Module F MC

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 consider: (1) Likely rate of deviations (2) Allowable risk of underreliance. A. (1) only. B. (2) only. C. Both (1) and (2). D. Either (1) or (2).

A. (1) only.

Rome, CPA, is examining the internal control of Smack, Inc. Rome has established a risk of overreliance of 10%, an expected population deviation rate of 1%, and a tolerable rate of deviation of 5%. Based on your answer to question 86, what is the allowance for sampling risk? A. 4.1 percent. B. 5 percent. C. 5.3 percent. D. 10 percent.

A. 4.1 percent.

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 objective of sampling. B. Define the deviation condition. C. Define the population. D. Determine the sample size.

A. Determine the objective of sampling.

The likelihood of assessing control risk too high 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.

Which of the following factors is not assessed based on the acceptable level of control risk? A. Expected population deviation rate. B. Risk of overreliance. C. Tolerable rate of deviation. D. All of the above are assessed based on the acceptable level of control risk.

A. Expected population deviation rate.

The procedures for statistical evaluation of tests of controls with the AICPA evaluation tables would not include which of the following steps? A. Identify the population deviation rate. B. Identify the sample size in the left margin. C. Identify the number of actual deviations for the sample size. D. Identify the upper limit rate of deviation given the sample size and number of deviations.

A. Identify the population deviation rate.

The purpose of tests of controls is to determine that: A. Internal control policies and procedures are functioning as prescribed. B. Substantive procedures can be kept to a minimum. 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.

Which of the following is not true with regard to the relationship among control risk, the risk of overreliance, and the tolerable rate of deviation? A. Lower levels of control risk result in a higher level of the risk of overreliance. B. Lower levels of the risk of overreliance result in lower tolerable rate of deviations. C. Lower levels of control risk result in lower tolerable rate of deviations. D. All of the above are true.

A. Lower levels of control risk result in a higher level of the risk of overreliance.

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 the risk of A. Overreliance. B. Underreliance. C. Incorrect acceptance. D. Incorrect rejection.

A. 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 too high 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.

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

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

In discovery sampling, the desired probability of one occurrence is defined as A. 1 minus the risk of underreliance. B. 1 minus the risk of overreliance. C. The critical rate of occurrence. D. The population deviation rate.

B. 1 minus the risk of overreliance.

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

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 2½% 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%. The allowance for sampling risk was A. 5½%. B. 4½%. C. 3½%. D. 1%.

B. 4½%.

Based on the information in Question 69, the allowance for sampling risk was A. 2.2%. B. 5.0%. C. 7.8%. D. 10.0%.

B. 5.0%.

Rome, CPA, is examining the internal control of Smack, Inc. Rome has established a risk of overreliance of 10%, an expected population deviation rate of 1%, and a tolerable rate of deviation of 5%. Ignore your answer to question 85. Assume that a sample of 100 items was examined and 5 deviations were noted. What is the upper limit rate of deviation? A. 5.0 percent. B. 9.1 percent. C. 10.0 percent. D. 10.3 percent.

B. 9.1 percent.

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 above 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.

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 substantive 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 substantive procedures.

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, he will reject the sample if even one deviation is discovered. What type of sampling plan should he use? A. Attributes sampling. B. Discovery sampling. C. Sequential sampling. D. Statistical sampling.

B. Discovery 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 Jerry obtain a high level of assurance that deviations occur at no higher than a predetermined (low) rate. Which of the following sampling methods would Jerry most likely use to evaluate this control? A. Attributes sampling. B. Discovery sampling. C. Sequential sampling. D. Statistical sampling.

B. Discovery sampling.

An auditor is testing control procedures that are evidenced on an entity's vouchers by matching random numbers with voucher numbers. If a random number matches the number of a voided voucher, that voucher ordinarily should be replaced by another voucher in the random sample if the voucher A. Constitutes a deviation. B. Has been properly voided. C. Cannot be located. D. Represents an immaterial dollar amount.

B. Has been properly voided.

If an audit team calculated an upper limit rate of deviation 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. Increased and substantive procedures should be adjusted accordingly. C. Assessed at the maximum level (100 percent) because the company's performance failed the test. D. Decreased and substantive procedures should be adjusted accordingly.

B. Increased and substantive procedures should be adjusted accordingly.

What is an auditor's evaluation of a statistical sample for attributes when a test of 100 documents results in four deviations if the tolerable rate of deviation is 5%, the expected population deviation rate is 3%, and the allowance for sampling risk is 2%? A. Accept the sample results as support for planned reliance on the control because the tolerable rate of deviation less then allowance for sampling risk equals the expected population deviation rate. B. Modify planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation. C. Modify planned reliance on the control because the tolerable rate of deviation plus the allowance for sampling risk exceeds the expected population deviation rate. D. Accept the sample results as support for planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

B. Modify planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

As a result of tests of controls, an auditor assessed control risk too low and decreased the number of substantive procedures performed. 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.

