Auditing

Which of the following are the types of sampling approaches that involve any techniques that measure sample size and sample results? Select all that apply. A : Nonstatistical sampling B : Statistical sampling C : Neutral sampling D : Audit sampling

ab

Which of the following represents an appropriate situation in which to apply audit procedures to a sample instead of the entire population? Select all that apply. A) Confirm a large number of accounts receivable B) Confirm the existence of inventory C) Confirm notes payable for when the notes are with only a few banks D) Confirm a large number of accounts payable A,B,D

abd

Which of the following are associated with risk of incorrect rejection? Select all that apply. A An increase in audit effort when not required (i.e., there is a risk that the audit will be inefficient) B Auditor conclusion that a material misstatement does not exist when it does C Auditor conclusion that a material misstatement exists when it does not exist D An increased audit risk (i.e., there is a risk that the audit will be ineffective)

ac

Which of the following are factors influencing the choice of ADA? Select all that apply. A Reliable relevant data and strong controls B Small audit population C Clean relevant data D Availability of evidence to support the audit test in electronic form A,C,D

acd

Which of the following are types of sampling risks? Select all that apply. A Risk of incorrect acceptance B Risk of correct acceptance C Risk of correct rejection D Risk of incorrect rejection

ad

If an auditor selects a random sample and no misstatements were found, the auditor may project this result onto the rest of the population and conclude that there is no misstatement in the overall population. A True B False b

false

If an auditor spends too much of his or her time testing assertions in which the risk of material misstatement is modest, this is considered sampling risk. A True B False b

false

Verifying inventory is an example of a situation in which audit data analytics is preferred ... FALSE

false

An ineffective and inefficient audit is the consequence of which of the following risks? A Risk of incorrect rejection B Audit risk C Sampling risk D Nonsampling risk C

C

: Which of the following is a method of estimating the audited value of the population where the auditor estimates the audited value of the population based on the ratio of the audited value in each strata divided by the book value of the sample in each strata? A : Ratio method B : Populate method C : Difference method D : Haphazard selection method A Ratio Method

a

: _______ can be done when the evidence to support the audit test is not available in electronic form (e.g., observing the existence of inventory). A Audit sampling B Modified sampling C An existence opinion D Audit data analytics (ADA) A

a

All of the following are true regarding the use of audit data analytics EXCEPT that it is A : not likely to be used along with audit sampling for the same account balance. B : not likely to be used when the audit population is small. C : likely to be used when evidence to support the audit test is available in electronic form. D : likely to be used when relevant data is clean. A

a

An entire population rather than just a sample population should be tested A) when the client has a large balance of notes payable with only a few banks. B) to confirm accounts receivable. C) to validate the existence of inventory. D) when the client has a large number of accounts payable. A when the client has a large balance of notes payable with only a few banks.

a

What is risk of incorrect rejection? A The risk that the auditor concludes that a material misstatement exists when it does not B 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 C The risk that the auditor concludes that a material misstatement does not exist when it does is to express an opinion on the financial statements based on other audits D The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk

a

What is the item snagged by the sampling plan for audit, such as an individual customer or individual sales invoice? A Logical sampling unit B Population C Probability proportionate to size (PPS) sampling D Reciprocal population A Logical sampling unit

a

When the available data is reliable and comes from a strong system of internal controls, what procedure is the auditor most likely to conduct? A Audit data analytics B Audit sampling C Substantive tests D Haphazard sampling You selected A : Audit data analytics got it correct A

a

Which of the following is consistent with nonstatistical sampling? A Checking debt write-offs in departments chosen by the board of directors follows our opinion of best practices. B Checking accounts payable in three randomly selected departments has a sampling risk of 5.4% ±± 1.0%. C Checking balance sheets in all nine departments covers all samples. D Checking cutoff errors in all 12 departments is inefficient.

a

Which of the following is true about statistical sampling? A The sample size is determined quantitatively. B The sample results should be evaluated using the auditor's experience. C It involves non-random selection of sample items. D Appropriate nonstatistical techniques are used for sample selection and evaluation.

