chapter 9
Auditors project the misstatements found in the sample to the population when using statistical sampling, but not when using nonstatistical sampling. True False
False
T or F: Auditors may determine the risk of incorrect rejection, but they cannot determine the risk that their sample will cause them to accept a population which contains material misstatement.
False
T or F: Block samples are used extensively in auditing.
False
T or F: Discovery sampling is best suited to discovering examples of commonplace errors, such as the wrong price entered on a sales invoice.
False
T or F: In performing tests of controls, the auditors focus on the risk of assessing control risk too high rather than the risk of assessing control risk too low.
False
T or F: In using a sequential sampling plan for tests of controls, the auditors are concerned with critical misstatements.
False
T or F: Mean-per-unit estimation is often used in tests of controls, because an estimate of the misstatement is usually desired.
False
T or F: Nonsampling risk may be reduced by increasing the size of the sample.
False
T or F: Nonstatistical sampling may be used for tests of controls but should never be used for substantive procedures.
False
T or F: Random sampling is another term for statistical sampling.
False
T or F: Statistical sampling techniques permit the auditors to eliminate sampling risk.
False
T or F: The larger the standard deviation of a population, the smaller the required sample size.
False
T or F: The risk of assessing control risk too high relates to the effectiveness of the audit.
False
T or F: Unrestricted random sampling normally results in a smaller sample size than does stratified sampling.
False
The definition of a "deviation" for a test of a control should include only those deviations that result in misstatements in the financial statements. True False
False
Using ratio and difference estimation for a sample is an example of a dual purpose test. True False
False
T or F: Attributes sampling is often used in conjunction with tests of the client's internal control.
True
T or F: In attributes sampling, the risk of assessing control risk too high is often not controlled when using statistical sampling.
True
T or F: In general, all items in excess of a material misstatement need to be examined and sampling of them is inappropriate.
True
T or F: In variables sampling, as the variability of the population increases, as measured by the standard deviation, the required sample size increases.
True
T or F: It is likely that five different random samples from the same population could produce five different estimates of the true population mean.
True
T or F: Selecting every 50th invoice for inclusion in a sample is an example of systematic sampling.
True
T or F: The allowance for sampling risk for a substantive procedure is determined based in part on the tolerable misstatement in the account.
True
T or F: The effect of the inclusion by chance of a very large or very small item in a random sample can be lessened by increasing the size of the sample.
True
T or F: The risk of incorrect rejection relates more to the efficiency of a substantive procedure than to the effectiveness of the test.
True
T or F: The standard deviation is a measure of the variability of items in a population.
True
T or F: The tolerable misstatement is an estimate of the maximum monetary misstatement that may exist in an account and still not lead to a material misstatement in the financial statement.
True
T or F: To estimate the total audited dollar value of a population of 10,000 items, using the mean-per-unit estimation method, one would multiply the sample mean audited value times 10,000.
True
T or F: Unrestricted random sampling with replacement may result in a larger sample size than unrestricted random sampling without replacement.
