Study Unit 14

Which of the following statements about audit sampling risks is correct for a nonissuer? Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective. Sampling risk is derived from the uncertainty in applying audit procedures to specific risks. Nonsampling risk can arise because an auditor failed to recognize misstatements. Nonsampling risk arises from the possibility that, when a substantive test is restricted to a sample, conclusions might be different than if the auditor had tested each item in the population.

Nonsampling risk can arise because an auditor failed to recognize misstatements.

The auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects Sampling risk. Statistical risk. Audit risk. Nonsampling risk.

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 Statistical risk. The standard error of the mean. Sampling risk. Nonsampling risk.

Nonsampling risk.

Which of the following would be designed to estimate a numerical measurement of a population, such as a dollar value? Sampling for attributes. Sampling for variables. Discovery sampling. Numerical sampling.

Sampling for variables.

In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate? Variables. Ratio. Stratified. Attributes.

Attributes.

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? $120,000 $48,000 $150,000 $60,000

$60,000

In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audited amount of $4,000. If this were the only misstatement discovered by the auditor, the projected misstatement of this sample is $2,000 $5,000 $1,000 $10,000

$2,000

In a monetary-unit sample with a sampling interval of $5,000, an auditor discovered that a selected account receivable with a recorded amount of $10,000 had an audit amount of $8,000. If this were the only error discovered by the auditor, the projected misstatement of this sample would be $5,000 $1,000 $2,000 $4,000

$2,000

Using statistical sampling to assist in verifying the year-end accounts payable balance, an auditor has accumulated the following data: Balance Number of Book Determined by Accounts Balance the Auditor Population 4,100 $5,000,000 ? Sample 200 $ 250,000 $300,000 Using the ratio estimation technique, the auditor's estimate of the year-end accounts payable balance would be

$6,000,000

In examining the sample, one overstatement was detected causing an extension of $270 to the tolerable misstatement. Assuming a sample size of 1,000 and assuming that the maximum dollar amount of overstatement, if no misstatements were found, was established to be $900 before the sampling analysis, what conclusion can the auditor now make from the sampling evidence? An insufficient number of misstatements were detected to warrant a conclusion. (S)he is 95% confident that the dollar amount of overstatement in the population of vouchers is between $900 and $1,170. (S)he is 95% confident that the dollar amount of overstatement in the population of vouchers is less than $1,170. (S)he is 95% confident that the dollar amount of overstatement in the population of vouchers exceeds $1,170.

(S)he is 95% confident that the dollar amount of overstatement in the population of vouchers is less than $1,170.

An auditor has determined the recorded amount of a population of accounts receivable to be $1,638,000 and has set the level of tolerable misstatement (TM) at $46,800. No errors were expected to be found in the population. Based upon a risk of incorrect acceptance of 5% and a reliability factor (RF) of 3, what is the sample size to be used for testing? 105 15,600 35 Cannot be determined with the available information.

105

Hill has decided to use monetary-unit (MUS) sampling, sometimes called dollar-unit sampling, in the audit of a client's accounts receivable balances. Hill plans to use the following MUS sampling table: What sample size should Hill use? 120 60 108 30

30

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 1% risk of overreliance (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval. A sample of 200 invoices was examined, and seven of them were lacking approval. The auditor then determined the achieved upper deviation limit to be 8%. The allowance for sampling risk was 4.5% 3.5% 1% 5.5%

4.5%

Hill has decided to use monetary-unit sampling (MUS), sometimes called dollar-unit sampling, in the audit of a client's accounts receivable balances. Hill plans to use the following MUS sampling table: TABLE 1 Reliability Factors for Overstatements Risk of Incorrect Acceptance Number of Overstatements 1% 5% 10% 15% 20% 0 4.61 3.00 2.31 1.90 1.61 1 6.64 4.75 3.89 3.38 3.00 2 8.41 6.30 5.33 4.72 4.28 TABLE 2 Expansion Factors for Expected Errors Risk of Incorrect Acceptance 1% 5% 10% 15% 20% Factor 1.9 1.6 1.5 1.4 1.3 Additional Information Tolerable misstatement $ 24,000 Anticipated misstatement $ 5,000 Risk on incorrect acceptance 5% Recorded amount of accounts receivable $240,000 Number of accounts 360 What sample size should Hill use?

