Module F: Attributes Sampling

Audit effectiveness is impacted when the auditor doesn't do enough _______. A. blocking B. confidently C. deviations D. population E. testing

E. testing

Affects audit efficiency: A. Assessing control risk too high B. Performing more testing than necessary C. Not performing enough testing D. Assessing control risk too low

A. Assessing control risk too high B. Performing more testing than necessary

In which step of a sampling plan is nonstatistical sampling different from statistical sampling? A. Evaluate the sample results. B. Define the population. C. Measure the sample items. D. Define the characteristic of interest.

A. Evaluate the sample results.

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

A. Inspecting purchase orders for proper approval by supervisors.

Why is the audit team more concerned with controlling the exposure to the risk of overreliance than with the risk of underreliance? A. The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels. B. The risk of underreliance can be controlled by performing tests of controls during the interim period. C. The risk of underreliance is not related to the audit team's study and evaluation of internal control. D. Only the risk of overreliance results in an incorrect audit decision.

A. The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels.

The risk of underreliance is the risk that the sample selected to test controls: A. does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment. B. contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes. C. contains proportionally fewer monetary errors or deviations from prescribed control procedures than exist in the balance or class as a whole. D. does not support the tolerable misstatement for some or all of management's assertions.

A. does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment.

What is the general order in which the following steps in attributes sampling are performed? 1 = Define the population 2 = Determine the objective of sampling 3 = Determine the sample size 4 = Select the sample A. 1,2,3,4. B. 2,1,3,4. C. 1,2,4,3. D. 2,1,4,3.

B. 2,1,3,4.

Which of the following sampling risks is associated with the use of attributes sampling? A. Risk of underreliance: Yes; Risk of incorrect rejection: Yes B. Risk of underreliance: Yes; Risk of incorrect rejection: No C. Risk of underreliance: No; Risk of incorrect rejection: Yes D. Risk of underreliance: No; Risk of incorrect rejection: No

B. Risk of underreliance: Yes; Risk of incorrect rejection: No

Which of the following would not result in the audit team's selecting a larger sample of controls for examination? A. A reduction in the risk of overreliance from 10 percent to 5 percent. B. An increase in the tolerable rate of deviation from 3 percent to 6 percent. C. An increase in the expected population deviation rate from 2 percent to 4 percent. D. All of the choices would result in a larger sample of controls.

B. An increase in the tolerable rate of deviation from 3 percent to 6 percent.

Which of the following components of the audit risk model is most closely associated with attributes sampling? A. Audit risk. B. Control risk. C. Detection risk. D. Inherent risk.

B. Control risk.

An auditor is examining an important internal control in his audit of ABC Company. Because the account balance affected by this control is highly susceptible to fraud, she will reject the sample if even one deviation is discovered. What type of sampling plan should she use? A. Attributes sampling. B. Discovery sampling. C. Sequential sampling. D. Statistical sampling.

B. Discovery sampling.

Which of the following factors has a direct relationship with sample size in an attributes sampling application? Tolerable Rate of Deviation a. Yes b. No c. Yes d. No Expected Population Deviation Rate a. Yes b. Yes c. No d. No A. Option A B. Option B C. Option C D. Option D

B. Option B

Which of the following best describes the method of determining the ULRD? A. Expected population deviation rate + Allowance for sampling risk. B. Sample rate of deviation + Allowance for sampling risk. C. Risk of underreliance + Allowance for sampling risk. D. Tolerable rate of deviation + Allowance for sampling risk.

B. Sample rate of deviation + Allowance for sampling risk.

Which of the following statements is correct concerning statistical sampling in tests of controls? A. As the population increases, the sample size should increase proportionally. B. The expected population deviation rate can either be based on prior audits or a small sample of controls examined in the current year. C. There is an inverse relationship between the expected population deviation rate and sample size. D. In determining the tolerable rate of deviation, an auditor considers the desired level of detection risk.

B. The expected population deviation rate can either be based on prior audits or a small sample of controls examined in the current year.

The ultimate purpose of control risk assessment is to: A. estimate the overall risk of failing to detect material misstatements. B. decide the nature, timing, and extent of further audit procedures. C. determine the risk of incorrect acceptance. D. determine the probability that errors entered the accounts.