a

Which of the following scenarios is an example of audit sampling? A) Checking 10 percent of sales returns within a department as an indicator to determine whether the entire department follows proper protocols. B) Checking 30 percent of payroll errors to investigate whether senior management should be notified. C) Analyzing the opinions of all employees throughout the company of management's integrity. D) Analyzing accounts receivable throughout the company for whether they follow management's directives. A Checking 10 percent of sales returns within a department as an indicator to determine whether the entire department follows proper protocols.

a

When creating an audit program and designing audit procedures, an auditor also decides how to select appropriate items for testing. A True B False A True

a true

All of the following are common techniques used in audit sampling EXCEPT? A) All of them B) Sorting C)Tracing D) Vouching B

b

An auditor performs audit sampling to determine that client transactions in one department are recorded on paper before transcribing them to electronic format. The auditor is likely to follow up on which of the following with ADA? A) Whether the newest hire understands the importance of accurate record-keeping B) Whether the rest of the business records and transcribes client transactions similarly C) Whether electronic transcriptions are completed in the department within 24 hours D) Whether the department head has correct knowledge of transcription procedures B

b

Audit sampling is conducted when which of the following occurs? A) An audit procedure is tested on an entire group of transactions. B) The auditor selects less than 100% of the population to test. C) An audit procedure is tested on all items within an account balance. D) None of the answer choices is correct. B The auditor selects less than 100% of the population to test.

b

In which of the following situations is an auditor NOT likely to use audit sampling? A Evidence is not available in electronic form B Relevant data is reliable and internal controls over the reliability of data are strong C Relevant data may be in different formats D The audit population is small B Relevant data is reliable and internal controls over the reliability of data are strong

b

What does nonstatistical sampling involve? A Only special kind of evaluation B Any sample selection and evaluation method that does not have the characteristics of statistical sampling C A special kind of sample selection method D Populate method

b

When using audit data analytics (ADA) as a risk assessment procedure, if the auditor identifies high-risk items the auditor may do which of the following? A) None of the choices is correct. B) Apply a different ADA or another procedure that might more clearly identify items that represent a misstatement. C) Perform traditional audit techniques such as vouching, tracing, or confirming each item in the entire population. D) Reperform the risk assessment procedure. B Apply a different ADA or another procedure that might more clearly identify items that represent a misstatement.

b

Which of the following is a good situation in which to use audit sampling? A All the answer choices are correct. B Validating the existence of a large inventory balance C Validating loan balances D There are large notes payable balances and few banks b Validating the existence of a large inventory balance

b

Which of the following is a situation that favors audit sampling? A Evidence to support the audit test is available in electronic form. B Evidence to support the audit test is not available in electronic form (e.g., observing the existence of inventory). C Relevant data is clean or can be cleaned up easily. D Relevant data is reliable and internal controls over the reliability of data are strong. B

b

Which of the following is an example of audit sampling? A The auditor requests confirmation of all accounts receivable. B The auditor tests a portion of inventory. C None of the answer choices are correct. D The auditor tests all notes payable balances. B The auditor tests a portion of inventory

b

Which of the following is consistent with statistical sampling? A Using the CEO's experience to select a large number of employees B Randomly selecting nine employees from throughout the company C Using professional judgment to select a large number of employees D Selecting all five employees from within a division chosen by management

b

Which of the following is defined as "an approach to sampling that involves a random selection of sample items and the use of an appropriate statistical technique to determine sample size and evaluate sample results"? A Nonstatistical sampling B Statistical sampling C Nonsampling risk D Sampling risk

b

Which of the following risks occurs when an auditor concludes that a material misstatement does not exist when it actually does? A Nonsampling risk B Risk of incorrect acceptance C Risk of incorrect rejection D Sampling risk

b

________ is the risk that the auditor concludes that a material misstatement exists when it does not. A Haphazard selection B Risk of incorrect rejection C Detection D Sampling risk You selected C : Detection got it wrong the correct Answer is B : Risk of incorrect rejection

b

Statistical sampling does NOT allow an auditor to measure the risk that the sample chosen by the auditor is not representative. A True B False