45

Given a random start of $50 as the first dollar amount, what is the number of the fourth voucher to be selected, assuming that the sample size will be 1,000? 4 8 6 7

8

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 Deviations at a given rate ordinarily would be expected to result in misstatements at a higher rate. Deviations would result in misstatements in the accounting records only if the deviations and the misstatements occurred on different transactions. A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded. A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement.

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 factors does an auditor usually need to consider in planning a particular audit sample for a test of controls? Number of items in the population. Acceptable risk of overreliance. Total dollar amount of the items to be sampled. Tolerable misstatement.

Acceptable risk of overreliance.

Which of the following statements is true concerning the auditor's use of statistical sampling? A classical variables sample needs to be designed with special considerations to include negative balances in the sample. The selection of zero balances usually does not require special sample design considerations when using monetary-unit sampling. An assumption of monetary-unit sampling is that the underlying accounting population is normally distributed. An auditor needs to estimate the dollar amount of the standard deviation of the population to use classical variables 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? Block. Attribute. Haphazard. Stratified nonstatistical.

Attribute.

In selecting an appropriate sample for a substantive test, the auditor most likely would stratify the population if the Desired assessed level of control risk is less than the prior year. Auditor suspects that management fraud has occurred during the year. Auditor plans to give greater representation to large recorded amounts. Technique to be used is attribute sampling.

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 Not be adjusted for qualitative factors. Be related to preliminary judgments about materiality levels. Not be changed during the audit process. Be related to the auditor's business risk.

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. Select a representative sample. Project sample misstatement results to the population. Determine the tolerable misstatement.

Compute the sample standard deviation.

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 Increase in the RMM

Decrease sample size Increase sample size

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. Increase. Remain the same. Either increase or decrease, but the direction cannot be determined.

Decrease.

In which of the following situations is attribute sampling likely to be used? Examining invoices and canceled checks in support of recorded operating expenses. Determining the estimated number of occurrences of improperly authorized cash disbursements. Inquiring of the client the number of occurrences of fraud during the year. Making selections from a cash disbursements journal to test liabilities for understatement.

Determining the estimated number of occurrences of improperly authorized cash disbursements.

In assessing the tolerable rate of deviations of a test of controls that was performed using statistical sampling, an auditor should consider that Increasing the number of items selected for the test of controls usually increases the tolerable rate of deviations. When the degree of assurance desired in a sample is high, the auditor should allow for a high level of sampling risk Deviations from pertinent controls at a given rate ordinarily result in misstatements at a lower rate. Deviations from pertinent controls do not affect the risk of material misstatement in the accounting records

Deviations from pertinent controls at a given rate ordinarily result in misstatements at a lower rate.

Which of the following statements is true concerning statistical sampling in tests of controls? Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements. There is an inverse relationship between the expected population deviation rate and the sample size. In determining the tolerable deviation rate, an auditor considers detection risk and the sample size. As the population size increases, the sample size should increase proportionately.

Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements.

The risk of underreliance is that the sample selected to test controls Contains proportionately fewer errors or deviations from prescribed controls than exist in the balance or class as a whole. Does not support the tolerable misstatement for some or all of management's assertions. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes. Does not support the auditor's planned reliance on controls when the true operating effectiveness of controls justifies such an assessment.

Does not support the auditor's planned reliance on controls when the true operating effectiveness of controls justifies such an assessment.

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 Projecting the results of sampling beyond the population tested. Improperly applying a proper audit procedure to sample data. Drawing an erroneous conclusion from sample data. Properly applying an improper audit procedure to sample data.

Drawing an erroneous conclusion from sample data.