B. decide the nature, timing, and extent of further audit procedures.

In order for the auditor to decide to perform tests of controls, which of the following relationships should exist? A. The sampling risk should be less than 5%. B. The tolerable rate of deviation should exceed the expected population deviation rate. C. The expected population deviation rate should exceed the risk of overreliance. D. The expected population deviation rate should exceed the tolerable rate of deviation.

B. The tolerable rate of deviation should exceed the expected population deviation rate.

Which of the following is the audit team's primary objective in selecting an attributes sampling selection method? A. To provide a high probability of selecting at least one item containing a deviation. B. To select a sample that is representative of the population from which it is drawn. C. To select controls applied to larger dollar transactions for examination. D. To select controls applied to transactions that are more likely to contain deviations.

B. To select a sample that is representative of the population from which it is drawn.

Williams, CPA, is using attributes sampling to test controls related to the completeness of purchasing transactions. Williams decided to select all purchase orders from September for testing. This is an example of A. random selection. B. block selection. C. haphazard selection. D. monthly selection.

B. block selection.

Which of the following steps in attributes sampling is most closely related to identifying key controls corresponding to the relevant management assertions? A. Determine the sample size. B. Define the deviation condition. C. Determine the objective of sampling. D. Define the population.

C. Determine the objective of sampling.

Jerry Tim is examining an important internal control in the audit of Langly Company. In past audits, deviations from this control have been observed at a minimal rate (less than 0.1 percent); however, because the account balance affected by this control is highly susceptible to fraud, it is important that Tim obtain a high level of assurance that deviations occur at no higher than a predetermined (low) rate. Which of the following sampling methods would Tim most likely use to evaluate this control? A. Sequential sampling. B. Statistical sampling. C. Discovery sampling. D. Attributes sampling.

C. Discovery sampling.

Which of the following statements is correct regarding nonstatistical sampling? A. Nonstatistical sampling must use random selection techniques. B. The sample size when using nonstatistical sampling methods is generally not comparable to that determined using statistical sampling methods. C. Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk. D. When using nonstatistical sampling, the audit team is not required to select a sample that is representative of the population.

C. Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk.

Affects audit effectiveness: A. Assessing control risk too high B. Performing more testing than necessary C. Not performing enough testing D. Assessing control risk too low

C. Not performing enough testing D. Assessing control risk too low

Which of the following does not have a direct relationship with sample size? A. Expected population deviation rate. B. Population size. C. Risk of overreliance. D. All of these have a direct relationship with sample size.

C. Risk of overreliance.

A type of sampling application in which a relatively small initial sample is examined and decisions regarding expanding that sample are based on the results of this initial sample is known as A. Statistical sampling. B. Discovery sampling. C. Sequential sampling. D. Attributes sampling.

C. Sequential sampling.

After examining sample items and classifying items as deviations, the auditor can divide the number of deviations by the sample size and calculate the: A. expected population deviation rate. B. risk of underreliance. C. sample rate of deviation. D. tolerable rate of deviation.

C. sample rate of deviation.

The interpretation of the ULRD in an attributes sampling application is A. The estimated rate of deviation in the population with certainty that the actual rate of deviation is higher. B. The estimated rate of deviation in the population with probability equal to the risk of overreliance that the actual rate of deviation is lower. C. The estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher. D. The estimated rate of deviation in the population with certainty that the actual rate of deviation is lower.

C. The estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher.

Why is the auditor more concerned with the risk of overreliance than the risk of underreliance? A. The risk of underreliance is not a type of sampling risk. B. The risk of overreliance exposes the auditor to an efficiency loss. C. The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures. D. The risk of overreliance cannot be controlled by the auditor during the sampling process.

C. The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures.

If the sample evidence does not support the planned level of control risk, the audit team could A. Increase the assessed level of control risk. B. Perform additional substantive procedures, reducing the necessary level of detection risk. C. Expand the sample to achieve an observed upper limit rate of deviation less than the tolerable rate of deviation. D. All of the choices are acceptable.

D. All of the choices are acceptable.

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

D. Attributes

The sampling plan for nonstatistical sampling is the same as statistical sampling except for which of the following steps? A. Define the characteristic of interest. B. Define the population. C. Measure the sample items. D. Evaluate the sample results.

