Question 1

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

Treat the missing check as a deviation for the purpose of evaluating the sample is a conservative approach that ensures the auditor remains cautious about the effectiveness of the internal control system. It acknowledges the potential risk that the missing check could represent a failure in the control process.

Question 2

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 3

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

D

Question 4

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

Accepted Answer

The larger the sample size, the higher the confidence level and the lower the sampling risk. This is because a larger sample size reduces the likelihood of errors due to chance or random variation, leading to a more representative sample of the population.

Question 5

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

Statistical sampling provides a means of mathematically measuring the sampling risk that results from examining only a part of the data. This allows auditors to make conclusions about the entire population based on a smaller sample size. This can improve efficiency and reduce costs while still providing a reasonable level of assurance about the controls being tested.

Question 6

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.

Question 7

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 the best choice for this situation. It is used for testing whether a sample of data meets or does not meet a certain characteristic (in this case, whether or not there is a billing error). Since Jones has established a tolerable deviation rate of 5%, he can use attributes sampling to determine if the error rate in his sample is within acceptable limits. If he finds an error rate exceeding 5%, he can expand the sample. Discovery sampling is not appropriate as it is used for finding fraud, errors or irregularities. Stratified and variables sampling are not necessary in this scenario.

Question 8

Confidence level is the complement of sampling risk.

Accepted Answer

Confidence level and sampling risk are inversely related. As confidence level increases, sampling risk decreases. Therefore, confidence level can be thought of as the complement of sampling risk.

Question 9

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

Accepted Answer

Auditing standards allow auditors to use both statistical and nonstatistical methods of audit sampling, depending on the nature and objectives of the audit. The choice of sampling method should be based on professional judgment and the specific circumstances of the engagement.

Question 10

Audit sampling is commonly used to gather confirmation audit evidence.

Accepted Answer

Audit sampling is a widely used technique to gather confirmation audit evidence. It involves selecting a representative group of items from a larger population for audit testing to assess whether the control procedures, financial transactions, or account balances are accurate and reliable. The auditors often use statistical or judgmental sampling methods to ensure that the sample is sufficiently large, representative, and reliable to support their conclusions. The use of audit sampling is based on the principle of materiality and the risk of misstatement, which guides the auditors to focus on the areas of the financial statements where there is a higher likelihood of error or fraud.

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

In nonstatistical sampling, the auditor uses professional judgment to select the sample and interpret the results, without relying on the laws of probability. Therefore, the statement is true.

Question 12

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

A deviation that was initially concealed by a forged document raises concerns about potential fraud or intentional misrepresentation, and would therefore require broader consideration by the auditor. The other options do not necessarily indicate a higher level of risk or potential impact, and may not require broader consideration.

Question 13

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 is the maximum rate of deviation from a prescribed control procedure that the auditor is willing to accept without modifying their planned assessed level of control risk. Since the auditor's tolerance for risk is higher than the expected rate of deviations in the related accounting records, the answer is (B) higher.

Question 14

Confidence level and sampling risk are related to sample size.

Accepted Answer

Increasing sample size generally increases confidence level and decreases sampling risk.

Question 15

A Type I error is the risk of incorrect acceptance.

Accepted Answer

A Type I error is the risk of incorrect rejection, not acceptance. Acceptance refers to accepting the null hypothesis, while rejection refers to rejecting the null hypothesis when it is actually true. A Type I error occurs when the null hypothesis is rejected even though it is true, leading to a false positive result.

Question 16

A Type II error is the risk of incorrect acceptance.

Accepted Answer

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

Question 17

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 requires that each item in the accounting population should have an equal opportunity to be selected. This is accomplished through random selection methods such as simple random sampling, stratified random sampling, or cluster sampling. The other choices do not accurately reflect the requirements of random-based selection.

Question 18

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 the auditor's conclusion based on a sample may be different from the conclusion they would have reached if they had examined the entire population. Option A demonstrates this by stating that the sample may not be representative of the population as a whole, leading to potentially incorrect conclusions about the population. Option B relates to the risk of using inappropriate audit procedures, option C relates to detection risk, and option D relates to the risk of non-sampling errors.

Question 19

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

Accepted Answer

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

Question 20

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 refers to the risk that the auditor will incorrectly conclude that the financial statements are materially correct, when in fact they contain material misstatements. This risk is directly related to the effectiveness of the audit, as a more effective audit should minimize the risk of incorrect acceptance.

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

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

Audit sampling is commonly used to gather scanning audit evidence.

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

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

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

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

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

Confidence level is the complement of sampling risk.

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

Audit sampling is commonly used to gather confirmation audit evidence.

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.

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 tolerable deviation rate for a test of controls is generally

Confidence level and sampling risk are related to sample size.

A Type I error is the risk of incorrect acceptance.

A Type II error is the risk of incorrect acceptance.

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

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

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

The risk of incorrect acceptance relates to the