Audit Sampling PSA 530 (Test of Controls)
16. In an attribute sampling application, holding other factors constant, sample size will increase as which of the following becomes smaller? a. Reliability level. b. Population. c. Planned precision. d. Expected rate of occurrence.
C
1. The entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions is A. Population B. Sample C. Sampling unit D. Database
A
10. An advantage of statistical over non-statistical sampling is that statistical sampling: a. Enables auditors to objectively measure the reliability of their sample results. b. Permits use of a smaller sample size than would be necessary with non-statistical sampling. c. Is compatible with a wider variety of sample selection methods than is non-statistical sampling. d. Allows auditors to inject their subjective judgment in determining sample size and selection process in order to audit items of greatest value and highest risk.
A
10. 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 errors in the documents examined for the chosen sample. d. The documents related to the chosen sample may not be available for inspection.
A
12. If the audit procedure is not applicable to the selected item, as when for example, a voided check is selected while testing for evidence of payment authorization, which of the following is incorrect? A. The auditor shall treat the item as a deviation. B. The auditor shall perform the audit procedure on a replacement item. C. If the auditor is satisfied that the voiding of the check is proper, such an item does not constitute deviation. D. The replacement item, as the case may be, must be chosen by the auditor.
A
12. If the auditor is concerned that a population may contain exceptions, the determination of a sample size sufficient to include at least one such exception is a characteristic of a. Discovery sampling b. Variable sampling c. random sampling d. PPS
A
12. Of the following statements, which one best differentiates statistical sampling from nonstatistical sampling? a. Statistical sampling is a mathematical approach to inference, whereas nonstatistical sampling is a more subjective approach. b. Nonstatistical sampling has greater applicability to large populations than does statistical sampling. c. Nonstatistical sampling is more subjective, but produces greater consistency in the application of audit judgment. d. Nonstatistical sampling has greater applicability to populations that lend themselves to random selection.
A
13. At times a sample may indicate that the auditor's assessed level of control risk for a given control is reasonable when, in fact, the true compliance rate does not justify the assessed level. This situation illustrates the risk of a. Assessing control risk too low b. Assessing control risk too high c. Incorrect precision d. Incorrect rejection
A
14. When planning an attribute sampling application, the difference between the expected occurrence rate and the tolerable occurrence rate is the planned a. Precision. b. Reliability. c. Dispersion. d. Skewness.
A
17. S1. With statistical sampling, items are selected in a way that each sampling unit has a known probability of being selected. S2. With non-statistical sampling, judgment is used to select sample items. A. True True B. True False C. False False D. False True
A
2. The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure is A. Sampling risk B. Non-sampling risk C. Risk of incorrect rejection D. Risk of incorrect acceptance
A
20. 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 the 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 transaction classes. c. Contains proportionately fewer monetary errors or deviations from prescribed internal control policies or procedures 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.
A
22. If all other factors specified in an attributes sampling plan remain constant, decreasing the tolerable rate and decreasing the risk of assessing control risk too low would have what effect on sample size? A. Increase. B. Remain the same. C. Decrease. D. Indeterminate, depends upon exact change being made.
A
23. If all other factors specified in an attributes sampling plan remain constant, decreasing the tolerable rate and increasing the estimated population deviation rate would have what effect on sample size? A. Increase. B. Remain the same. C. Decrease. D. Indeterminate, depends upon exact change being made.
A
24. An increase in the tolerable misstatement has what effect on the planned allowance for sampling risk? A. Increases. B. Decreases. C. No effect. D. Indeterminate.
A
24. When using statistical sampling for tests of controls, an auditor's evaluation would include a statistical conclusion about whether: a. Deviations in the population are within an acceptable range. b. Monetary precision exceeds a predetermined amount. c. The population's total monetary value is not in error by more than a predetermined amount. d. Population characteristics occur at least once in the population.
A
25. An auditor, planning an attribute sample from a large number of invoices, intends to estimate the actual rate of deviations. Which factor below is the most important for the auditor to consider? a. Audit objective b. Desired confidence level c. Population size d. Population variance
A
26. If the auditor is concerned that a population may contain exceptions, the determination of a sample size sufficient to include at least one such exception is a characteristic of A. Discovery sampling B. Variables sampling C. Random sampling D. Peso-unit sampling
A
26. In performing a test of a control last year the auditors specified a tolerable deviation rate of X percent. This year the auditors have specified a tolerable rate of less than X percent. Assuming that all other factors remain the same, which of the following is true regarding the relationship between this year's sample size compared to last year's sample size? A. This year's sample is larger than last year's sample. B. This year's sample is smaller than last year's sample. C. This year's sample is equal to last year's sample. D. This year's sample is indeterminate in relation to last year's sample.
