SU #14
The auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects
Nonsampling risk.
The possibility of the auditor's failure to recognize a misstatement in an amount or a deviation from a prescribed control arises from
Nonsampling risk.
Using statistical sampling to assist in verifying the year-end accounts payable balance, an auditor has accumulated the following data: (Population/Sample) Number of Accounts: 4,100/200 Book Balance: $5,000,000/$250,000 Balance Determined by the Auditor: ?/$300,000 Using the ratio estimation technique, the auditor's estimate of the year-end accounts payable balance would be
$6,000,000
An auditor randomly samples 50 out of 1,000 items and discovers an overstatement of $3,000. What is the projected misstatement for the entire population?
$60,000
When assessing the tolerable population deviation rate, the auditor should consider that, although control deviations increase the risks of material misstatement, such deviations do not necessarily result in misstatements. This consideration explains why
A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.
Which of the following statements is true concerning the auditor's use of statistical sampling?
An auditor needs to estimate the dollar amount of the standard deviation of the population to use classical variables sampling.
Which of the following types of sampling allows an auditor to quantify sampling risk?
Attribute.
In selecting an appropriate sample for a substantive test, the auditor most likely would stratify the population if the
Auditor plans to give greater representation to large recorded amounts.
When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should
Be related to preliminary judgments about materiality levels.
When using sampling for substantive tests of details, the auditor is required to do all but which of the following?
Compute the sample standard deviation.
An auditor initially planned to use unrestricted random sampling with replacement in the audit of accounts receivable. Later, the auditor decided to use unrestricted random sampling without replacement. As a result of this decision, the sample size should
Decrease.
In which of the following situations is attribute sampling likely to be used?
Determining the estimated number of occurrences of improperly authorized cash disbursements.
Each time an auditor draws a conclusion based on evidence from a sample, an additional risk, i.e., sampling risk, is introduced. An example of sampling risk is
Drawing an erroneous conclusion from sample data.
To quantify the risk that sample evidence leads to erroneous conclusions about the sampled population,
Each item in the sampled population must have an equal or known probability of being selected.
A CPA's client wishes to determine inventory shrinkage by weighing a sample of inventory items. If a stratified random sample is to be drawn, the strata should be identified in such a way that
Each stratum differs as much as possible with respect to expected shrinkage, but the shrinkages expected for items within each stratum are as close as possible.
An auditor examining inventory most likely would use variables sampling rather than attributes sampling to
Estimate whether the dollar amount of inventory is reasonable.
Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?
Expected Amount of Misstatements: YES Measure of Tolerable Misstatement: YES
As lower acceptable levels of the risk of incorrect acceptance and performance materiality are established, the auditor should plan more work on individual accounts to
Find smaller misstatements.
In estimating the total value of supplies on repair trucks, Baker Company draws random samples from two equal-sized strata of trucks. The mean value of the inventory stored on the larger trucks (stratum 1) was computed at $1,500, with a standard deviation of $250. On the smaller trucks (stratum 2), the mean value of inventory was computed as $500, with a standard deviation of $45. If Baker had drawn an unstratified sample from the entire population of trucks, the expected mean value of inventory per truck would be $1,000, and the expected standard deviation would be
Greater than $250.
An auditor is selecting prenumbered purchase orders for testing an entity's internal control activities related to their proper approval before office equipment is ordered. The auditor is matching random numbers with the purchase order numbers to determine which purchase orders to inspect. If a random number matches a voided purchase order, the auditor ordinarily would replace the voided purchase order with another if the voided purchase order
Has been properly voided in the normal course of business.
An auditor suspects that the invoices from a small number of vendors contain serious misstatements and therefore limits the sample to those vendors only. A major disadvantage of selecting such a directed sample of items to examine is the
Inability to quantify the sampling error related to the total population of vendor invoices.
An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following sampling types of risks?
Incorrect acceptance.
While performing a test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of
Incorrect rejection.
How would an increase in tolerable misstatement and an increase in the risk of material misstatement (RMM) affect the sample size in a substantive test of details?
Increase in Tolerable Misstatement: Decrease sample size Increase in the RMM: Increase sample size
The risk of underreliance is the risk that the sample selected to test controls
Indicates that the controls are less effective than they actually are.
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to
Measure the sufficiency of the evidence obtained.