b false

When a client has a large number of accounts receivable, it is important to confirm all accounts in order to eliminate uncertainty. A True B False B False

b false

Which of the following describes a circumstance in which audit sampling is more appropriate than audit data analytics? Select all that apply. A) Evidence to support the audit is available in electronic form. B) The audit population is small and it is efficient to test using traditional audit tests. C) Relevant data is in different formats. D) Relevant data is reliable and internal controls over the reliability of data are strong. B and C

bc

Which of the following are major types of risks related to audit sampling? Select all that apply. A Risk of incorrect acceptance B Sampling risk C Risk of incorrect rejection D Non-sampling risk B and D

bd

Which of the following are true about nonstatistical sampling? Select all that apply. A The sample size is determined quantitatively, using appropriate statistics. B The auditor cannot quantify sampling risk. C It allows the auditor to measure sampling risk. D The auditor uses judgment to determine sample size and selection methods.

bd

Ahmad has decided to use sampling to confirm accounts receivable for a building supply warehouse chain that has a large number of customers. What should Ahmad use as a sample for this audit procedure? A) Accounts that had activity in each of the last four quarters B) Accounts that carry the largest monthly average balance C) Accounts that represent the total population of accounts D) Accounts that were active in the most recent quarter C Accounts that represent the total population of accounts

c

An audit that fails to find material misstatements is considered to be which of the following? A Inefficient B None of the answer choices is correct. C Ineffective D Unnecessary c

c

An auditor is assigned to analyze whether client accounts within the past 3 months have complete and current data. The auditor determines that account data within 1 week of that time period has several errors. How can the auditor minimize the sampling risk of incorrect rejection while remaining efficient? A Check the skillset of pertinent supervisors. B Contract another agency to perform the analysis again. C Perform the analysis on several more weeks' worth of data. D Analyze whether management sets out procedures in electronic format. You selected C : Perform the analysis on several more weeks' worth of data. got it correct

c

Debra's client was delayed in gathering all the information necessary for her to conduct an audit. Now she faces a time constraint to complete the audit and must maximize efficiency. In which of the following situations is Debra LEAST likely to use sampling as part of the audit? A) Confirming a large number of accounts receivable B) Confirming a large number of accounts payable C) Confirming notes payable with several banks D) Confirm the existence of inventory C

c

In which of the following scenarios is an auditor more likely to use ADA, as opposed to audit sampling? A) A business must determine inventory amounts stored in a centralized warehouse. B) Proposed changes to policies on extending lines of credit are handwritten on the previously approved document. C) Two people carefully check the lead accountant's work, which is all compiled electronically. D) Cash receipts are printed on paper and stored in a file cabinet. C

c

In which of the following scenarios is an auditor more likely to use audit sampling, as opposed to ADA? A) IT documents its policies in electronic format. B) Selecting the client account number brings up comprehensive information. C) There is no centralized IT security resource. D) The senior vice president closely supervises each project manager. C

c

The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk is called which of the following? A Risk of incorrect acceptance B Sampling risk C Non-sampling risk D Risk of incorrect rejection

c

To perform audit data analytics, which of the following is generally needed? A) Available data requires significant work to make it usable. B) None of the choices is correct. C) Available data is relatively clean and does not require significant work to make it usable. D) Audit sampling is equally effective. C Available data is relatively clean and does not require significant work to make it usable.

c

When an auditor is working to identify customers with a weak payment history while evaluating the allowance for doubtful accounts, the most appropriate approach would be to do which of the following? A) Audit specific customers to determine if the allowance for doubtful accounts is adequate. B) Perform vouching, tracing, or confirming on each item in the entire population. C) Use ADA to screen every customer, looking for customers with both past due accounts and a deteriorating payment history and audit specific customers to determine if the allowance for doubtful accounts is adequate. D) Use ADA to screen every customer, looking for customers with both past due accounts and a deteriorating payment history. You selected B : Perform vouching, tracing, or confirming on each item in the entire population. got it wrong the correct Answer is C

c

When an auditor reaches an erroneous conclusion for any reason not related to sampling risk, this is considered A control risk. B detection risk. C nonsampling risk. D audit risk.

