Question 1

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size,resulting in the sampling interval.

Accepted Answer

Stratification in auditing is a technique where the auditor divides a population into smaller groups or strata based on certain characteristics, not by dividing the number of population items by the sample size. The method described in the question refers to interval sampling or systematic sampling.

Question 2

A disadvantage of statistical sampling is sometimes the costs involved in using the technique

Accepted Answer

Statistical sampling can be expensive due to the need to select a representative sample, train personnel, and analyze the sample data. The cost-effectiveness of statistical sampling must be weighed against the benefits gained from using the technique.

Question 3

When conducting substantive testing,an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Accepted Answer

An increase in the assessed risk of material misstatement means that there is a higher likelihood of errors or fraud in the financial statements. To address this higher risk, the auditor may need to increase the size of their sample to obtain sufficient evidence to support their audit conclusions. Therefore, an increase in risk assessment typically leads to an increase in the sample size for substantive testing.

Question 4

Stratification of the population will result in less efficient sampling and increase the sample size required.

Accepted Answer

Stratification of the population, when done correctly, aims to ensure that the sample more accurately reflects the population structure, potentially leading to more efficient sampling and possibly reducing the sample size required for a given level of statistical precision.

Question 5

The permanent file includes detailed descriptions of evidence gathered for a particular year's audit.

Accepted Answer

The permanent file includes information of continuing audit significance, such as contracts or agreements, not detailed descriptions of evidence for a specific year's audit.

Question 6

Tests of controls are audit procedures designed to detect material misstatements at the assertion level.

Accepted Answer

Tests of controls are audit procedures designed to evaluate the effectiveness of a client's internal controls, not to detect material misstatements directly.

Question 7

Non-statistical sampling involves random selection and probability theory to evaluate the results.

Accepted Answer

Non-statistical sampling does not involve random selection or probability theory. Instead, it relies on the auditor's judgement and experience to select the sample and make conclusions about the population.

Question 8

When auditors conclude that an internal control is effective,they will rely on the control to prevent and detect a material misstatement and reduce their detailed substantive procedures.

Accepted Answer

When auditors conclude that an internal control is effective, they will rely on the control to prevent and detect a material misstatement and may reduce their detailed substantive procedures. This is because an effective internal control provides reasonable assurance that any errors or frauds will be prevented or detected and corrected in a timely manner. However, auditors cannot completely eliminate substantive procedures because internal controls may not be fool-proof, or there may be risks that are not covered by existing internal controls. Therefore, auditors use a combination of internal control testing and substantive procedures to reduce audit risk to an acceptably low level.

Question 9

Sampling risk is the risk that the sample chosen by the auditor is not representative of the population available for testing.

Accepted Answer

Sampling risk is a well-known risk in auditing, and it can influence the auditor's ability to draw accurate and reliable conclusions about the nature of the population being examined. If the auditor does not choose a representative sample, the conclusions drawn from the sample may be significantly inaccurate, and the auditor's overall assessment of the financial statements may be flawed. Therefore, it is important for auditors to be aware of sampling risk and take steps to minimize this risk through proper planning and execution of sampling procedures.

Question 10

The permanent file includes client information and documentation that apply to more than one audit.

Accepted Answer

The permanent file contains information that is relevant to multiple audits, such as the client's articles of incorporation, minutes of meetings, and long-term contracts. This information is kept in the permanent file so that auditors do not have to request it each time they conduct an audit for the same client.

Question 11

Projected error refers to the extrapolation of the errors detected when testing a sample to the population from which the sample was drawn.

Accepted Answer

Projected error is the estimation of the error rate in the entire population based on the error rate observed in a sample. This is done by extrapolating the sample error rate to the larger population, assuming that the sample is representative of the population.

Question 12

The decision of what constitutes sufficient appropriate audit evidence is a matter for professional judgement

Accepted Answer

Sufficient appropriate audit evidence is not defined by any specific guidelines or standards, but rather is a matter of professional judgement based on the auditor's understanding of the client's business, the risks involved, and the nature and complexity of the transactions being audited. Therefore, the decision of what constitutes sufficient appropriate audit evidence is ultimately up to the auditor's judgement.

Question 13

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

Accepted Answer

Sampling is not required when an audit procedure is tested on an entire group of transactions or all items within an account balance. In fact, testing the entire population is known as a "non-sampling" approach. Sampling is only necessary when the auditor cannot test the entire population and needs to rely on a representative sample to draw conclusions about the entire population.

Question 14

The risk that the auditor concludes that a material misstatement exists when it does not is likely to result in an increase in audit effort when it is not required.

Accepted Answer

If the auditor concludes that a material misstatement exists when it does not, they may need to spend additional time and resources investigating and verifying the accuracy of the financial statements. This could result in an increase in audit effort that is not necessary, and could lead to increased costs for the client.

Question 15

An advantage of statistical sampling is that it allows an auditor to measure sampling risk.

Accepted Answer

Statistical sampling involves using mathematical and probability-based methods to select and test a portion of the population. This allows the auditor to estimate the likelihood of a sampling error, or the risk that the sample may not be representative of the entire population. By measuring sampling risk, the auditor can determine the level of confidence they have in their conclusions based on the sample results.

Question 16

The timing of audit testing refers to the stage of the audit when procedures are performed and the date that audit evidence relates to.

Accepted Answer

The definition of timing of audit testing is accurate. It refers to both the stage of the audit when procedures are performed and the date that audit evidence relates to.

Question 17

An audit program includes the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures.

Accepted Answer

An audit program typically includes a list of audit procedures to be performed for each audit objective, including testing of controls and substantive procedures.

Question 18

Block selection involves the selection of items that are grouped together within the population of items available.

Accepted Answer

Block selection involves selecting items that are grouped together, such as selecting all the items from a certain category or with a particular characteristic, from the population of items available.

Question 19

An increase in the number of sampling units in the population will result in a decrease in the sample size.

Accepted Answer

An increase in the number of sampling units in the population will generally lead to a larger sample size, as a larger sample is needed to adequately represent the larger population.

Question 20

Tolerable error is the minimum error an auditor is willing to accept within the population tested.

Accepted Answer

Tolerable error is the maximum error in the population that the auditor is willing to accept and still conclude that the audit objective has been achieved; it is not the minimum error they are willing to accept.

Quiz 7: Sampling and Overview of the Risk Response Phase of the Audit