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

B. Option B

Which of the following would not be a situation in which the auditor would apply attributes sampling? A. Examining sales invoices for evidence that client personnel verified the mathematical accuracy of the invoices. B. Performing price tests for items listed on the client's year-end inventory. C. Ensuring that sales invoices are supported by a valid shipping document. D. The auditor would apply attributes sampling in all of the above situations.

B. Performing price tests for items listed on the client's year-end inventory.

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

B. Performing tests of controls.

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 detection risk and the sample size.

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

If an auditor calculated an upper limit rate of deviation of 5 percent when the tolerable rate of deviation was 4 percent, 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 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 percent. 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.

Judgments about the frequency of control deviations that identify a particular control risk level are related to A. Sample rate of deviation. B. Tolerable rate of deviation. C. Upper limit rate of deviations. D. Expected population deviation rate.

B. Tolerable rate of deviation.

Using AICPA sample evaluation tables, what is the conclusion from a statistical sample of internal controls when a sample of 125 documents indicates five deviations if the tolerable rate of deviation is 5 percent, the expected population deviation rate is 2 percent, and the allowance for sampling risk is 3 percent? A. Accept the evidence as support for assessing a low control risk because the tolerable rate of deviation less the allowance for sampling risk is less than the expected population deviation rate. B. Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation. C. Use the evidence to assess a higher control risk than planned because tolerable rate of deviation plus the allowance for sampling risk exceeds the expected population deviation rate. D. Accept the evidence as support for assessing a low control risk because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

B. Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

An auditor wants to perform a test of controls for a sensitive control. If she discovers even one deviation, she will reject the control as unacceptable. She is especially concerned about finding a deviation rate of more than 1 percent. Using discovery sampling and the sample evaluation table for 5 percent risk of overreliance, what sample size should she use? A. 20. B. 150. C. 300. D. 500.

C. 300.

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 whether the purchase was authorized.

C. Consider the sample item a deviation.

An auditor who increases the assessed level of control risk because certain control procedures were determined to be ineffective would most likely increase the A. Extent of tests of controls. B. Level of detection risk. C. Extent of substantive procedures. D. Level of inherent risk.

C. Extent of substantive procedures.

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 would justify 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.

Which of the following sampling risks does the audit team control in an attributes sampling application (ROO = risk of overreliance, ROU = risk of underreliance)? ROO/ROU A - Yes/Yes B - No/Yes C - Yes/No D - No/No A. Option A B. Option B C. Option C D. Option D

C. Option C

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 the above have a direct relationship with sample size.

C. Risk of overreliance.

A sampling plan in which an initial sample is selected and the audit team 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.

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. Attributes sampling. B. Discovery sampling. C. Sequential sampling. D. Statistical sampling.

C. Sequential sampling.

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.

To statistically evaluate an attributes sampling application, the auditor would not need to know A. The acceptable risk of overreliance. B. The actual deviations in the sample. C. The actual population size. D. The upper limit rate of deviation.

C. The actual population size.

If the tolerable rate of deviation is 6 percent, the acceptable risk of overreliance is 5 percent, and the upper limit rate of deviation is 4.8 percent, which of the following statements is not true? A. The probability that the population deviation rate is more than 4.8 percent is 5 percent. B. The probability that the population deviation rate is less than or equal to 4.8 percent is 95 percent. C. The auditor would initially conclude that the internal control is not functioning as intended. D. The auditor has limited the exposure to the risk of overreliance to 5 percent.

C. The auditor would initially conclude that the internal control is not functioning as intended.

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

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

Why is the auditor more concerned with the risk of overreliance rather 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's 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's failing to perform sufficient substantive procedures.

An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team expected that 3 percent of the sample invoices lacked proper approval. From the sample of 90 invoices, 7 were found to lack credit approval. Using AICPA sample evaluation tables, the upper limit rate of deviation was A. 3.3%. B. 4.5%. C. 7.8%. D. 12.8%.

D. 12.8%.

Baily Cox, an audit manager, judged that the test of controls of the company's 50,000 purchase transactions should be based on a tolerable rate of deviation of 6 percent, a risk of overreliance of 5 percent, and an expected population deviation rate of 3 percent. Using AICPA sample size tables, the appropriate sample size in this situation would be A. 49. B. 78. C. 132. D. 195.

D. 195.

Assume that Dylan Lee found two deviations in a sample of 90 transactions. Using AICPA sample evaluation tables, the upper limit rate of deviation at a 5 percent risk of overreliance is A. 2.0%. B. 2.2%. C. 5.9%. D. 6.9%.

D. 6.9%.

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 more than the tolerable rate of deviation. D. A statistical calculation that considers sampling risk.

D. A statistical calculation that considers sampling risk.

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 above are correct responses.

D. All of the above are correct responses.

Which of the following is not true with respect to the risk of overreliance? A. This risk has an inverse relationship with sample size. B. This risk may occur when the auditor's sample indicates that the control is functioning as expected. C. This risk may occur when the true (but unknown) population deviation rate is higher than the tolerable rate of deviation. D. All of the above are true with respect to the risk of overreliance.

