Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%. In the review of client invoices, Jones should use

Attribute sampling is used to estimate the proportion of a population that possesses a specified characteristic.

The risk of incorrect acceptance relates to the

Auditing standards permit both statistical and nonstatistical methods of audit sampling.

Confidence level and sampling risk are related to sample size.

With a nonstatistical sampling application, the auditor relies on professional judgment rather than the laws of probability to reach a conclusion about the audit test.

Audit sampling is commonly used to gather confirmation audit evidence.

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

Harvey Jones, CPA, uses statistical sampling to test control procedures. What is a benefit of using statistical sampling?

For which of the following audit tests would an auditor most likely use attributes sampling?

An underlying feature of random-based selection of items is that each

Confidence level is the complement of sampling risk.

Audit sampling is commonly used to gather scanning audit evidence.

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was

The larger the sample, the lower the confidence level and the lower the sampling risk.