A
27. The relationship between the sampling risk that the auditor is willing to accept and the sample size is selected is A. Inverse B. Direct C. Parallel D. Indeterminate
A
28. A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population is A. Tolerable misstatement B. Tolerable rate of deviation C. Anomaly D. Expected misstatement
A
28. When performing tests of controls over authorization of cash receipts, which of the following sampling methods would be most appropriate? A. Attributes. B. Ratio. C. Stratified. D. Variables.
A
3. Sampling risk that leads the auditor to conclude that controls are more effective than they actually are is A. Risk of assessing control risk too low B. Risk of assessing control risk too high C. Risk of incorrect rejection D. Risk of incorrect acceptance
A
30. In attributes sampling, to support the initial assessment of control risk, the expected deviation rate must be ______ than the deviation rate A. Lower B. Higher C. Equal D. Indeterminate
A
30. Which of the following is generally not true about statistical sampling as compared to nonstatistical sampling? A. Statistical samples are more representative of the population. B. Statistical sample plans involve additional costs of evaluation. C. Statistical sampling allows a more objective evaluation of sample results. D. Statistical sampling may assist the auditors in designing more efficient samples.
A
34. When the auditors have chosen to test a control, what relationship will the tolerable rate normally have when compared to the expected rate of deviations in the sample? A. Exceed. B. Equal. C. Be less than. D. Indefinite.
A
36. When assessing the tolerable rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in errors. This explains why A. A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded. B. Deviations would result in errors in the accounting records only if the deviations and the errors occurred on different transactions. C. Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in errors at a higher rate. D. A recorded disbursement that is properly authorized may nevertheless be a transaction that contains s material error.
A
36. When using sampling for tests of controls, which of the following audit consequences may follow? A. If sample results indicate that the control is operating effectively, but in fact it is not, control risk will be assessed too low. B. If sample results indicate that the control is operating effectively, but in fact it is not, control risk will be assessed too high. C. If sample results indicate that the control is not operating effectively, but in fact it is operating effectively, the audit is likely to be faulty because of reduced substantive tests. D. If sample results indicate that the control is not operating effectively, but in fact it is operating effectively, control risk will be assessed too low.
A
37. The auditors expect a population deviation rate of billing errors of two percent, and have established a tolerable rate of five percent. The sampling approach most likely to be used is: A. Attributes sampling. B. Stratified sequential sampling. C. Discovery sampling. D. None, as sampling does not seem appropriate in this situation.
A
37. Which of the following factors is generally not considered in determining the sample size for a test of controls? a. Population size. b. Tolerable rate. c. Risk of underassessment. d. Expected population occurrence rate.
A
39. An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide a 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 1/2% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the upper occurrence limit to be 8%. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the a. Tolerable rate (7%) was less than the achieved upper occurrence limit (8%). b. Expected occurrence rate (7%) was more than the percentage of errors in the sample (3 1/2%). c. Achieved upper occurrence limit (8%) was more than the percentage of errors in the sample (3 1/2%). d. Expected occurrence rate (2 1/2%) was less than the tolerable rate (7%).
A
4. The deviation rate the auditor will permit in the population and still be willing to reduce the assessed level of control risk is called the a. Tolerable deviation rate b. Estimated population deviation rate c. Acceptable risk of over-reliance d. Sample deviation rate
A
40. Which of the following types of risk is of critical importance to auditors in performing tests of controls? A. The risk of assessing control risk too low. B. The risk of assessing control risk too high. C. The risk of incorrect acceptance. D. The risk of incorrect rejection.
A
42. Which of the following statements is correct concerning statistical sampling for control testing? a. The population size has little or no effect on determining sample size except for very small populations. b. The expected population occurrence 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.
A
6. Which of the following is true about sampling and non-sampling risks? a. Sampling risk can be reduced by increasing sample size. b. Sampling risk cannot be eliminated. c. Non-sampling risk can be eliminated by proper engagement planning, supervision, and review. d. Non-sampling risk arises from the possibility that the auditor's conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure.
A
7. 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 the control structure 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 monetary errors or deviations from prescribed controls than exist in the balance or class as a whole D. Does not support the tolerable error for some or all of management's assertions
A
Based on a random sample, it is estimated that four percent, plus or minus two percent, of a firm's invoices contain errors. The plus or minus two percent is known as the estimate's: a. Precision. b. Accuracy. c. Confidence level. d. Standard error.