True
The mean book value of the items included in a mean-per-unit sample is not directly used in the evaluation of sample results. True False
True
To be random, every item in the population must have an equal chance of being selected for inclusion in the sample(T/F)
True
When evaluating the results of a variables sampling plan, the projected misstatement is calculated and compared to the tolerable misstatement. True False
True
c. Which of the following statistical sampling techniques is least desirable for use by the auditors? 1. Random number table selection 2. Block selection 3. Systematic selection 4. Random number generator selection
2. Block selection
f. The auditors are using unstraitifed mean-per-unit sampling to audit accounts receivables as they did in the prior year. Which of the following changes are characteristics or specifications would result in a large required sample size this year than he required in the prior years? 1. Larger variance in the dollar value of accounts 2. Smaller population size 3. Larger tolerable misstatement 4. Higher risk of incorrect acceptance
1. Larger variance in the dollar value of accounts
j. An auditor needs to estimate the average highway weight of tractor-trailer trucks using a state's highway system. Which estimation method is most appropriate? 1. Mean per unit 2. Difference 3. Ratio 4. Probability proportional to size
1. Mean per unit
i. In which of the following circumstances is it least likely that test of controls will be performed? 1. The expected deviation rate exceeds the tolerable deviation rate 2. The planned assessed level of control risk is are a level slightly below the maximum 3. The risk of assessing control risk too low is less than the expected deviation rate 4. The tolerable deviation rate exceeds the risk of assessing control too low
1. The expected deviation rate exceeds the tolerable deviation rate
h. Which of the following is accurate regarding tolerable misstatement? 1. Tolerable misstatement is directly related to materiality 2. Tolerable misstatement cannot be determined until the sample results are evaluated 3. Tolerable misstatement does not affect sample size 4. Tolerable misstatement is a measure of reliability of the sample
1. Tolerable misstatement is directly related to materiality
a. Which of the following is an element of sampling risk? 1. Choosing an audit procedure that is inconsistent with the audit objective 2. Concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement. 3. Failing to detect an error on a document that has been inspected by an auditor. 4. Failing to perform audit procedures that are required by the sampling plan
2. Concluding that no material misstatement exists in a materially misstated population based on taking a sample that includes no misstatement.
l. Using the same facts in (k) above, what is the estimated total audited value of the population using the difference method? 1. $198,000 2. $200,000 3. $201,000 4. 203,000
3. $201,000 = $198000 - ((200-203)*50/50)*1000 = 198000 - (-3000)
g. Which of the following sampling techniques is typically used for test of controls? 1. Mean-per-unit sampling 2. Difference sampling 3. Attribute sampling 4. Probability-proportional-to-size sampling
3. Attribute sampling
k. The auditors have sampled 50 accounts from a population of 1,000 accounts receivable. The same items have a mean book value of $200 and a mean audited value of $203. The book value in the population is $198,000. What is the estimated audited value of the population using the mean-per-unit method? 1. $198,000 2. $200,000 3. $201,000 4. 203,000
4. 203,000 = mean value * sample size = 203 * 1,000
b. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the: 1. Efficiency of the audit 2. Effectiveness of the audit 3. Selection of the sample 4. Audit quality controls
Efficiency of the audit
e. Discovery sampling is particularly effective when: 1. There are a large number of errors in the population 2. The auditors are looking for critical deviations that are not expected to be frequent in number 3. The auditors know where deviations are likely to occur 4. The population is large in size
The auditors are looking for critical deviations that are not expected to be frequent in number
Discovery sampling is equivalent to an attributes sampling plan with a specified expected deviation rate of 0 percent. True False
True
Increases in the number of deviations in an attributes sample results in an increase in the achieved upper deviation rate of the attributes sample. True False
True
Increases in the tolerable misstatement result in a decreased sample size when using mean-per-unit estimation. True False
True
Statistical sampling cannot be used to test all control activities. True False
True
Stratification of the population generally results in a more efficient sampling plan. True False
True
T or F: A 100 percent sample would have to be taken to eliminate sampling risk.
True
T or F: A difference between nonstatistical and statistical sampling is reflected in the methods used to interpret sample results.
True
Selecting items from a population on an arbitrary basis is called: a. haphazard sample selection b. block sample selection c. systematic sample selection
a
Stratification allows auditors to combine populations into homogeneous subgroups which: a. reduces the number of sample items required b. increases the number of sample items required c. reduces the efficiency of sampling procedures
a
The possibility that the results of a sample will indicate that a balance of a particular account are not materially misstated when, in reality, it is materially misstated is: a. risk of incorrect acceptance b. risk of incorrect rejection c. audit risk d. control risk
a
This sampling method assumes a sample's average audited value will, for a certain sampling risk and allowance for sampling risk, represent the true audited value of the population. a. mean-per-unit estimation b. difference estimation c. ratio estimation
a
d. The auditors' primary objective in selecting a sample of items from an audit population is to obtain: 1. A random sample 2. A stratified sample 3. A representative sample 4. A large sample
a representative sample
When using probability-proportional-to-size sampling, the allowance for sampling risk is the combination of basic precision and the: A. Projected misstatement. B. Upper limit on misstatements. C. Incremental allowance. D. Tainting.