A CPA's test of accuracy of inventory counts involves two storehouses. Storehouse A contains 10,000 inventory items and Storehouse B contains 5,000 items. The CPA plans to use sampling without replacement to test for an estimated 5% deviation rate. If the CPA's sampling plan calls for a specified reliability of 95% and a tolerable rate of 7.5% for both storehouses, the ratio of the size of the CPA's sample from Storehouse A to the size of the sample from Storehouse B should be
More than 1:1 but less than 2:1.
Which of the following statements about audit sampling risks is correct for a nonissuer?
Nonsampling risk can arise because an auditor failed to recognize misstatements.
As a result of tests of controls, an auditor underrelies on controls. This incorrect assessment most likely occurred because
Operating effectiveness based on the auditor's sample is less than the true operating effectiveness of the controls.
In attribute sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample?
Population size.
In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the
Population.
When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible misstatement in either direction. This statistical concept is known as
Precision.
Stratified mean-per-unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually
Produces an estimate having a desired level of precision with a smaller sample size.
An advantage of statistical over nonstatistical sampling methods in tests of controls is that the statistical methods
Provide an objective basis for quantitatively evaluating sample risks.
An accounts receivable aging schedule was prepared on 300 pages with each page containing the aging data for 50 accounts. The pages were numbered from 1 to 300 and the accounts listed on each were numbered from 1 to 50. An auditor selected accounts receivable for confirmation using a table of numbers as illustrated: Select Column from Table of Numbers: 02011 85393 97265 61680 16656 42751 69994 07942 10231 53988 Separate Five Digits: First Three Digits-Last Two Digits 020-11 x 853-93 * 972-65 * 616-80 * 166-56 * 427-51 * 699-94 * 079-42 y 102-31 z 539-88 * x Mailed confirmation to account 11 listed on page 20. y Mailed confirmation to account 42 listed on page 79. z Mailed confirmation to account 31 listed on page 102. * Rejected. This is an example of which of the following sampling methods?
Random sampling.
An auditor is performing tests of details of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate?
Ratio or difference estimation.
Which of the following is a sampling risk that is associated with the efficiency of an audit?
Risk of assessing control risk too high.
A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the
Sample size.
Which of the following would be designed to estimate a numerical measurement of a population, such as a dollar value?
Sampling for variables.
A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?
Smaller measure of tolerable misstatement.
AU-C 530, Audit Sampling, identifies two general approaches to audit sampling. They are
Statistical and nonstatistical.
Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?
Stratify the cash disbursements population so that the unusually large disbursements are selected.
In estimation sampling for variables, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor's needs in a given situation?
The acceptable level of risk.
If the size of the sample to be used in a particular test of attributes has not been determined by using statistical concepts, but the sample has been chosen in accordance with random selection procedures,
The auditor may or may not achieve desired precision at the desired level of confidence.
The degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. Which of the following is an example of nonsampling risk?
The auditor selecting inappropriate auditing procedures.
The use of the ratio estimation sampling technique is most effective when
The calculated audit amounts are approximately proportional to the client's carrying amounts.
An auditor may decide to increase the risk of incorrect rejection when
The cost and effort of selecting additional sample items are low.
The size of a sample designed for dual-purpose testing should be
The larger of the samples that would otherwise have been designed for the two separate purposes.
In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if
The population has highly variable recorded amounts.
As a result of control testing, a CPA has decided to reduce control risk. What is the impact on substantive testing sample size if all other factors remain constant?
The sample size would be lower.
When testing the effectiveness of controls, the factor the auditor considers to determine the acceptable sample size is
The tolerable rate of deviation within the population.
An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that
There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.
Which of the following objectives is achieved when an auditor decides to employ classical variable sampling?
To determine the inventory quantities on hand.
Which of the following is the primary objective of monetary-unit sampling (MUS)?
To identify overstatement errors.
An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines the
Variability in the Dollar Amounts of Inventory Items: YES Risk of Incorrect Rejection: YES
The major reason that the difference and ratio estimation methods are expected to produce audit efficiency is that the
Variability of the populations of differences or ratios is less than that of the populations of carrying amounts or audited values.
Which of the following sampling methods would an auditor use to estimate a numerical measurement of a population, such as the dollar value of inventory?
Variable sampling.
Which of the following sampling methods is used to estimate a numerical measurement of a population, such as a dollar value?
Variables sampling.