A
1. Tests of controls provide reasonable assurance that controls are applied as prescribed. A sampling method that is useful when testing controls is: a. Nonstatistical sampling b. Attribute estimation sampling c. Discovery sampling d. Stratified random sampling
B
10. An auditor plans to test 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.
B
10. The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk is A. Sampling risk B. Non-sampling risk C. Audit risk D. Detection risk
B
11. An auditor samples cash disbursement records for significant errors of $5 or more. Upon finding one such error, these records are scheduled for a complete review. This conclusion is most likely based on a a. Cluster sample. b. Discovery sample. c. Systematic sample. d. Stratified sample.
B
11.The tolerable rate of deviation for tests of controls necessary to justify a control risk assessment depends primarily on which of the following? a. The cause of errors. b. The extent of reliance to be placed on the procedures. c. The amount of any substantive errors. d. The limit used in audits of similar clients.
B
14. The decision whether to use statistical or non-statistical sampling depends upon the A. Philippine Standards on Auditing B. Auditor's judgment C. Size of the population D. Generally Accepted Auditing Standards
B
15. Assuming the tolerable deviation rate is 5 percent, the expected population rate is 3 percent, and the allowance for sampling risk is 2 percent, what should an auditor conclude if tests of 100 randomly selected documents reveals 4 deviations? a. Accept the sample results as support for assessing control risk below the maximum because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate. b. Assess control risk at the maximum because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate. c. Assess control risk at the maximum because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate. d. Accept the sample results as support for assessing control risk below the maximum because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
B
15. If certain forms are not consecutively numbered a. Selection of a random sample probably is not possible. b. Systematic sampling may be appropriate. c. Stratified sampling should be used. d. Random number tables cannot be used.
B
17. Which of the following sampling methods is most useful to auditors when testing for internal control effectiveness? a. Stratified random sampling. b. Attribute sampling. c. Variables sampling. d. Unrestricted random sampling with replacement.
B
19. A dual purpose test simultaneously. A. Addresses two different accounts. B. Functions as a substantive test and as a test of controls. C. Functions as an analytical procedure and a substantive test. D. Substantiates an ending balance and the transactions making up the balance.
B
19. The likelihood of assessing control risk too low is the risk that the sample selected to test controls a. Does not support the tolerable misstatement for some or all of management's assertions. b. Does support the auditor's planned assessed level of control risk when the true operating effectiveness of the control does not justify such an assessment. c. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances. d. Contains proportionately more deviations from prescribed internal control policies or procedures than exist in the population.
B
19. Which of the following is an element of sampling risk? a. Choosing an audit procedure that is inconsistent with the audit objective. b. Choosing a sample size that is too small to achieve the sampling objective. c. Failing to detect an error on a document that has been inspected by the auditor. d. Failing to perform audit procedures that are required by the sampling plan.
B
20. Which of the following would not be an attribute of interest to an auditor performing control tests? a. Do selling prices agree with published price lists? b. Do purchased parts meet established quality standards? c. Are proper labor rates being used to compute payroll? d. Are account distributions (debits and credits) correct?
B
21. The precision limit for control testing necessary to justify lowering the assessed control risk level depends primarily on which of the following? a. The cause of the errors. b. The materiality of the attribute(s) to be tested. c. The amount of any substantive errors. d. The limit used in audits of similar clients.
B
21. The tolerable rate of deviations for a test of controls is generally a. Lower than the expected rate of errors in the related accounting population. b. Higher than the expected rate of errors in the related accounting records. c. Identical to the expected rate of errors in the related accounting records. d. Unrelated to the expected rate of errors in the related accounting records.
B
22. If a selected random number matches the number of a voided voucher, the voucher ordinarily should be replaced by another voucher in the sample if the voucher a. Constitutes a deviation b. Has been properly voided c. Cannot be located d. Represents an immaterial peso amount
B
22. Per PSA 530, one benefit of this approach to defining the sampling unit is that audit effort directed to the larger value items because they have a greater chance of selection, and can result in smaller sample sizes. A. Stratification B. Value-weighted selection C. Random selection D. Haphazard selection
B
22. Which of the following statements concerning sample size is true? a. An increase in the tolerable occurrence rate, other factors remaining unchanged, increases sample size. b. The higher the expected occurrence rate, other factors remaining unchanged, the larger will be the sample size. c. The more critical the attribute being tested, the higher will be the tolerable occurrence rate set by the auditor, and the larger will be the sample size. d. The lower the acceptable risk of underassessment of control risk, the smaller will be the sample size.
B
23. Assessing control risk too high is the risk that the sample a. Does not support tolerable error for some or all of management's assertions. b. Contains proportionately more deviations from prescribed control procedures than actually exist in the population as a whole. c. Contains monetary misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or classes of transactions. d. Contains proportionately fewer deviations from prescribed control procedures than actually exist in the population as a whole.
B
32. If an auditor, planning to use statistical sampling, is concerned with the number of a client's sales invoices that contain mathematical errors, the auditor would most likely utilize a. Random sampling with replacement. b. Sampling for attributes. c. Sampling for variables. d. Stratified random sampling.
