Chapter 10
An auditor is most likely to use audit data analytics (ADA) when _______.
- data is available that is relevant to an audit assertion of interest, whether as a risk assessment procedure or a substantive test. - the available data is reliable and comes from a strong system of internal controls. - the available data is relatively clean and does not require significant work to make it usable.
At the outset of substantive testing, the auditor needs to _______.
- determine the population being tested - the assertion or assertions being tested - if the auditor is trying to estimate the total dollar value of the population, or the total amount of misstatement that might exist in the population
Which of the following best illustrates the concept of sampling risk?
A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.
What is a sampling unit?
A subset of population
In an audit of a nonissuer's financial statements, projected misstatement is
An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample.
Holding all other factors constant, which of the following factors results in an increase in sample size for substantive tests?
An increase in the desired level of assurance that the tolerable misstatement is not exceeded by the actual amount of misstatement in the population.
Which of the following factors would most likely cause an auditor to use audit sampling versus audit data analytics?
Evidence to support the audit test is not available in electronic form.
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: Decrease sample size Increase in assessed level of control risk: Increase sample size
Which of the following best describes the distinguishing feature of statistical sampling?
It provides for measuring mathematically the degree of uncertainty that results from examining only a part of the data.
When performing a test of a control with respect to control over cash receipts, an auditor 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
May occur in a systematic pattern, thus destroying the sample randomness.
An auditor may decide to increase the risk of incorrect rejection when
The cost and effort of selecting additional sample items are low.
When planning a classical variables sample, the risk of incorrect acceptance and the risk of incorrect rejection are related to what general factor that influences sample size?
The desired level of assurance from the sample.
Probability Proportionate to Size (PPS) sampling is _______.
an approach that uses attribute sampling theory to express a conclusion in dollar amounts
Audit sampling is when _______.
an auditor selects less than 100% of a population
The choice of statistical or non-statistical sampling _______.
does not affect the selection of procedures, or the competence of evidence obtained about individual sample items
A representative audit sample _______.
is likely to provide a reasonable basis for drawing a conclusion about an entire population
The choice of using audit sampling vs. audit data analytics (ADA) _______.
is often a matter of what is most effective and efficient in determining whether an assertion is presented fairly, in all material respects
Sampling risk:
is the risk that the sample chosen by the auditor is not representative of the population of transactions.
The use of audit sampling _______.
may be a function of the efficiency and effectiveness of the audit procedure
The auditor's conclusion based on the sample _______.
may be different than the conclusion drawn if the auditor had audited the entire population
The ultimate purpose of a substantive test is to _______.
obtain reasonable assurance that an assertion is presented fairly in all material respects
When an audit procedure is tested on an entire group of transactions, _______.
sampling is not required
An auditor is testing accounts receivable for a client that has 1,000 customers with customer balances that range from $150 to $185,000. The auditor subdivided the receivables into three groups: group 1 has all customers with receivable balances between $185,000 and $100,000, group 2 has all customers with receivable balances between $100,000 and $25,000, and group 3 has all customers with receivable balances less than $25,000. The auditor then randomly selects customers out of each group. This is known as:
stratified sampling.
The population consists of _______.
the class of transactions or the account balance to be tested
The auditor is more likely to use audit sampling _______.
when internal controls are weak