c

Which audit procedure has the smallest amount of risk? A Performing one audit on 10 percent of all items in inventory B Performing two audits on 10 percent of all items in inventory C Auditing all items in inventory D Auditing 50 percent of all items in inventory C Auditing all items in inventory

c

Which of the following is a situation that favors audit sampling? A) Evidence to support the audit test is available in electronic form. B) Relevant data is reliable and internal controls over the reliability of data are strong. C) Evidence to support the audit test is not available in electronic form (e.g., observing the existence of inventory). D) Relevant data is clean or can be cleaned up easily C

c

Which of the following is an example of the sampling risk of incorrect rejection? A Analyzing policies for collecting past-due payments at a representative business, and ignoring whether these policies are applied to both small and large debts B Analyzing electronic bad debt write-offs at one of five divisions, and incorrectly concluding that all five divisions follow management's directives C Analyzing well-documented promotion evaluation criteria at one of six businesses, and incorrectly concluding that the criteria in all six businesses fail to meet board policies D Analyzing only the electronic sales receipts at a representative business, and incorrectly concluding that both electronic and paper receipts are well-documented You selected B : Analyzing electronic bad debt write-offs at one of five divisions, and incorrectly concluding that all five divisions follow management's directives got it wrong the correct Answer is C : Analyzing well-documented promotion evaluation criteria at one of six businesses, and incorrectly concluding that the criteria in all six businesses fail to meet board policies c

c

Which of the following is consistent with statistical sampling? A The sampling risk was estimated to be small. B My best judgment indicates that the sampling risk is high. C The sampling risk was calculated to be 5.0% ±± 3.1%. D My experience indicates that we can estimate the sampling risk in 5 days.

c

Which of the following leads to a nonsampling risk in an audit? A Existence errors pertaining to all high-value items B Classification and understandability errors within a large data set C Classification errors corrected after the fact, yet not noted D Existence errors pertaining to a nonrepresentative subset

c

Which of the following scenarios is an example of audit sampling? A Determining the use of electronic documentation company-wide and filing a working paper for senior management. B Evaluating the ethics of one payroll employee as a basis for evaluating company-wide culture. C Evaluating an employee from March 20 through March 24 as an estimate of the employee's performance throughout the month of March. D Recording the inventory of the entire company and filing a working paper for the board of directors. C Evaluating an employee from March 20 through March 24 as an estimate of the employee's performance throughout the month of March.

c

An auditor is assigned to determine whether management follows board policies against nepotism. The auditor determines that only analyzing the recent hires to senior management has a high sampling risk of incorrect acceptance. Which of the following actions should the auditor take to minimize this sampling risk as much as possible? A Contract another agency to perform the analysis again. B Check the accuracy of the documentation. C Perform the analysis again, by the same auditor. D Analyze recent hires throughout the company.

d

An auditor performs ADA that identifies deficiencies in IT security. The auditor is likely to follow up on which of the following with audit sampling? A) How similar companies in the field manage their IT security B) Whether other departments have deficiencies in other protocols C) Company-wide knowledge of data security policies D) Whether divisions follow password change policies D

d

For statistical sampling, sample size is determined _______ using appropriate A randomly; populations. B quantitatively; estimates. C qualitatively; opinions. D objectively; statistics.

d

In which of the following scenarios is an auditor more likely to use ADA, as opposed to audit sampling? A) The data security procedures for payroll are passed down verbally from the supervisor. B) A five-employee musical instrument repair business has clear policies for misconduct. C) Extensive turnover in management has led to inconsistent credit sales policies. D) A company's procedures for reconciling sales receipts are available as an electronic text document. D

d

In which of the following scenarios is an auditor more likely to use audit sampling, as opposed to ADA? A) Management documents orders from the board of directors electronically. B) A company has many project managers, who all keep clear electronic records. C) A clothing business can easily bring up its clients' entire account history. D ) A furniture store must inventory its unsold couches and mattresses. D

