Question 1

Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate when:
A)The total book value is known and corresponds to the sum of all the individual book values.
B)A book value for each sample item is unknown.
C)There are some observed differences between audited values and book values.
D)The audited values are nearly proportional to the book value.

Accepted Answer

Ratio estimation relies on the relationship between the book values and the audited (or actual) values of items in a sample. If a book value for each sample item is unknown, this technique cannot be applied because the ratio (or relationship) between the book and audited values cannot be established.

Question 2

Various 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)Lower assessment of control risk.
B)Greater reliance on analytical procedures.
C)Smaller expected frequency of misstatements.
D)Smaller measure of tolerable misstatement.

Accepted Answer

A smaller measure of tolerable misstatement means that the auditor is willing to tolerate fewer errors in the account balance, which requires a larger sample size to increase the likelihood of detecting those errors.

Question 3

Which of the following statistical selection techniques is least desirable for use by an auditor?
A)Systematic selection.
B)Stratified selection.
C)Block selection.
D)Sequential selection.

Accepted Answer

Block selection is least desirable because it does not allow for a random selection across the entire population, potentially missing irregularities in the sections not selected.

Question 4

When performing a test of a control over cash disbursements,a CPA may use a systematic sampling technique with a start at any randomly selected item.The biggest disadvantage of this type of sampling is that the items in the population:
A)Must be recorded in a systematic pattern before the sample can be drawn.
B)May occur in a systematic pattern and destroy the sample randomness.
C)May systematically occur more than once in the sample.
D)Must be systematically replaced in the population after sampling.

Accepted Answer

If the items in the population occur in a systematic pattern, it can influence the selection of the sample and may not be truly random. This can result in a biased sample and potentially impact the efficacy of the control test.

Question 5

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 on the characteristic of interest.
B)An auditor may select audit procedures that are not appropriate to achieve the specific objective.
C)An auditor may fail to recognize deviations 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 refers to the risk that a sample selected for testing may not be representative of the population as a whole with respect to the characteristic of interest. This means that the results of the audit may not be accurate or reliable due to a flawed sample selection process. The other choices are related to other types of audit risk, such as performing inappropriate audit procedures (control risk), failing to detect errors or fraud (detection risk), or encountering logistical obstacles during the audit (execution risk).

Question 6

In assessing sampling risk,the risk of incorrect rejection and the risk of assessing control risk too high relate to the:
A)Efficiency of the audit.
B)Effectiveness of the audit.
C)Selection of the sample.
D)Audit quality controls.

Accepted Answer

The risk of incorrect rejection and the risk of assessing control risk too high both relate to the efficiency of the audit. These risks imply that the auditor might spend more time or resources than necessary due to incorrect conclusions drawn from the sample, thus affecting the audit's efficiency rather than its effectiveness.

Question 7

Auditors have a variety of sampling approaches available.For each approach in the first column,identify the correct statement in the second column.Each statement may be used once,more than once,or not at all.

Accepted Answer

The answer of Auditors have a variety of sampling approaches...

Question 8

An advantage of using statistical sampling techniques is that such techniques:
A)Mathematically measure risk.
B)Eliminate the need for judgmental decisions.
C)Define the values of allowance for sampling risk and tolerable misstatement required to provide audit satisfaction.
D)Have been established in the courts to be superior to judgmental sampling.

Accepted Answer

Statistical sampling techniques provide a mathematical way to measure risk, allowing auditors to quantify the level of assurance they can obtain from their sample. This can help auditors make informed decisions about how much testing they need to do and what level of risk they are comfortable with. However, it does not eliminate the need for judgmental decisions entirely, as auditors still need to determine the appropriate sampling method and sample size based on their understanding of the client's business and control environment. The values of allowance for sampling risk and tolerable misstatement are determined by the auditor based on their professional judgment and knowledge of the client's business and risks. While statistical sampling techniques have been accepted by the courts as a valid method of auditing, there is no legal requirement to use them, and judgmental sampling may be appropriate in certain circumstances.

