Question 1

Which of the following would not be an example of nonsampling risk in an attributes sampling application?

Accepted Answer

Nonsampling risk refers to human errors or mistakes that are not related to the sample size or selection. Incorrectly estimating the expected population deviation rate is related to sampling risk, not nonsampling risk.

Question 2

Samples to test internal control procedures are intended to provide a basis for an auditor to conclude whether:

Accepted Answer

Samples to test internal control procedures provide evidence to support an auditor's conclusion on whether the control procedures are operating effectively. The purpose is to evaluate the design and implementation of internal controls to determine if they are adequate to prevent or detect material misstatement of the financial statements.

Question 3

An erroneous decision to assess control risk at excessively high levels can have an adverse effect on:

Accepted Answer

Assessing control risk too high can lead to unnecessary audit procedures, reducing efficiency.

Question 4

As part of the assessment of control risk,the auditor decided to use audit sampling.After specifying the audit objectives,what would the auditor most likely do next?

Accepted Answer

After specifying the audit objectives, the auditor would define the deviation conditions to understand what constitutes a deviation or error in the context of the audit objectives. This step is crucial before determining sample size or selecting the sample.

Question 5

When the auditor concludes that a control is functioning properly when,in fact,it is not,the auditor has committed the:

Accepted Answer

When the auditor concludes that a control is functioning properly when it is not, it means that he has placed too much reliance on the control, and this is referred to as the risk of overreliance. This increases the risk of the auditor failing to detect material misstatements in the financial statements.

Question 6

As a result of sampling procedures applied as tests of controls,an auditor incorrectly assesses control risk lower than appropriate.The most likely explanation for this situation is that:

Accepted Answer

If the deviation rate in the auditor's sample is less than the tolerable rate of deviation, then it is likely that the auditor will assess control risk lower than appropriate. However, if the deviation rate in the population exceeds the tolerable rate of deviation, then the auditor's assessment of control risk is incorrect. Therefore, option C is the most likely explanation for this situation.

Question 7

The ultimate purpose of control risk assessment is to:

Accepted Answer

The ultimate purpose of control risk assessment is to determine the nature, timing, and extent of further audit procedures. This is done to minimize the risk of failing to detect material misstatements and to ensure that the auditor can provide an appropriate level of assurance regarding the accuracy and completeness of the financial statements. Control risk assessment is a critical step in the audit process as it helps the auditor to identify areas of the financial statements that may be susceptible to material misstatements and to design procedures accordingly.

Question 8

The purpose of tests of controls is to determine that:

Accepted Answer

Tests of controls are performed to evaluate the effectiveness of an entity's internal control policies and procedures in preventing or detecting material misstatements.

Question 9

Why is the auditor more concerned with the risk of overreliance than the risk of underreliance?

Accepted Answer

The risk of overreliance could lead to the auditor failing to detect material misstatements, which could result in an inaccurate report. This risk can be controlled by performing sufficient substantive procedures. On the other hand, the risk of underreliance is simply an inefficiency where the auditor performs more work than necessary. As such, the auditor is more concerned with the risk of overreliance.

Question 10

The risk of underreliance is the probability that the evidence in the sample indicates:

Accepted Answer

Underreliance occurs when the sample suggests a higher control risk than is actually warranted, meaning the controls are more effective than the sample indicates.

Question 11

Which of the following sampling risks is associated with the use of attributes sampling?

Accepted Answer

The answer of Which of the following sampling risks is...

Question 12

The auditor tested a sample of recorded sales invoices for evidence of credit approval.Based on the results of the sample,the auditor concluded that there was a satisfactory rate of approvals.Unknown to the auditor,credit approvals in the population were not satisfactory.This would be an example of:

Accepted Answer

The situation described is an example of the risk of overreliance, where the auditor incorrectly concludes that controls are effective based on the sample, while in reality, they are not effective in the population.

Question 13

The risk of underreliance is the risk that the sample selected to test controls:

Accepted Answer

Underreliance occurs when the auditor concludes that controls are less effective than they actually are, leading to the auditor assessing control risk too high. This can occur if the sample selected to test controls does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment.

Question 14

If the auditor were interested in ensuring that all sales have been recorded,the population would be defined as:

Accepted Answer

Shipping documents are used to verify that goods have been shipped, which helps ensure that all sales have been recorded.

Question 15

As a result of tests of controls,an auditor assessed control risk too low and decreased substantive procedures.This assessment occurred because the true deviation rate in the population was:

Accepted Answer

The auditor assessed control risk too low because the true deviation rate in the population was more than the deviation rate in the auditor's sample, leading to an incorrect conclusion about the effectiveness of controls.

Question 16

In performing tests of controls over authorization of cash disbursements,which of the following statistical sampling methods would be most appropriate?

Accepted Answer

In testing controls over authorization of cash disbursements, attributes sampling method would be most appropriate as it involves testing the presence or absence of a characteristic in a sample. Here, the auditor is looking to determine whether the controls over authorization of cash disbursements are operating effectively or not, which can be evaluated through testing a sample for the presence or absence of required approvals and documentation. Therefore, attributes sampling is the most suitable statistical sampling method for this purpose.

Question 17

Which of the following statements is correct concerning statistical sampling in tests of controls?

Accepted Answer

The expected population deviation rate can be estimated based on prior audits or a small sample from the current year, which helps in determining the sample size needed for testing controls.

Question 18

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

Accepted Answer

Attributes sampling is used to test the presence or absence of certain characteristics, such as proper approval on time cards, which is a compliance test.

Question 19

Which of the following components of the audit risk model is most closely associated with attributes sampling?

Accepted Answer

Attributes sampling is most closely associated with control risk as it is used to test the effectiveness of controls.

Question 20

What is the general order in which the following steps in attributes sampling are performed? 1 = Define the population
2 = Determine the objective of sampling
3 = Determine the sample size
4 = Select the sample

Accepted Answer

The general order is to first determine the objective of sampling, then define the population, determine the sample size, and finally select the sample.

Quiz 18: Attributes Sampling