c
Auditors need to specify the risk that the actual deviation rate exceeds the tolerable deviation rate, which is the risk: a. of assessing control risk too low b. of assessing control risk too high c. of assessing the tolerable deviation rate
a. of assessing control risk too low
Audit firms use structured approaches to non-statistical sampling that are based on statistical methods in order to: a. quantify the level of sampling risk for the sample b. increase consistency of sampling judgments throughout the firm c. quantify the factors used in sample size calculations
b
In ratio estimation, using the average misstatement in the sample, divided by the average book value in the sample, and multiplying it times the total population book value calculates this amount. a. estimated total audited value b. projected misstatement c. sample net misstatement
b
When tests of an audit sample result in a similar conclusion to those that would be drawn if the same procedures were applied to the entire population, the audit sample is said to be: a. low non sampling risk b. representative c. high sampling risk
b
When the auditors have decided to use statistical rather than nonstatistical sampling, a disadvantage is that: A) Designing efficient samples is more difficult. B) The costs of training staff may be higher. C) Sampling without replacement must be used. D) Objectively evaluating results is impossible.
b
When the standard deviation of the chosen sample differs from that of the auditor's estimate of the population standard, auditors try to maintain the risk of incorrect acceptance at its planned level by calculating: a. allowance for sampling risk b. adjusted allowance for sampling risk c. projected misstatement
b
When using probability-proportional-to-size sampling, the actual total misstatement in a population is most likely to be closest to the: A. Allowance for sampling risk. B. Projected misstatement. C. Basic precision. D. Upper limit on misstatement.
b
Which of the following statements is correct concerning statistical sampling in tests of controls? A. For a given tolerable rate, a larger sample size should be selected as the expected population deviation rate decreases. B. The population size has little effect on determining sample size except for very small populations. C. As the population size doubles, the sample size also should double. D. The expected population deviation rate has little or no effect on determining sample size except for very small populations.
b
If an actual (but unknown) deviation rate of 4% exists in the population, and the sample's deviation rate is 3%, the sampling error is: a. 3% b. unknown c. 1% d. 4%
c
A dual purpose test simultaneously. A. Addresses two different accounts. B. Substantiates an ending balance and the transactions making up the balance. C. Functions as an analytical procedure and a substantive test. D. Functions as a substantive test and as a test of controls.
d
Also referred to as precisions, this sampling item allows auditors to create an interval around the sample results in which the true population characteristic is expected to lie. a. non sampling risk b. tolerable misstatement c. sampling error d. allowance for sampling risk
d
Assume the following relating to a PPS sample: Projected Misstatement = $20,000; Basic Precision = $16,000; Incremental Allowance = $4,500; Tolerable Misstatement = $34,000. The upper limit on misstatement equals. A. $74,500. B. $20,500 C. $20,000. D. $40,500.
d
If auditors find that 10 of the 50 invoices in a test of control were not properly approved: a. the expected rate is 10% b. the expected rate is 20% c. the deviation rate is 10% d. the deviation rate is 20%
d
When performing tests of controls over authorization of cash receipts, which of the following sampling methods would be most appropriate? A. Stratified. B. Variables. C. Ratio. D. Attributes.
d
Which of the following is least likely to be considered a substantive procedure relating to payroll? a. investigate fluctuations in salaries, wages and commissions b. test computations of compensation under profit sharing for bonus plans c. test commission earnings d. test whether employee time reports are approved by supervisors
d
When sampling from the population of accounts receivable for certain objectives, the auditor might sample only active accounts with balances.(T/F)
true