B
23. In the examination of the financial statements of Delta Company, the auditor determines that in performing a test of internal control effectiveness, the rate of error in the sample does not support the auditor's preconceived notion of a tolerable occurrence rate when, in fact, the actual error rate in the population does meet the auditor's notion of effectiveness. This situation illustrates the risk of a. Underassessment of control risk. b. Overassessment of control risk. c. Incorrect rejection. d. Incorrect acceptance.
B
24. If all other factors in a sampling plan are held constant, changing the risk of underassessment from five percent to three percent would cause the sample size to be: a. Smaller. b. Larger. c. Unchanged. d. Indeterminate.
B
24. Which of the following statistical sampling plans does not use a fixed sample size for tests of controls? A. Peso-unit sampling B. Sequential sampling C. PPS sampling D. Variables sampling
B
25. An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all a. Merchandise received. b. Vendors' invoices. c. Canceled checks. d. Receiving reports.
B
29. A rate of deviation from prescribed internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population is A. Tolerable misstatement B. Tolerable rate of deviation C. Anomaly D. Expected misstatement
B
29. The application of statistical sampling techniques is least related to which of the following generally accepted auditing standards? a. The work is to be adequately planned and assistants, if any, are to be properly supervised. b. In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors. c. A sufficient understanding of the internal control system is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed. d. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination.
B
29. Which of the following statistical sampling techniques involves taking samples in a series of stages? A. Systematic sampling. B. Sequential sampling. C. Continuous sampling. D. Multiple location sampling.
B
30. The major weakness of nonstatistical (judgmental) sampling is it a. Usually requires larger sample sizes than statistical sampling. b. Does not allow sampling risk to be objectively measured. c. Frequently results in samples that are not representative of the population. d. Gives less accurate point estimates of parameters than statistical sampling.
B
31. An auditor is testing credit authorization procedures by examining sales invoices for credit approval by the credit department. The procedures will be considered to be working adequately if 96% of all sales invoices either indicate approval or are cash sales. The auditor selects a random sample of 100 invoices. In this situation, which of the following outcomes illustrates underassessment? a. The auditor finds five deviations and concludes that procedures work inadequately. The actual population deviation rate is 2%. b. The auditor finds no deviations and concludes that procedures work adequately. The true population deviation rate is 5%. c. The auditor finds no deviations and concludes that the procedures work adequately. The true population deviation rate is 2%. d. The auditor finds five deviations and concludes that procedures work inadequately. The true population deviation rate is 6%.
B
32. When the auditors have decided to use statistical rather than nonstatistical sampling, a disadvantage is that: A. Designing efficient samples is more difficult. B. The costs of training staff may be higher. C. Sampling without replacement must be used. D. Objectively evaluating results is impossible.
B
33. An advantage of using statistical over non-statistical sampling methods in tests of controls is that the statistical methods a. Afford greater assurance than a non-statistical sample of equal size. b. Provide an objective basis for quantitatively evaluating sample risks. c. Can more easily convert the sample into a dual-purpose test useful for substantive testing. d. Eliminate the need to use judgment in determining appropriate sample sizes.
B
33. Changing from a sampling plan using random selection with replacement to random selection without replacement has what effect on the required sample size? A. Increases. B. Decreases C. No effect. D. An indeterminate effect.
B
35. Increases in the planned allowance for sampling risk have what effect on required sample size? A. Increases. B. Decreases. C. No effect. D. Indeterminate.
B
35. Per PSA 530, projection of sample results to the population, is only necessary in the case of A. Deviations (test of controls) B. Misstatement (test of details) C. A or B D. Neither A nor B
B
43. An auditor wishes to determine if the error rate on travel reimbursement claims is within the five-percent tolerance level set by management. What sampling plan should the auditor use? a. Variables sampling. b. Attribute sampling. c. Judgment sampling. d. PPS sampling.
B
6. Which is not true of an "Alpha risk" in sampling? I. It is the risk of assessing control risk too high or the risk of incorrect rejection. II. It relates to the effectiveness of the audit. III. It usually leads the auditor to additional work to establish that initial conclusions were incorrect. A. I and II only B. I and III only C. II and III only D. I, II, and III
B
6. Which of the following statements is not true regarding audit risk assessment? a. The auditor studies the business and industry and applies analytical procedures as a basis for assessing inherent risk. b. When control risk and inherent risk are high, the auditor increases detection risk to maintain overall audit risk at the desired level. c. The auditor studies and evaluates internal control policies and procedures for assessing control risk. d. The auditor designs substantive audit procedures to reduce detection risk to an acceptable level.