Question 9

In variables estimation sampling,the sample standard deviation is used to calculate the
A)Point estimate of central tendency.
B)Tainting of the sample interval.
C)Risk of incorrect acceptance.
D)Adjusted allowance for sampling risk.

Accepted Answer

The sample standard deviation is used to calculate the adjusted allowance for sampling risk in variables estimation sampling. This is because the standard deviation provides information about the variability of the data within the population, which is used to calculate the margin of error or interval estimate. The adjusted allowance for sampling risk takes into account the degree of uncertainty associated with the sample and the potential for error in the estimate.

Question 10

An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by the client's 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

Treat the missing check as a deviation for the purpose of evaluating the sample is the correct approach because it reflects a potential weakness in the client's internal control system. The inability to locate a check could indicate issues such as poor record-keeping or even fraud, which are relevant concerns for an auditor assessing control risk.

Question 11

Which of the following factors does an auditor need to consider in planning a particular audit sample for a test of control?
A)Number of items in the population.
B)Total dollar amount of the items to be sampled.
C)Acceptable level of risk of assessing control risk too low.
D)Tolerable misstatement.

Accepted Answer

The answer of Which of the following factors does an...

Question 12

When using a statistical sampling plan,the auditors would probably require a smaller sample if the:
A)Population increases.
B)Desired allowance for sampling risk decreases.
C)Desired risk of incorrect acceptance increases.
D)Expected deviation rate increases.

Accepted Answer

The answer of When using a statistical sampling plan,the auditors...

Question 13

Which of the following statements is correct concerning statistical sampling in tests of controls?
A)The population size has little effect on determining sample size except for very small populations.
B)The expected population deviation rate has little or no effect on determining sample size except for very small populations.
C)As the population size doubles, the sample size also should double.
D)For a given tolerable rate, a larger sample size should be selected as the expected population deviation rate decreases.

Accepted Answer

The population size generally has little effect on the sample size in statistical sampling for tests of controls, except when dealing with very small populations. This is because the sample size is more influenced by the desired confidence level and the expected deviation rate rather than the population size itself.

Question 14

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.This situation illustrates the risk of:
A)Incorrect acceptance.
B)Incorrect rejection.
C)Assessing control risk too high.
D)Assessing control risk too low.

Accepted Answer

This situation illustrates the risk of incorrect rejection, which occurs when the auditor concludes that a material misstatement exists when, in fact, it does not. This can lead to unnecessary additional audit work and cost for the client. The risk of incorrect acceptance would be the opposite scenario, where the auditor concludes that the account balance is not materially misstated when it actually is. Assessing control risk too high or too low would not directly lead to this situation.

Question 15

If all other factors specified in an attributes sampling plan remain constant,changing the specified tolerable rate from 6% to 10%,and changing the specified risk of assessing control risk too low from 3% to 7% would cause the required sample size to:
A)Increase.
B)Remain the same.
C)Decrease.
D)Change by 4%.

Accepted Answer

The answer of If all other factors specified in an...

Question 16

In testing accounts receivable,an auditor sends out positive confirmation requests to 100 randomly selected customers.A customer returns the confirmation indicating that the balance is correct when,in fact,the balance is overstated.This is an example of:
A)Projected misstatement.
B)Sampling error.
C)Standard error.
D)Nonsampling error.

Accepted Answer

This is an example of a nonsampling error, specifically an error of misinterpretation. The customer returned the confirmation indicating that the balance is correct when it is overstated, which is beyond the auditor's control and not related to the sampling process.

Question 17

An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items.From experience,the auditor knows that a few specific items are subject to unusually large amounts of shrinkage.In using statistical sampling,the auditor's best course of action is to:
A)Eliminate any of the items known to be subject to unusually large amounts of shrinkage.
B)Increase the sample size to lessen the effect of the items subject to unusually large amounts of shrinkage.
C)Stratify the inventory population so that items subject to unusually large amounts of shrinkage are reviewed separately.
D)Continue to draw new samples until a sample is drawn which includes none of the items known to be subject to large amounts of shrinkage.