To quantify the risk that sample evidence leads to erroneous conclusions about the sampled population, The precise number of items in the population must be known. Each item in the sampled population must have a chance of being selected that is proportional to its carrying amount. Each item in the sampled population must have an equal chance of being selected. Each item in the sampled population must have an equal or known probability of being selected.

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 The items in each stratum will follow a normal distribution so that probability theory can be used in making inferences from the sample data. 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. The sample means and standard deviation of each individual stratum will be equal to the means and standard deviations of all other strata. The overall population is divided into subpopulations of equal size so that each subpopulation can be given equal weight when estimates are made.

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.

The risk of incorrect acceptance and the risk of overreliance relate to the Effectiveness of the audit. Tolerable misstatement. Preliminary estimates of materiality levels. Efficiency of the audit.

Effectiveness of the audit.

An auditor examining inventory most likely would use variables sampling rather than attributes sampling to Discover whether misstatements exist in inventory records. Estimate whether the dollar amount of inventory is reasonable. Determine whether discounts for inventory are properly recorded. Identify whether inventory items are properly priced.

Estimate whether the dollar amount of inventory is reasonable.

To determine the sample size for a test of controls, an auditor should consider the tolerable population deviation rate, the risk of overreliance, and the Risk of incorrect acceptance. Risk of incorrect rejection. Upper precision limit. Expected population deviation rate.

Expected population deviation rate.

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 larger misstatements. Increase the tolerable misstatement in the accounts. Find smaller misstatements. Decrease the risk of overreliance.

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 Less than $45. Exactly $147.50. Greater than $250. Between $45 and $250, but not $147.50.

Greater than $250.

When an auditor uses monetary-unit sampling to examine the total value of invoices, each invoice Has an equal probability of being selected. Can be represented by no more than one monetary unit. Has an unknown probability of being selected. Has a probability proportional to its monetary value of being selected.

Has a probability proportional to its monetary value of being selected.

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 Represents office equipment ordered and never received. Has been properly voided in the normal course of business. Represents office equipment ordered and canceled before being processed by the vendor. Has been electronically deleted from the purchase order file.

Has been properly voided in the normal course of business.

An auditor is selecting vouchers for testing an entity's internal controls related to the proper approval of vouchers before checks are prepared. The auditor is matching random numbers with voucher numbers to determine which vouchers to inspect. If a random number matches a voided voucher, that voucher ordinarily is replaced by another voucher in the random sample if the voided voucher Represents a dollar amount that is material. Cannot be located in the voucher file. Has been properly voided. Indicates a deviation from the prescribed activity.

Has been properly voided.

In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized, an auditor should consider the tolerable rate of deviation from the control activity. The auditor should also directly consider the I. Likely rate of deviations II. Allowable risk of underreliance II only. Either I or II. Both I and II. I only.

I only.

The diagram below depicts the auditor's estimated maximum deviation rate compared with the tolerable deviation rate and also depicts the true population deviation rate compared with the tolerable deviation rate.True State of PopulationAuditor's Estimate Based on Sample ResultsDeviation rate is less than tolerable rate.Deviation rate exceeds tolerable rate.Maximum deviation rate is less than tolerable rate.I. CorrectIII. IncorrectMaximum deviation rate exceeds tolerable rate.II. IncorrectIV. Correct As a result of testing controls, the auditor underrelies on the controls and increases substantive testing. This is illustrated by situation II. III. I. IV.

II.

For which of the following audit tests is an auditor most likely to use attribute sampling? Selecting receivables for confirmation of account balances. Identifying entries posted to incorrect accounts. Evaluating the reasonableness of depreciation expense. Estimating the amount in an expense account.

Identifying entries posted to incorrect accounts.

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 Tendency to sample a greater number of units. Absence of a normal distribution. Inability to quantify the sampling error related to the total population of vendor invoices. Difficulty in obtaining sample items.

Inability to quantify the sampling error related to the total population of vendor invoices.

Which of the following most likely would be an advantage in using classical variables sampling rather than monetary-unit sampling? An estimate of the standard deviation of the population's recorded amounts is not required. Any amount that is individually significant is automatically identified and selected. The auditor rarely needs the assistance of a computer program to design an efficient sample. Inclusion of zero and negative balances usually does not require special design considerations.