B
7. Which statement is incorrect about sampling risk? a. Sampling risk arises from the possibility that the auditor's conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure. b. Risk of assessing control risk too low and risk of incorrect acceptance affects audit effectiveness as it would usually lead to additional work to establish that initial conclusions were incorrect. c. The mathematical complements of sampling risks are termed confidence levels. d. Risk of assessing control risk too high is the risk that the auditor will conclude, in the case of a test of control, that control risk is higher than it actually is.
B
8. A misstatement or deviation that is demonstrably not representative of misstatements or deviations in a population A. Sampling risk B. Anomaly C. Error D. Corruption
B
9. The process of dividing a population into subpopulations, each of which is a group of sampling units which have similar characteristics (often monetary value) is A. Division B. Stratification C. Grouping D. Characterization
B
Auditors who prefer statistical sampling to non-statistical sampling may do so because statistical sampling helps the auditor a. Measure the sufficiency of the evidential matter obtained. b. Eliminate subjectivity in the evaluation of sampling results. c. Reduce the level of tolerable error to a relatively low amount. d. Minimize the failure to detect a material misstatement due to non-sampling risk.
B
If all other factors in a sampling plan are held constant, changing the measure of tolerable error to a smaller value would cause the sample size to be: a. Smaller. b. Larger. c. Unchanged. d. Indeterminate.
B
The tolerable occurrence rate for a control test is generally a. Lower than the expected occurrence rate in the related accounting records. b. Higher than the expected occurrence rate in the related accounting records. c. Identical to the expected occurrence rate in the related accounting records. d. Unrelated to the expected occurrence rate in the related accounting records.
B
16. Which of the following is a characteristic of the statistical sampling approach? I. Random selection of the sample items II. The use of probability theory to evaluate sample results, including measurement of sampling risk A. I only B. II only C. Both I and II D. Neither I nor II
C
4. Sampling risk that leads the auditor to conclude that a material misstatement exists when in fact it does not is A. Risk of assessing control risk too low B. Risk of assessing control risk too high C. Risk of incorrect rejection D. Risk of incorrect acceptance
C
12. A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a a. Representative sample b. Statistical sample c. Random sample d. Judgment sample
C
13. If the auditor is unable to apply the designed audit procedures, or suitable alternative procedures, to a selected item I. The auditor shall treat that item as a deviation from the prescribed control in the case of tests of controls, II. The auditor shall treat that item as a misstatement, in the case of tests of details A. I only B. II only C. Both I and II D. Neither I nor II
C
13. The process which requires the calculation of an interval and then selects the items based on the size of the interval is a. Statistical sampling b. Random selection c. Systematic selection d. Computerized selection
C
15. 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
C
18. 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 a. The deviation rates of both the auditor's sample and the population exceed the tolerable rate. b. The deviation rates of both the auditor's sample and the population are less than the tolerable rate. c. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate. d. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.
C
18. Attribute sampling, as applied to control testing, can assist the auditor in several ways. Which of the following tasks is not enhanced by sampling? a. Determining the number of documents to examine in testing for a specific attribute. b. Selecting the documents to be tested. c. Examining the documents. d. Evaluating the sample results.
C
19. Which of the following contains incorrect description of methods of sampling/ selection described? A. Random selection is applied through random number generators, for example, random number tables. B. Monetary unit sampling is a type of value-weighted selection in which sample size, selection and evaluation results in a conclusion in monetary amounts. C. Haphazard selection is a statistical sampling technique in which the auditor selects the sample without following a structured technique. D. Block selection involved selection of a block(s) of contiguous items from within the population.
C
2. Statistical sampling may be applied to test controls when a client's control procedures a. Depend primarily on segregation of duties. b. Are carefully reduced to writing and are included in client accounting manuals. c. Leave an audit trail as evidence of compliance. d. Enable the detection of fraud.
C
25. Which of the following is not generally used for selecting samples? A. Random number tables. B. Random number generators. C. Physical representation numbers. D. Systematic selection.
C
25. Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a peso value? A. Attribute sampling B. Stop-or-go sampling C. Variables sampling D. Random-number sampling
C
26. Although mathematically based, statistical sampling does not replace audit judgment. In utilizing statistical sampling techniques, the auditor must apply judgment in all but which of the following tasks? a. Selecting a tolerable rate of error. b. Determining an acceptable risk of underassessing control risk. c. Calculating the actual error rate. d. Assessing the materiality of control weaknesses.
C
27. To determine sample size in an attribute sampling application, what must be specified? a. Population mean, expected error rate, precision. b. Precision, reliability, standard deviation. c. Precision, reliability, expected occurrence rate. d. Population mean, standard deviation, precision.