D. All of the above are true with respect to the risk of overreliance.

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.

As part of the assessment of control risk, the auditor decided to use audit sampling. After specifying the audit objectives, what would the auditor most likely do next? A. Determine the sample size. B. Select the sample. C. Perform tests of control procedures. D. Define the deviation conditions.

D. Define the deviation conditions.

A 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.

In which step of a sampling plan is nonstatistical sampling different than statistical sampling? 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 steps in the attributes sampling process would ordinarily be performed last? A. Defining the deviation condition. B. Defining the population of interest. C. Selecting sample items. D. Evaluating sample results.

D. Evaluating sample results.

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.

If an audit team examined 100 transactions and found one deviation from an important control procedure, the audit conclusion could be that control risk can be assessed at the associated control risk level when A. The tolerable rate of deviation is 2 percent. B. The tolerable rate of deviation is 3 percent. C. The tolerable rate of deviation is 4 percent. D. More information about decision criteria is available.

D. More information about decision criteria is available.

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. More than the risk of overreliance based on the auditor's sample. D. More than the deviation rate in the auditor's sample.

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

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

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

In planning a statistical sample for a test of controls, an auditor increased the expected population deviation rate from the rates observed in prior audits because of the results of prior tests of controls and the overall control environment. The auditor most likely would then increase the planned A. Tolerable rate of deviation. B. Allowance for sampling risk. C. Risk of overreliance. D. Sample size.

D. Sample size.

An auditor interested in ensuring that all sales have been recorded would define the population as: A. Entries in the cash receipts journal. B. Entries in the general journal. C. Remittance advices. D. Shipping documents.

D. Shipping documents.

Which of the following factors used to determine sample size is normally based on the extent to which the audit team expects to rely on the internal control being examined? A. Allowance for sampling risk. B. Expected population deviation rate. C. Sample rate of deviation. D. Tolerable rate of deviation.

D. Tolerable rate of deviation.

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 2½% 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 the evaluation of 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 (3½%). C. Expected population deviation rate (2½%) 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 (3½%).

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

An auditor who concludes that a control is functioning properly when, in fact, it is not 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.

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 is not a judgment or estimate that 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.

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

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

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.

Rome, CPA, is examining the internal control of Smack, Inc. Rome has established a risk of overreliance of 10%, an expected population deviation rate of 1%, and a tolerable rate of deviation of 5%. What is the appropriate sample size that would be examined by Rome? A. 46 B. 38 C. 77 D. 93

C. 77

Which of the following would not be an example of nonsampling risk in an attributes sampling application? A. Failure to perform the appropriate type of test of controls procedure. B. Failure to notice a deviation from prescribed control procedures. C. Incorrect estimation of the expected population deviation rate. D. Incorrect accumulation of the number of deviations.

C. Incorrect estimation of the expected population deviation rate.

If the upper limit rate of deviation exceeds the tolerable rate of deviation, the auditor would most likely A. Accept the account balance as being fairly stated. B. Reject the account balance as being 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.

Which of the following is not true about using nonstatistical sampling? A. It generally results in a smaller sample size. B. It is allowed by auditing standards. C. It is simple to use. D. All of the above are true.

C. It is simple to use.

The primary benefit of using nonstatistical sampling is that A. It generally results in a smaller sample size. B. It removes the need to consider allowance for sampling risk. C. It is simpler to use. D. All of the above are true

C. It is simpler to use.

An important control for sales on account is that the client mathematically verifies all sales invoices. 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 best describes the method of determining the upper limit rate of deviation? A. Expected population deviation rate + Allowance for sampling risk. B. Risk of underreliance + Allowance for sampling risk. C. Sample rate of deviation + Allowance for sampling risk. D. Tolerable rate of deviation + Allowance for sampling risk.

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

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.

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.

In which of the following circumstances would the audit team most likely use attributes sampling? A. Selecting customer accounts receivable for confirmation. B. Selecting inventory items for verification of physical quantities. C. Selecting purchase orders for indication of proper authorization. D. Selecting additions to property, plant, and equipment during the year.

C. Selecting purchase orders for indication of proper authorization.

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.

An auditor who tested 50 transactions and found two deviations from an important control activity 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%.

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.

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.

Taylor LaRussa, an audit manager, considered the control risk assessments listed in the left column of the following table in evaluating A. Cardinal's internal control over sales transactions. The sample sizes for the substantive procedures of the customer accounts receivable are shown to the right of each control risk. What risk of overreliance (ROO) could be assigned for tests of controls at each control risk level? A. From top to bottom: 5%, 10%, 1%. B. From top to bottom: 10%, 1%, 5%. C. From top to bottom: 1%, 10%, 5%. D. From top to bottom: 1%, 5%, 10%.

D. From top to bottom: 1%, 5%, 10%.

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.

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 auditor does not consider qualitative aspects of deviations. 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.