Inclusion of zero and negative balances usually does not require special design considerations.

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. Overreliance. Underreliance. Incorrect rejection.

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 Underreliance. Overreliance. Incorrect rejection. Incorrect acceptance.

Incorrect rejection.

Which of the following combinations results in a decrease in sample size in an attribute sample? Allowable Risk Deviation of Overreliance Tolerable Rate Expected Population Deviation Rate

Increase Increase Decrease

If an auditor of a nonissuer discovers an unexpectedly high number of deviations during procedures performed on a sample to test management's review and approval of time sheets, then the auditor would most appropriately Increase the tolerable rate of deviation. Extrapolate the impact of the exceptions on other key controls requiring management review. Increase the assessed risks of material misstatement. Propose an audit adjustment.

Increase the assessed risks of material misstatement.

The risk of underreliance is the risk that the sample selected to test controls Does not support the tolerable misstatement for some or all financial statement assertions. Contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole. Indicates that the controls are less effective than they actually are. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes.

Indicates that the controls are less effective than they actually are.

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was The only deviation discovered in the sample. Caused by an employee's misunderstanding of instructions. Identical to a deviation discovered during the prior year's audit. Initially concealed by a forged document.

Initially concealed by a forged document.

For which of the following audit tests would an auditor most likely use attribute sampling? Making an independent estimate of the amount of a LIFO inventory. Selecting accounts receivable for confirmation of account balances. Inspecting employee time cards for proper approval by supervisors. Examining invoices in support of the measurement of fixed asset additions.

Inspecting employee time cards for proper approval by supervisors.

For which of the following audit tests would an auditor most likely use attribute sampling? Selecting accounts receivable for confirmation of account balances. Determining that all payables are recorded at year end. Inspecting purchase orders for proper approval by supervisors. Making an independent estimate of recorded payroll expense.

Inspecting purchase orders for proper approval by supervisors.

Which of the following is a characteristic of nonstatistical sampling? It uses the laws of probability to select a sample. It requires judgment to select a sample. It is preferable for an audit-level engagement. It requires each item to have an equal probability of being selected.

It requires judgment to select a sample.

Statistical sampling usually may be applied in tests of controls when the client's internal controls Are carefully reduced to writing and are included in client accounting manuals. Enable the detection of material fraud in the accounting records. Depend primarily on appropriate segregation of duties. Leave an audit trail in the form of documentary evidence of their effectiveness.

Leave an audit trail in the form of documentary evidence of their effectiveness.

An auditor is testing a multinational corporation's fixed asset purchases for overstatement and notices that, out of the hundreds of purchases, a significant number of large purchases were made during the year. The auditor decides to use monetary-unit sampling (MUS) to test fixed asset purchases. Which of the following would not be an advantage of using MUS in this situation? If no misstatements are expected, MUS will usually result in a smaller sample size than classical variables sampling. MUS eliminates the need for auditor's judgment. MUS is easier to use than classical variables sampling. MUS automatically stratifies the population.

MUS eliminates the need for auditor's judgment.

When performing tests of controls with respect to the effectiveness of internal controls related to 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. Must be systematically replaced in the population after sampling. Must be recorded in a systematic pattern before the sample can be drawn. May systematically occur more than once in the sample.

May occur in a systematic pattern, thus destroying the sample randomness.

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to Reduce the level of audit risk and materiality to a relatively low amount. Eliminate the risk of nonsampling errors. Minimize the failure to detect errors and fraud. Measure the sufficiency of the evidence obtained.

Measure the sufficiency of the evidence obtained.

What is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in 3 deviations if the tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling risk is 2%? Modify the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate. Accept the sample results as support for the assessed risk of material misstatement because the tolerable deviation rate minus the allowance for sampling risk equals the expected population deviation rate. Modify the planned assessed risk of material misstatement because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate. Accept the sample results as support for the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Modify the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

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 2:1. More than 1:1 but less than 2:1. More than .5:1 but less than 1:1. 1:1.