C
6. When sampling for attributes, which of the following would decrease sample size? Risk of assessing control risk too low Tolerable rate of deviation Expected population deviation rate a. Increase Decrease Increase b. Decrease Increase Decrease c. Increase Increase Decrease d. Increase Increase Increase
C
28. Which of the following statements regarding statistical sampling in auditing is true? a. Inasmuch as audits are test-based, generally accepted auditing standards require the use of statistical sampling methods whenever the auditor decides to examine only part of a population. b. Although statistical sampling may be applied to control testing, it is required for substantive testing purposes. c. Sampling methods are used by auditors in both control testing and substantive testing. d. Statistical sampling methods are more appropriate for control testing when the auditor elects to reprocess transactions, than when controls are tested by means of document examination.
C
3. Audit sampling is not involved in the following, except a. Performing a walkthrough test. b. Performing analytical procedures c. Selecting the sample without following a structured technique. d. Testing controls that leave no audit trail.
C
3. Since auditors are interested in the occurrence of exceptions in population, they refer to the occurrence as a. Exception rate b. Population rate c. Deviation rate d. Confidence level
C
31. When using statistical sampling, which of the following need not be known to evaluate the results of an attributes sample? A. Sample size. B. Risk of assessing control risk too low. C. Number of deviations in the population. D. Number of deviations found in the sample.
C
32. Which of the following combinations results in a decrease in sample size in a sample for attributes? Risk of assessing Tolerable rate Expected population control risk too low deviation rate A. Increase Decrease Increase B. Decrease Increase Decrease C. Increase Increase Decrease D. Increase Increase Increase
C
33. How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details? Increase in tolerable misstatement Increase in assessed level of control risk A. Increase sample size Increase sample size B. Increase sample size Decrease sample size C. Decrease sample size Increase sample size D. Decrease sample size Decrease sample size
C
34. Several risks are inherent in the evaluation of audit evidence which has been obtained through the use of statistical sampling. Which of the following risks is an example of the risk of underassessment of control risk? a. Failure to properly define the population to be sampled. b. Failure to draw a random sample from the population. c. Failure to accept the statistical hypothesis that internal control is unreliable when, in fact, it is. d. Failure to accept the statistical hypothesis that a book value is not materially misstated when the true book value is not materially misstated.
C
36. If all other factors specified in an attribute sampling plan remain constant, changing the specified precision from 6% to 10%, and changing the specified reliability from 97% to 93% would cause the required sample size to a. Increase. b. Remain the same. c. Decrease. d. Change by 4%.
C
37. If the expected deviation rate is 6% and the tolerable deviation rate is 9%, the allowance for sampling risk is A. 6% B.9% C. 3% D. 15%
C
39. Which of the following may be used to reduce the risk of nonsampling errors? A. Increasing the size of audit samples. B. Stratifying audit samples. C. Adequately planning audit samples. D. Using statistical sampling techniques.
C
41. An auditor who uses statistical sampling for attributes in testing internal controls should increase the assessed level of control risk when the a. Sample occurrence rate is less than the expected occurrence rate used in planning the sample. b. Tolerable rate less the allowance for sampling risk exceeds the sample occurrence rate. c. Sample occurrence rate plus the allowance for sampling risk exceeds the tolerable rate. d. Sample occurrence rate plus the allowance for sampling risk equals the tolerable rate.
C
44. The auditor samples cash disbursements for minor errors of $5 or less. The parameter to be estimated is the error rate, which might be as high as 10%. The auditor is most likely to use a. Block sampling. b. Variables sampling. c. Attributes sampling. d. Discovery sampling.
C
5. An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions and is therefore not representative of errors in the population is called a. Sampling error. c. Anomalous error. b. Non-sampling error. d. Projected error.
C
5. In order to quantify the risk that sample evidence leads to erroneous conclusions about the sampled population a. Each item in the sampled population must have an equal chance of being selected. b. Each item in the sampled population must have a chance of being selected proportional to its book value. c. Each item in the sampled population must have an equal or known probability of being selected. d. The precise number of items in the population must be known.
C
Random numbers can be used to select a sample only when each item in the population: a. Can be assigned to a specific stratum. b. Is independent of outside influence. c. Can be identified with a unique number. d. Is expected to be within plus or minus three standard deviations of the population mean.
C
The diagram below depicts the auditor's estimated maximum deviation rate compared with the tolerable rate, and also depicts the true population deviation rate compared with the tolerable rate. Auditor's Estimate Based on Sample Results Maximum Deviation Rate Exceeds Tolerable Rate Maximum Deviation Rate is Less Than Tolerable Rate True State of Population Deviation Rate Exceeds Tolerable Rate I II Deviation Rate is Less Than Tolerable Rate III IV As a result of testing controls, the auditor assesses control risk too high and thereby increases testing. This is illustrated by situation a. I. b. II. c. III. d. IV.