D. Evaluate the sample results.

Which of the following major stages of the audit is most closely related to attributes sampling? A. Determining preliminary levels of materiality. B. Searching for the possible occurrence of subsequent events. C. Performing substantive procedures. D. Performing tests of controls.

D. Performing tests of controls.

Which of the following statements is true when selecting a sample of invoices from a population to perform tests of controls? A. The audit team should select a few more items than needed to replace any cases in which an invoice is missing or destroyed. B. If the audit team wishes to use statistical sampling, either block or haphazard selection is appropriate. C. Computerized audit techniques can be used to define the population but not to select sample items. D. The audit team's goal in selecting a sample is to increase the likelihood that it is representative of the population.

D. The audit team's goal in selecting a sample is to increase the likelihood that it is representative of the population.

Which of the following statements is correct concerning statistical sampling in tests of controls? A. Deviations from control procedures at a given rate usually result in misstatements at a higher rate. B. As the population size doubles, the sample size should also double. C. The qualitative aspects of deviations are not considered by the auditor. D. There is an inverse relationship between the sample size and the tolerable rate of deviation.

D. There is an inverse relationship between the sample size and the tolerable rate of deviation.

With respect to the use of attributes sampling, in which of the following steps would nonstatistical sampling and statistical sampling differ? Defining the population A. Yes B. Yes C. No D. No Evaluating sample results A. Yes B. No C. Yes D. No A. Option A B. Option B C. Option C D. Option D

Option C

The purpose of tests of controls is to determine that: A. internal control policies and procedures are functioning as prescribed. B. the extent of further audit procedures can be reduced. C. errors and irregularities are prevented or detected in a timely manner. D. the auditor has an understanding of internal control.

A. internal control policies and procedures are functioning as prescribed.

The auditor tested a sample of recorded sales invoices for evidence of credit approval. Based on the results of the sample, the auditor concluded that there was a satisfactory rate of approvals. Unknown to the auditor, credit approvals in the population were not satisfactory. This would be an example of: A. risk of overreliance. B. risk of underreliance. C. risk of incorrect acceptance. D. risk of incorrect rejection.

A. risk of overreliance.

Samples to test internal control procedures are intended to provide a basis for an auditor to conclude whether: A. the control procedures are operating effectively. B. the financial statements are materially misstated. C. the risk of incorrect acceptance is too high. D. overall materiality for planning purposes is at a sufficiently low level.

A. the control procedures are operating effectively.

An erroneous decision to assess control risk at excessively high levels can have an adverse effect on: A. the efficiency of an audit engagement. B. the effectiveness of an audit engagement. C. the validity of an audit. D. the type of report the auditor decides to render.

A. the efficiency of an audit engagement.

An auditor wanted to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide a 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 7 of them were lacking approval. The auditor then determined the upper limit rate of deviation to be 8%. In evaluating this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the: A. tolerable rate of deviation (7%) was less than the upper limit rate of deviation (8%). B. expected population deviation rate (7%) was more than the percentage of errors in the sample (3.5%). C. expected population deviation rate (2.5%) was less than the tolerable rate of deviation. D. upper limit rate of deviation (8%) was more than the percentage of errors in the sample (3.5%).

A. tolerable rate of deviation (7%) was less than the upper limit rate of deviation (8%).

If the _____ exceeds the _____, the audit team would decide to rely on internal control as planned and maintain control risk at planned levels. A. tolerable rate of deviation; ULRD. B. expected population deviation rate; tolerable rate of deviation. C. tolerable rate of deviation; expected population deviation rate. D. ULRD; tolerable rate of deviation.

A. tolerable rate of deviation; ULRD.

Which of the following is not a judgment or estimate auditors must make when performing attributes sampling? A. Tolerable rate of deviation. B. Expected population deviation rate. C. Sample rate of deviation. D. Risk of overreliance.

C. Sample rate of deviation.

Audit _______is affected when too much substantive testing is done. A. effectiveness B. efficiency C. evaluation D. opinion E. staff F. timing

B. efficiency

As a result of tests of controls, an auditor assessed control risk too low and decreased substantive procedures. This assessment occurred because the true deviation rate in the population was: A. more than the risk of overreliance based on the auditor's sample. B. more than the deviation rate in the auditor's sample. C. less than the risk of overreliance based on the auditor's sample. D. less than the deviation rate in the auditor's sample.