More than 1:1 but less than 2:1.

As a result of tests of controls, an auditor overrelied on controls and decreased substantive testing. This assessment occurred because the true deviation rate in the population was More than the deviation rate in the auditor's sample. Less than the deviation rate in the auditor's sample. More than the risk of overreliance, based on the auditor's sample. Less than the risk of overreliance, based on the auditor's sample.

More than the deviation rate in the auditor's sample.

An auditor should consider the tolerable rate of deviation when determining the number of check requests to select for a test to obtain assurance that all check requests have been properly authorized. The auditor should also consider The Average Dollar Value of the Check Requests The Allowable Risk of Overreliance

No Yes

The sample size of a test of controls varies inversely with Expected Population Deviation Rate Tolerable Population Deviation Rate

No Yes

In attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the sample? Degree of assurance desired. Tolerable population rate of deviation. Number of items in the population. Risk of overreliance.

Number of items in the population.

Assume that an auditor estimates that 10,000 checks were issued during the accounting period. If a computer application control that performs a limit check for each check request is to be subjected to the auditor's test-data approach, the sample should include A number of test items determined by the auditor to be sufficient under the circumstances. Approximately 1,000 test items. One transaction. A number of test items determined by the auditor's reference to the appropriate sampling tables.

One transaction.

As a result of tests of controls, an auditor underrelies on controls. This incorrect assessment most likely occurred because The auditor believes that the controls relate to management's assertions when, in fact, they do not. The assessed risk of material misstatement based on the auditor's sample is less than the actual risk. The auditor believes that the controls reduce the extent of substantive testing when, in fact, they do not. Operating effectiveness based on the auditor's sample is less than the true operating effectiveness of the controls.

Operating effectiveness based on the auditor's sample is less than the true operating effectiveness of the controls.

An auditor is using statistical sampling in testing whether cash disbursements were properly authorized. The sample results indicate that the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate. Under these circumstances, the auditor most likely would reduce the Planned reliance on substantive tests. Tolerable rate of deviations. Planned reliance on the prescribed control. Assessed level of control risk.

Planned reliance on the prescribed control.

Which of the following factors is usually not considered in determining the sample size for a test of controls? Tolerable population deviation rate. Expected population deviation rate. Population size, when the population is large. Risk of overreliance.

Population size, when the population is large.

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? Tolerable population deviation rate. Risk of overreliance. Population size. Expected population deviation rate.

Population size.

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the Population. Attribute of interest. Sampling unit. Sample.

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 Projected misstatement. Reliability. Standard deviation. Precision.

Precision.

When using statistical sampling for testing the effectiveness of internal controls, an auditor's evaluation would include a statistical conclusion concerning whether Procedural deviations in the population were within an acceptable range. Population characteristics occur at least once in the population. The population total is not misstated by more than a fixed amount. Monetary precision is in excess of a certain predetermined amount.

Procedural deviations in the population were within an acceptable range.

Stratified mean-per-unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually May be applied to populations in which many monetary misstatements are expected to occur. Increases the variability among items in a stratum by grouping sampling units with similar characteristics. Produces an estimate having a desired level of precision with a smaller sample size. Yields a weighted sum of the strata standard deviations that is greater than the standard deviation of the population.

Produces an estimate having a desired level of precision with a smaller sample size.

In a test of purchase orders, the auditor selected a random sample of 60 items out of a population of 1,200 purchase orders. The auditor discovered $4,000 in overstatement in the sample. The company's materiality is $65,000. The tolerable misstatement for purchases is $50,000. What should the auditor do next? Pass on the exceptions. Propose an adjustment to purchases. Project the detected error to the entire population. Consider expanding the size of the sample.

Project the detected error to the entire population.

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. Eliminate the need to use judgment in determining appropriate sample sizes. Can more easily convert the sample into a dual-purpose test useful for substantive testing. Afford greater assurance than a nonstatistical sample of equal size.