C
11. Which of the following does not constitute non-sampling risk? A. Use of inappropriate audit procedures B. Misinterpretation of audit evidence C. Failure to recognize a misstatement or deviation D. Failure of a sample to represent the population
D
11. Which of the following statements is not correct? a. It is acceptable for auditor to use statistical sampling methods. b. It is acceptable for auditor to use non-statistical sampling methods. c. The primary benefit of statistical sampling methods is the quantification of sampling risk. d. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.
D
13. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items a. Which include errors will not be overlooked when the auditor exercises compatible reciprocal options. b. May occur in a systematic pattern, thus making the sample more representative. c. May occur more than once in a sample. d. Do not have to be prenumbered in order for the auditor to use the technique.
D
14. In attribute estimation, which of the following must be known in order to appraise the results of the auditor's sample? a. Estimated peso value of the population b. Standard deviation of the values in the population c. Actual occurrence rate of the attribute in the population d. Sample size
D
14. When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called a. Block selection b. Random selection c. Systematic selection d. Haphazard selection
D
15. An advantage of using statistical over non-statistical sampling methods in tests of controls is that the statistical methods A. Can more easily convert the sample into a dual-purpose test useful for substantive testing B. Eliminate the need to use judgment in determining appropriate sample sizes C. Afford greater assurance than a non-statistical sample of equal size D. Provide an objective basis for quantitatively evaluating sample risk
D
16. As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was a. Less than the risk of assessing control risk too low, based on the auditor's sample. b. Less than the deviation rate in the auditor's sample. c. More than the risk of assessing control risk too low, based on the auditor's sample. d. More than the deviation rate in the auditor's sample.
D
18. Per PSA 530, the principal methods of selecting samples are (choose the exception) A. Random selection B. Systematic selection C. Haphazard selection D. Block selection
D
7. Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a control test? a. Number of items in the population. b. Total dollar amount of the items to be sampled. c. Estimated standard deviation of the population. d. Tolerable error.
D
2. Which of the following constitutes audit sampling? a. Selecting and examining specific items to determine whether or not a particular procedure is being performed. b. Examining items to obtain information about matters such as the client's business, the nature of transactions, accounting and internal control systems. c. Examining items whose values exceed a certain amount so as to verify a large proportion of the total amount of an account balance or class of transactions. d. Applying audit procedures to less than 100% of items within an account balance or class of transactions such that all sampling units have a chance of selection.
D
20. In a systematic selection, the number of sampling units in the population is divided by the sample size to give a sampling interval, for example 50, and having determined a starting point within the first 50, each 50th sampling unit thereafter is selected. Which of the following is incorrect about the systematic selection technique? A. The starting point in this technique may be determined haphazardly. B. The sample is more likely to be truly random if it is determined by use of a computerized random number generator or random number tables. C. The auditor would need to determine that sampling units within the population are not structured in such a way that the sampling interval corresponds with a particular pattern in the population. D. If an audit procedure is not applicable on a unit in the sample selected, the auditor treats it as an error.
D
21. Which is incorrect regarding stratification? A. Audit efficiency is improved because its objective is to reduce the variability of items within each stratum and therefore allow sample size to be reduced without increasing sampling risk. B. In performing test of details, it allows greater audit effort to be directed to the larger value items, as these items may contain the greatest potential misstatement in terms of overstatement. C. If, say, 20% of the items in a population makes up 905 of value of an account balance, the auditor may decide to examine a sample of these items, evaluates the results of this sample and reaches a conclusion on the 905 of value separately from the remaining 105 (on which a further sample or other means of gathering audit evidence will be used, or which may be considered immaterial). D. The results of audit procedures applied to a sample of items within a stratum can be projected to the entire population.
D
23. The expected population deviation rate of client billing errors is 3%. The auditor has established a tolerable rate of 5%. In the review of client invoices the auditor should use A. Stratified sampling B. Variable sampling C. Discovery sampling D. Attribute sampling
D
27. The auditor using nonstatistical attributes sampling, but who nevertheless has chosen the sample in conformity with random selection procedures: A. Need not consider the risk of assessing control risk too low. B. Has committed a nonsampling error. C. Will have to use discovery sampling techniques to evaluate the results. D. Should compare the deviation rate of the sample to the tolerable rate.
D
31. As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was A. Less than the risk of assessing control risk too low, based on the auditor's sample B. Less than the deviation rate in the auditor's sample C. More than the risk of assessing control risk too low, based on the auditor's sample D. More than the deviation rate in the auditor's sample
D
34. Which of the following statements is correct concerning statistical sampling in tests of controls? A. As the population size increases, the sample size should increase proportionately. B. There is an inverse relationship between the expected population deviation rate and the sample size. C. In determining tolerable rate, an auditor considers detection risk and the sample size. D. Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate.