B. more than the deviation rate in the auditor's sample.

When the auditor concludes that a control is functioning properly when, in fact, it is not, the auditor has committed the: A. risk of underreliance. B. risk of overreliance. C. risk of incorrect acceptance. D. risk of incorrect rejection.

B. risk of overreliance.

If an auditor calculated an upper limit rate of deviation of 5% when the tolerable rate of deviation was 4%, the auditor would conclude that: A. the population deviation rate is low enough to rely on internal control as planned. B. the population deviation rate may be higher than that necessary to rely on internal control as planned. C. the control risk can be assessed at planned levels. D. the control risk should be assessed at lower levels.

B. the population deviation rate may be higher than that necessary to rely on internal control as planned.

In performing attributes sampling, the auditor will conclude that the control is functioning as intended if the ______ is less than or equal to ______. A. expected population deviation rate; tolerable rate of deviation B. upper limit rate of deviation; tolerable rate of deviation C. tolerable rate of deviation; expected population deviation rate D. tolerable rate of deviation; upper limit rate of deviation

B. upper limit rate of deviation; tolerable rate of deviation

The risk of underreliance is the probability that the evidence in the sample indicates: A. Low control risk when the actual operating effectiveness of the control does not justify a low control risk assessment. B. Low control risk when the actual operating effectiveness of the control justifies a low control risk assessment. C. High control risk when the actual operating effectiveness of the control would justify a lower control risk assessment. D. High control risk when the actual operating effectiveness of the control would justify a higher control risk assessment.

C. High control risk when the actual operating effectiveness of the control would justify a lower control risk assessment.

If an audit team calculated an ULRD of 5 percent when the tolerable rate of deviation was 4 percent, both at the same risk of overreliance, control risk should be A. Assessed at the level associated with the 4 percent tolerable rate of deviation. B. Decreased and substantive procedures should be adjusted accordingly. C. Increased and substantive procedures should be adjusted accordingly. D. Assessed at the maximum level (100 percent) because the company's performance failed the test.

C. Increased and substantive procedures should be adjusted accordingly.

An important control for sales on account is that all sales invoices are mathematically verified by the client. Which of the following would be the most appropriate population from which to select sample items? A. Entries in the general journal. B. Entries in the sales journal. C. Sales invoices. D. Shipping documents.

C. Sales invoices.

Which of the following factors does not impact the sample size in an attributes sampling application? A. Expected population deviation rate. B. Risk of overreliance. C. Sample rate of deviation. D. Tolerable rate of deviation.

C. Sample rate of deviation.

Mary Todd is auditing White House Furniture. In selecting a sample of purchases, she finds that a purchase order is missing. She should: A. select another purchase to test. B. have the client recreate the purchase order. C. consider the sample item a deviation. D. ask the client if the purchase was authorized.

C. consider the sample item a deviation.

In the study of internal control, the auditor uses sampling to compare the ____ to the _____. A. error; overall materiality level B. sampling risk; precision C. deviation rate; tolerable rate of deviation D. precision interval; upper limit on misstatement

C. deviation rate; tolerable rate of deviation

If the upper limit rate of deviation exceeds the tolerable rate of deviation, the auditor would most likely: A. accept the account balance as fairly stated. B. reject the account balance as fairly stated. C. increase the planned effectiveness of substantive procedures. D. not increase the planned effectiveness of substantive procedures.

C. increase the planned effectiveness of substantive procedures.

While selecting a sample of sales invoices for a test of internal controls, the auditor was unable to locate one invoice and classified this invoice as non-deviation. This is an example of A. sampling risk. B. incorrect acceptance. C. nonsampling risk. D. deviation risk.

C. nonsampling risk.

A sampling plan in which an initial sample is selected and the audit team either draws a final conclusion or selects additional items before drawing a final conclusion is called A. attributes sampling. B. discovery sampling. C. sequential sampling. D. statistical sampling.

C. sequential sampling.

An auditor's determination of a lower level of control risk would most likely be associated with A. larger population sizes for tests of controls. B. larger samples for substantive procedures. C. smaller samples for substantive procedures. D. lower levels of detection risk.