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: Separate Five Digits:Select Column fromFirst Three DigitsTable of NumbersLast Two Digits02011020-11 x85393853-93 *97265972-65 *61680616-80 *16656166-56 *42751427-51 *69994699-94 *07942079-42 y10231102-31 z53988539-88 * 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? Monetary-unit. Stop or go. Unstratified mean-per-unit. Ratio or difference estimation.

Ratio or difference estimation.

Which of the following is a sampling risk that is associated with the efficiency of an audit? Inherent risk. Detection risk. Risk of incorrect acceptance. Risk of assessing control risk too high.

Risk of assessing control risk too high.

An auditor who uses statistical sampling for attributes in testing internal controls should alter the assessed risk of material misstatement when the Sample rate of deviation is less than the expected population rate of deviation used in planning the sample. Tolerable population deviation rate minus the allowance for sampling risk exceeds the sample rate of deviation. Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable population deviation rate. Sample rate of deviation plus the allowance for sampling risk equals the tolerable population deviation rate.

Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable population deviation rate.

An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the Sample rate of deviation plus the allowance for sampling risk equals the tolerable population deviation rate. Sample rate of deviation is less than the expected population deviation rate used in planning the sample. Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable population deviation rate. Tolerable population deviation rate minus the allowance for sampling risk exceeds the sample rate of deviation.

Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable population deviation rate.

A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the Tolerable deviation rate. Sample size. Risk of overreliance. Expected population deviation rate.

Sample size.

In planning a statistical sample for a test of controls, an auditor increased the expected population deviation rate from the prior year's rate because of the results of the prior year's tests of controls and the overall control environment. The auditor most likely would then increase the planned Allowance for sampling risk. Sample size. Risk of overreliance. Tolerable deviation rate.

Sample size.

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. A lower assessed risk of material misstatement. Increased use of analytical procedures to obtain evidence about particular assertions. Smaller expected frequency of deviations.

Smaller measure of tolerable misstatement.

AU-C 530, Audit Sampling, identifies two general approaches to audit sampling. They are Precision and reliability. Random and nonrandom. Statistical and nonstatistical. Risk and nonrisk.

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? Set the tolerable rate of deviation at a lower level than originally planned. Stratify the cash disbursements population so that the unusually large disbursements are selected. Increase the sample size to reduce the effect of the unusually large disbursements. Continue to draw new samples until all the unusually large disbursements appear in the sample.

Stratify the cash disbursements population so that the unusually large disbursements are selected.

Which of the following audit procedures most likely will involve sampling? Tests of automated application controls when effective information technology general controls are present. Testing of process for approval of credit to customers for sales on account. Analyses of controls to determine the appropriate segregation of duties. Risk assessment procedures performed to obtain an understanding of internal control.

Testing of process for approval of credit to customers for sales on account.

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 total dollar amount of the population. The acceptable level of risk. The estimated deviation rate in the population. The qualitative aspects of misstatements.

The acceptable level of risk.

Which of the following statements is true concerning monetary-unit sampling (MUS), also known as probability-proportional-to-size sampling? The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan. The sampling distribution should approximate the normal distribution. Overstated units have a lower probability of sample selection than units that are understated. The sampling interval is calculated by dividing the number of physical units in the population by the sample size.

The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.

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 has caused nonsampling risk to increase. The auditor will have to evaluate the results by reference to the principles of discovery sampling. No inferences can be drawn from the sample. The auditor may or may not achieve desired precision at the desired level of confidence.

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 internal control being more effective than the auditor believes. The auditor selecting inappropriate auditing procedures. The internal control not being as effective as the auditor believes. The auditor concluding the account balance is not materially misstated, but is, in fact, materially misstated.

The auditor selecting inappropriate auditing procedures.

Which of the following statements is correct about the sample size in statistical sampling when testing internal controls? As the likely rate of deviation decreases, the auditor should increase the planned sample size. The auditor should consider the tolerable population rate of deviation from the controls being tested in determining sample size. Of all the factors to be considered, the population size has the greatest effect on the sample size. The allowable risk of overreliance has no effect on the planned sample size.