Accepted Answer

By stratifying the inventory population, the items subject to unusually large amounts of shrinkage can be reviewed separately. This ensures that the sample is representative of the population as a whole and will provide accurate estimates of the inventory shrinkage. Eliminating or continuously drawing new samples may not necessarily solve the problem, and increasing the sample size may not be practical or cost-effective.

Question 18

The tolerable deviation rate in sampling for tests of controls is:
A)Used to determine the probability of the auditor's conclusion based upon reliance factors.
B)The probability that the financial statements are not materially in error.
C)A measure of the reliability of substantive tests.
D)The rate the auditor will tolerate without modifying the planned assessment of control risk.

Accepted Answer

The tolerable deviation rate is the maximum rate of deviation from a prescribed control procedure that, in the auditor's judgment, still permits the auditor to conclude that the control is functioning effectively. It is the rate that the auditor is willing to accept without modifying the planned assessed level of control risk. Therefore, the best choice is D.

Question 19

An important statistic to consider when using a statistical sampling audit plan is the population variability.The population variability is measured by the:
A)Sample mean.
B)Standard deviation.
C)Standard error of the sample mean.
D)Estimated population total minus the actual population total.

Accepted Answer

The population variability is best measured by the standard deviation, which is a measure of how spread out the data is in a population. This information is important when determining the sample size and selecting which items to sample in order to obtain a representative sample.

Question 20

There are many kinds of statistical estimates that an auditor may find useful,but basically every statistical estimate in auditing is of either a quantity or of an error rate.The statistical terms that roughly correspond to "quantities" and "occurrence rate",respectively,are:
A)Attributes and variable.
B)Variables and attributes.
C)Constants and attributes.
D)Constants and variables.

Accepted Answer

Variables are used to estimate quantities, while attributes are used to estimate occurrence rates. Therefore, B is the correct answer as it matches the description.

Quiz 9: Audit Sampling

Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate when:

Various 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?

Which of the following statistical selection techniques is least desirable for use by an auditor?

When performing a test of a control over cash disbursements,a CPA may use a systematic sampling technique with a start at any randomly selected item.The biggest disadvantage of this type of sampling is that the items in the population:

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

In assessing sampling risk,the risk of incorrect rejection and the risk of assessing control risk too high relate to the:

Auditors have a variety of sampling approaches available.For each approach in the first column,identify the correct statement in the second column.Each statement may be used once,more than once,or not at all.

An advantage of using statistical sampling techniques is that such techniques:

In variables estimation sampling,the sample standard deviation is used to calculate the

An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by the client's 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:

Which of the following factors does an auditor need to consider in planning a particular audit sample for a test of control?

When using a statistical sampling plan,the auditors would probably require a smaller sample if the:

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

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.This situation illustrates the risk of:

If all other factors specified in an attributes sampling plan remain constant,changing the specified tolerable rate from 6% to 10%,and changing the specified risk of assessing control risk too low from 3% to 7% would cause the required sample size to:

In testing accounts receivable,an auditor sends out positive confirmation requests to 100 randomly selected customers.A customer returns the confirmation indicating that the balance is correct when,in fact,the balance is overstated.This is an example of:

An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items.From experience,the auditor knows that a few specific items are subject to unusually large amounts of shrinkage.In using statistical sampling,the auditor's best course of action is to:

The tolerable deviation rate in sampling for tests of controls is:

An important statistic to consider when using a statistical sampling audit plan is the population variability.The population variability is measured by the:

There are many kinds of statistical estimates that an auditor may find useful,but basically every statistical estimate in auditing is of either a quantity or of an error rate.The statistical terms that roughly correspond to "quantities" and "occurrence rate",respectively,are: