Chapter 8

The objectives of attribute sampling when used for tests of controls are to ______.

- evaluate the operating effectiveness of the internal control for purposes of the internal control audit - determine the degree of reliance that can be placed on controls for a financial statement audit

If a large number of deviations are detected early in the tests of controls in the context of a financial statement audit, auditor options include ______.

-enhancing related substantive tests -relying on other internal controls -setting the control risk at the maximum for audit assertions affected

If 3 deviations are found in a sample of 60, the sample deviation rate is %.

5

If you examine a sample of 100 transactions and find 8 with errors, this suggests a transaction error rate of __________ %

8

Using a systemic selection approach to select a sample means ______.

a starting number is selected first and then every nth item is selected

A statistical sampling method used to estimate the proportion of a characteristic in a population is called _____ sampling.

attribute

Nonstatistical sample sizes are determined by ______.

audit firm policy applying professional judgment

Selecting and evaluating less than 100% of the items in an audit population is such a way that the auditor expects a representative group to provide a reasonable basis for conclusions about the population is ______.

audit sampling

The selection and evaluation of less than 100% of the items in a population that is expected to be representative of the population to provide a reasonable basis for a conclusion is the definition of _____ _____ .

audit smapling

If identified controls are operating effectively, control risk may be set ______.

below the maximum

Professional standards indicate that sample sizes for nonstatistical applications should be ______ sample sizes for statistical applications.

comparable to

In drawing a conclusion about the statistical sampling application for tests of controls, the auditor compares the tolerable deviation rate to the ______ deviation rate.

computed upper

Because the auditor does not know the true deviation rate, he or she calculates a ______

computed upper deviation rate

Understanding the nature and cause of a deviation helps the auditor better assess control risk and evaluate whether the deviations represent ______.

control deficiencies

If control risk is mistakenly set at a low level ______.

detection risk will be set too high

When analyzing deviations the auditor should ______.

determine if the deviation represents an unintentional error or fraud consider how the deviations may impact other phases of the audit

One of the most difficult step of an audit sampling application is generally ______.

determining the sample size

In setting the desired confidence level and acceptable level of risk, the auditor considers the ______.

difficulty or complexity in applying the control importance of the assertion significance of the account

In applying attribute sampling to tests of controls, the auditor normally attempts to determine the operating ______ of a control in terms of ______ from a prescribed internal control.

effectiveness; deviations

Systematic selection provides a sample where ______.

every sampling unit has an equal chance of being selected

If detection risk is set too high, the risk that the auditor will fail to detect an actual material misstatement ______.

increases

The primary purpose of sampling is to draw _____ about the whole population based on the results of testing only a subset of the population.

inferences

The sample size is ______ related to the tolerable deviation rate.

inversely

If the computed upper deviation rate is ______ the tolerable deviation rate, the auditor can conclude that the control tested can be relied upon.

less than or equal to

The ______ the tolerable deviation rate, the ______ the sample size.

lower; larger

Determining the sample size is typically one of the ______ steps of an audit sampling application.

most difficult

The two general approaches to audit sampling are _____ and _____.

nonstatistical statistical

Unrestricted random sampling without replacement means ______.

once an item is selected, it cannot be selected a second time

Random-number selection is used in many statistical sampling applications because the auditor is required to be able to measure the _____ of selecting the sampling units selected.

probability

Statistical sampling uses the laws of _____ to compute sample size and evaluate the sample results.

propability

The number of deviations found in the sample divided by the number of items in the sample is the ______ rate.

sample deviation

The computed upper deviation rate is the sum of the ______.

sample deviation rate and an appropriate allowance for sampling risk

Auditing standards recognize and permit both __________ and _________ methods of audit sampling.

statistical nonstatistical

If a large number of deviations are detected early in the tests of controls, the auditor should consider ______.

stopping the test as soon as it is clear that the results of the test will not support the planned assessed level of control risk

When the auditor has decided to rely on controls, the confidence level is set at 90 or 95 percent, meaning that the auditor is willing to accept a 10 or 5 percent risk of accepting ______.

the control as effective when in fact it is not