The auditor should consider the tolerable population rate of deviation from the controls being tested in determining sample size.

Which of the following would be a consideration in planning an auditor's sample for a test of controls? Preliminary judgments about materiality levels. The level of detection for the account. The auditor's allowable risk of underreliance. The auditor's allowable risk of overreliance.

The auditor's allowable risk of overreliance.

The use of the ratio estimation sampling technique is most effective when Large overstatement differences and large understatement differences exist in the population. A relatively small number of differences exist in the population. Estimating populations whose records consist of quantities but not carrying amounts. The calculated audit amounts are approximately proportional to the client's carrying amounts.

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 Initial sample results do not support the assessed risk of material misstatement. The cost and effort of selecting additional sample items are low. Increased reliability from the sample is desired. Many differences (audit amount minus recorded amount) are expected.

The cost and effort of selecting additional sample items are low.

As a result of sampling procedures applied as tests of controls, an auditor incorrectly underrelies on controls. The most likely explanation for this situation is that The deviation rate in the auditor's sample exceeds the tolerable population deviation rate, but the deviation rate in the population is less than the tolerable population deviation rate. The deviation rates of both the auditor's sample and the population are less than the tolerable population rate. The deviation rates of both the auditor's sample and the population exceed the tolerable population rate. The deviation rate in the auditor's sample is less than the tolerable population rate, but the deviation rate in the population exceeds the tolerable population rate.

The deviation rate in the auditor's sample exceeds the tolerable population deviation rate, but the deviation rate in the population is less than the tolerable population deviation rate.

Which of the following best describes what the auditor means by the rate of occurrence in an attribute sampling plan? The number of deviations that can be estimated to be contained in the sample. The degree of confidence that the sample is representative of the population. The dollar range within which the true population total can be expected to fall. The estimated frequency with which a certain characteristic occurs within a population.

The estimated frequency with which a certain characteristic occurs within a population.

In selecting a sample using monetary-unit sampling, the dollar is the sampling unit. For example, if the 300th dollar of invoices is selected, Only that dollar is audited. The invoice containing the 300th dollar is audited. Only an invoice with exactly $300 is audited. An invoice of less than $300 cannot be selected.

The invoice containing the 300th dollar is audited.

The size of a sample designed for dual-purpose testing should be More than the larger of the samples that would otherwise have been designated for the two separate purposes, but less than the combined total of the samples that would otherwise have been designed for the two separate purposes. The combined total of the samples that would otherwise have been designed for the two separate purposes. The smaller of the samples that would otherwise have been designed for the two separate purposes. The larger of the samples that would otherwise have been designed for the two separate purposes.

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 auditor's estimated tolerable misstatement is extremely small. Monetary-unit sampling (MUS) is used. The standard deviation of recorded amounts is relatively small. The population has highly variable recorded amounts.

The population has highly variable recorded amounts.

Which of the following statements is true concerning statistical sampling in tests of controls? The population size has little or no effect on determining sample size except for very small populations. The expected population deviation rate has little or no effect on determining sample size except for very small populations. For a given tolerable rate, a larger sample size should be selected as the expected population deviation rate decreases. As the population size doubles, the sample size also should double.

The population size has little or no effect on determining sample size except for very small populations.

Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls? There is no relationship between the tolerable population deviation rate and the sample size. The population size has little or no effect on the sample size. The sample size is inversely proportional to the expected population deviation rate. As the population size doubles, the sample size should increase by about 67%.

The population size has little or no effect on the sample size.

Statistical sampling may be used to test the effectiveness of controls. The auditor's procedures should result in a statistical conclusion about Population characteristics occurring at least once in the population. The relation of the population deviation rate to the tolerable rate. Monetary precision exceeding a certain predetermined amount. The population value not being misstated by more than a fixed amount.

The relation of the population deviation rate to the tolerable rate.

Which of the following is a true statement about statistical sampling in tests of controls? As the population size doubles, the sample size also should double. Deviations from controls at a given rate usually result in misstatements at a higher rate. The qualitative aspects of deviations are not considered by the auditor. The relationship between the sample size and the tolerable population deviation rate is inverse.