d

In which of the following situations is an auditor likely to use audit sampling? A) None of the answer choices is correct. B) When an audit procedure is tested on all borrowing activities C) When all loan balance transactions are tested D) When an audit activity is tested on a portion of inventory D When an audit activity is tested on a portion of inventory

d

Nonstatistical sampling involves any sample selection and _______ method that does not have the characteristics of statistical sampling. A audit data B modified C existence D evaluation

d

Testing all notes payable would most likely occur in which of the following situations? A) None of the answer choices is correct. B) Relevant data may be in different formats. C) The population of notes payable is large. D) There is a large balance of notes payable, with a few banks. D

d

When an auditor's conclusion is based upon a sample instead of the entire population, this creates uncertainty regarding the auditor's _______; this is referred to as A) work ethic; haphazard selection. B) honesty; non-sampling risk. C) qualifications; risk of incorrect rejection. D) conclusion; sampling risk. D

d

Which of the following is an example of the sampling risk of incorrect acceptance? A Checking poorly organized inventory at a representative division, and incorrectly concluding that the inventory is fully counted B Checking electronic tax filings at one of four businesses, and incorrectly concluding that the filings in all four businesses were incomplete C Checking well-organized IT security policies at a representative business, and ignoring whether the employees follow through with these policies D Checking electronic sales receipts at one of five divisions, and incorrectly concluding that the receipts in all five divisions were properly recorded

d

Which of the following is consistent with statistical sampling? A Evaluating IT security in three randomly selected departments has a small sampling risk. B Evaluating ethics policies in departments chosen by management follows our opinion of best practices. C Evaluating credit balances in all eight departments covers all samples. D Evaluating the company's electronic records using audit software.

d

Which of the following is defined as "the risk that the auditor concludes that a material misstatement exists when it does not"? A Sampling risk B Nonsampling risk C Risk of incorrect acceptance D Risk of incorrect rejection

d

Which of the following is defined as an approach to sampling that involves any sample selection and evaluation method for which the auditor does not use a formal statistical technique to select the sample or to evaluate the sample results? A :Informal sampling B :Nonsampling risk C :Statistical sampling D :Nonstatistical sampling

d

Which of the following is true about nonstatistical sampling? A All of the answer choices are correct. B It is rarely used in combination with statistical sampling. C It requires more staff training than statistical sampling. D It is considered easier than statistical sampling.

d

Which of the following is true about statistical sampling? A All of the answer choices are correct. B It involves non-random selection of sample items. C The sample size is determined qualitatively. D The sample results should be evaluated mathematically.

d

Which of the following is true when an auditor uses audit sampling? A) The auditor expects the sample to provide a reasonable basis for conclusions about the population. B) The auditor expects the items selected to be representative of the entire population. C) The auditor evaluates less than 100% of the entire population. D) All of the answer choices are correct. D All

d

Which of the following scenarios is an example of audit sampling? A Checking the IT security knowledge of all employees throughout the company B Checking all bad debt write-offs throughout the company for possible errors C Analyzing 10 percent of cutoff errors as a proxy for whether accuracy errors should be checked as well D Analyzing 20 percent of sales discounts within a division as a basis for determining whether the entire division follows correct procedures D Analyzing 20 percent of sales discounts within a division as a basis for determining whether the entire division follows correct procedures

d

Which of the following will limit the audit questions that might be answered using audit data analytics? A) The client has electronic information for the value of each item sold. B) None of the choices is correct. C) The client has reliable perpetual inventory data for quantities of inventory. D) The client calculates cost of goods sold using a periodic inventory method. D The client calculates cost of goods sold using a periodic inventory method.

d

______ is a sampling method that uses normal distribution theory to select a sample and evaluate the characteristics of a population based on the results of a sample drawn from the population. A) Audit sampling B) Modified sampling C) Audit data analytics D) Classical variables sampling D

d

: Audit data analytics is always preferred if circumstances are appropriate. A True B False FALSE

false

: Stratification is a method that can be used with both statistical and nonstatistical techniques. A True B False Answer is A : True

true