C. smaller samples for substantive procedures.

Lincoln, CPA, selected a sample of 100 items by dividing the population of 100,000 sales invoices by 100. With a random start, she then selected every 1,000th invoice. This selection process is referred to as: A. unrestricted random selection. B. nonstatistical selection. C. systematic random selection. D. judgmental selection.

C. systematic random selection.

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that: A. the deviation rates of both the auditor's sample and the population exceed the tolerable rate of deviation. B. the deviation rates of both the auditor's sample and the population are less than the tolerable rate of deviation. C. the deviation rate in the auditor's sample is less than the tolerable rate of deviation, but the deviation rate in the population exceeds the tolerable rate of deviation. D. the deviation rate in the auditor's sample exceeds the tolerable rate of deviation, but the deviation rate in the population is less than the tolerable rate of deviation.

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

If an auditor tested 50 transactions and found two deviations from an important control activity, the auditor could conclude that: A. the tolerable rate is 4%. B. the critical rate of occurrence is 4%. C. the sample rate of deviation is 4%. D. the expected population deviation rate is 4%.

C. the sample rate of deviation is 4%.

The maximum rate of deviation that may exist in the operation of a control policy or procedure before the auditors would reduce reliance on internal control is referred to as: A. acceptable rate of deviation. B. control risk. C. tolerable rate of deviation. D. upper limit rate of deviation.

C. tolerable rate of deviation.

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

D. Inspecting employee time cards for proper approval by supervisors.

An audit team would be most likely to use attributes sampling in which of the following situations? A. Performing analytical procedures during the planning stages of the audit. B. Evaluating management's integrity during the client acceptance process. C. Determining the effectiveness of the audit committee in evaluating the entity's control environment. D. Examining purchase requisitions for proper authorization.

D. Examining purchase requisitions for proper authorization.

Assessing the control risk too low results in an inappropriate _______ of the extent of substantive procedures A. addition B. control C. increase D. modification E. reduction F. test

E. reduction

When considering the results of an attributes sampling application, the auditor compares which of the following two measures? A. Upper limit rate of deviation; sample rate of deviation. B. Tolerable rate of deviation; sample rate of deviation. C. Expected rate of deviation; upper limit rate of deviation. D. Upper limit rate of deviation; tolerable rate of deviation.

D. Upper limit rate of deviation; tolerable rate of deviation.

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

D. When evaluation very large populations, the population size has little or no effect on the sample size.

The upper limit rate of deviation in attributes sampling is: A. the actual deviation rate in the population. B. always less than the tolerable rate of deviation. C. always greater than the tolerable rate of deviation. D. a statistical calculation that considers sampling risk.

D. a statistical calculation that considers sampling risk.

On the basis of attributes sampling, an auditor decided to increase the assessed level of control risk from the level originally planned. To achieve an overall audit risk level that is substantially the same as the original planned level of audit risk, the auditor would: A. increase inherent risk. B. increase overall materiality levels. C. decrease substantive procedures. D. decrease detection risk.

D. decrease detection risk.

An audit needs to have the correct balance of efficiency and _________. A. cash B. confirmations C. deviation D. effectiveness E. fees F. talent

D. effectiveness

The sample size for a test of controls varies inversely with: A. expected population deviation rate: Yes; tolerable rate of deviation: Yes. B. expected population deviation rate: No; tolerable rate of deviation: No. C. expected population deviation rate: Yes; tolerable rate of deviation: No. D. expected population deviation rate: No; tolerable rate of deviation: Yes.

D. expected population deviation rate: No; tolerable rate of deviation: Yes.

As a result of tests of controls, an auditor assessed control risk too low and decreased the effectiveness of her substantive procedures. This assessment occurred because the true deviation rate in the population was: A. less than the risk of overreliance, based on the auditor's sample. B. less than the deviation rate in the auditor's sample. C. greater than the risk of overreliance, based on the auditor's sample. D. greater than the deviation rate in the auditor's sample.

D. greater than the deviation rate in the auditor's sample.

If the auditor were interested in ensuring that all sales have been recorded, the population would be defined as: A. entries in the cash receipts journal. B. entries in the general journal. C. remittance advices. D. shipping documents.

D. shipping documents.

Auditors must carefully control the risk of assessing risk too high or _____when performing test of controls. A. accurate B. confident C. effective D. expensive E. extreme F. low

F. low