The relationship between the sample size and the tolerable population deviation rate is inverse.

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. The sample size would be higher. The sample size would be unaffected. The sample size would be irrelevant.

The sample size would be lower.

Which of the following characteristics most likely would be an advantage of using classical variables sampling rather than monetary-unit (MUS) sampling? The auditor need not consider the preliminary judgments about materiality. The selection of negative balances requires no special design considerations. The sample will result in a smaller sample size if few misstatements are expected. The sampling process can begin before the complete population is available.

The selection of negative balances requires no special design considerations.

Which of the following factors would the auditor not explicitly consider when determining sample size in an attribute sample for a test of controls? An acceptable level of the risk of overreliance. The tolerable deviation rate. The expected population deviation rate. The tolerable misstatement.

The tolerable misstatement.

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. The budget for the testing of controls. The allowable risk of incorrect acceptance. The number of individual items in a population of 10,000 items.

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 The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements. There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. 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. The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.

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 completeness of billing transactions. To determine the reliability of voucher processing. To determine the inventory quantities on hand. To determine the efficiency of the payroll system.

To determine the inventory quantities on hand.

Which of the following is the primary objective of monetary-unit sampling (MUS)? To identify overstatement errors. To identify zero and negative balances. To increase the proportion of smaller-value items in the sample. To identify items to which controls were not properly applied.

To identify overstatement errors.

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 1% risk of overreliance (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval. A sample of 200 invoices was examined, and seven of them were lacking approval. The auditor then determined the achieved upper deviation limit to be 8%. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of the risk of material misstatement because the Achieved upper deviation limit (8%) was more than the percentage of deviations in the sample (3.5%). Expected deviation rate (2.5%) was less than the tolerable deviation rate (7%). Tolerable deviation rate (7%) was less than the achieved upper deviation limit (8%). Expected deviation rate (7%) was more than the percentage of deviations in the sample (3.5%).

Tolerable deviation rate (7%) was less than the achieved upper deviation limit (8%).

In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of overreliance, and the Risk of incorrect acceptance. Population size. Nature and cause of deviations. Tolerable population deviation rate.

Tolerable population deviation rate.

An auditor plans to examine a sample of 20 purchase orders for proper approvals as prescribed by the client's internal control. One of the purchase orders in the chosen sample of 20 cannot be found, and the auditor is unable to use alternative procedures to test whether that purchase order was properly approved. The auditor should Select a completely new set of 20 purchase orders. Choose another purchase order to replace the missing purchase order in the sample. Consider this test of controls invalid and proceed with substantive procedures because internal control is ineffective. Treat the missing purchase order as a deviation for the purpose of evaluating the sample.

Treat the missing purchase order as a deviation for the purpose of evaluating the sample.

The major reason that the difference and ratio estimation methods are expected to produce audit efficiency is that the Number of members of the populations of differences or ratios is smaller than the number of members of the population of carrying amounts. Calculations required in using difference or ratio estimation are less arduous and fewer than those required when using direct estimation. Variability of the populations of differences or ratios is less than that of the populations of carrying amounts or audited values. The risk of incorrect acceptance may be completely ignored.

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? Random-number sampling. Discovery sampling. Attribute sampling. Variable sampling.

Variable sampling.

Many statistical estimates may be useful to an auditor. But most are either of a quantity or a deviation rate. The statistical terms that correspond to quantities and deviation rates, respectively, are Variables and attributes. Constants and variables. Constants and attributes. Attributes and variables.

Variables and attributes.

Which of the following sampling methods is used to estimate a numerical measurement of a population, such as a dollar value? Stop-or-go sampling. Random-number sampling. Variables sampling. Attribute sampling.

Variables sampling.

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 Risk of Incorrect Rejection

Yes Yes

Which of the following factors is(are) considered in determining the sample size for a test of controls? Expected Population Deviation Rate Tolerable Population Deviation Rate

Yes Yes

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 Measure of Tolerable Misstatement

Yes Yes