D
35. As a result of tests of controls, an auditor underassessed control risk and decreased substantive testing. This underassessment occurred because the true occurrence rate in the population was a. Less than the risk of underassessment in the auditor's sample. b. Less than the occurrence rate in the auditor's sample. c. More than the risk of underassessment in the auditor's sample. d. More than the occurrence rate in the auditor's sample.
D
38. The auditors expect a population deviation rate of billing errors of eight percent, and have established a tolerable rate of five percent. The sampling approach most likely to be used is: A. Attributes sampling. B. Stratified random sampling. C. Variables sampling. D. None, as sampling does not seem appropriate in this situation.
D
38. The expected population occurrence rate of client billing errors is 3%. The auditor has established a tolerable rate of 5%. In the review of client invoices the auditor should use a. Stratified sampling. b. Variable sampling. c. Discovery sampling. d. Attribute sampling.
D
38. What is an auditor's evaluation of a statistical sample for attributes when a test of fifty documents results in three deviations if tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling risk is 2%? A. Modify the planned assessed level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate. B. Accept the sample results as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate. C. Accept the sample results as support for the planned assessed level of control risk because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate. D. Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
D
4. The following situations will likely lead the auditor to use 100% testing, except a. When the population constitutes a small number of large value items. b. When both inherent and control risks are high and other means do not provide sufficient appropriate audit evidence c. When the repetitive nature of a calculation or other process performed by a computer information system makes a 100% examination cost effective. d. When testing controls that leave audit trail.
D
40. To evaluate the sample results for an attributes sampling application, a measure of precision is required. Which of the following statements is true regarding precision? a. Precision is subtracted from the tolerable rate of error to determine the acceptability of sample results. b. Precision is added to the tolerable rate of error to determine the acceptability of sample results. c. Precision is subtracted from the sample occurrence rate and the result is compared to the tolerable rate of error. d. Precision is added to the sample occurrence rate and the result is compared to the tolerable rate of error.
D
41. The auditors' failure to recognize a misstatement in an amount or a deviation in an internal control data processing procedure is described as a: A. Statistical error. B. Sampling misstatement. C. Standard error of the mean. D. Nonsampling error.
D
45. An important difference between a statistical sample and a non-statistical (judgmental) sample is that with a statistical sample: a. No judgment is required, everything is by formula. b. A smaller sample size can be used. c. More accurate results are obtained. d. Population estimates with measurable reliability can be made.
D
5. Of the four erroneous conclusions from a sampling risk, the auditor is primarily concerned with A. Risk of assessing control risk too low B. Risk of assessing control risk too high C. Risk of incorrect rejection D. Risk of incorrect acceptance
D
5. Which of the following statements is correct? a. The expected population deviation rate has little or no effect on sample size. b. As the population size doubles, the sample size also should double. c. For a given tolerable rate, a larger sample size should be selected as the expected population deviation rate decreases. d. The population size has little or no effect on sample size except for very small populations.
D
7. A statistical sampling technique that will minimize sample size whenever a low deviation rate is expected is a. Ratio-estimation sampling. b. Difference-estimation sampling. c. Stratified mean-per-unit sampling. d. Stop-or-go sampling.
D
8. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to a. Minimize the failure to detect errors and frauds. b. Eliminate nonsampling risk. c. Reduce the level of audit risk and materiality to a relatively low amount. d. Measure the sufficiency of the evidential matter obtained.
D
8. For which of the following audit tests would an auditor most likely use attribute sampling? a. Making an independent estimate of the amount of a FIFO inventory. b. Examining invoices in support of the valuation of fixed asset additions. c. Selecting accounts receivable for confirmation of account balances. d. Inspecting employee time cards for proper approval by supervisors.
D
9. Each time an auditor draws a conclusion based on evidence from a sample, an additional risk, sampling risk, is introduced. An example of sampling risk is a. Projecting the results of sampling beyond the population tested. b. Properly applying an improper audit procedure to sample data. c. Improperly applying a proper audit procedure to sample data. d. Drawing an erroneous conclusion from sample data.
D
9. In addition to evaluating the frequency of deviations in tests of controls, an auditor also considers certain qualitative aspects of the deviations. The auditor most likely will give broader consideration to the implications of a deviation if it is 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 misunderstanding of instructions. d. Initially concealed by a forged document.
D
Which of the following sampling plans would be designed to estimate a numerical measurement of a population, such as a dollar value? a. Numerical sampling. b. Discovery sampling. c. Sampling for attributes. d. Sampling for variables.
D
