Section I

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. 2, 1, 3, 4. b. 1, 2, 3, 4. c. 1, 2, 4, 3. d. 2, 1, 4, 3.

a. 2, 1, 3, 4.

The amount of estimation uncertainty is affected by the nature of which of the following? a. Accounting estimate. b. Auditing estimate. c. Accounting disclosure. d. Management bias.

a. Accounting estimate.

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

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

In performing interviews and examining documents related to preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result? a. Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit. b. Modify the financial statement disclosures to include the newly identified risk if it is likely that the new product line will have an adverse effect on the company's profitability. c. Analyze the newly identified risk in conjunction with economic circumstances related exclusively to the new product line and consider whether there is an immediate consequence for the risk of material misstatement for affected classes of transactions. d. Modify the scope of the engagement to include an analysis of the budget for the new product line and consider the new risk in conjunction with other risks after the budget items have been analyzed.

a. Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.

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.

An internal auditor's work would most likely affect the nature, timing, and extent of an independent CPA's auditing procedures when the internal auditor's work relates to assertions about the: a. Existence of fixed asset additions. b. Valuation of intangible assets. c. Existence of contingencies. d. Valuation of related party transactions.

a. Existence of fixed asset additions.

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

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

As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was: a. More than the deviation rate in the auditor's sample. b. Less than the risk of assessing control risk too low, based on the auditor's sample. c. Less than the deviation rate in the auditor's sample. d. More than the risk of assessing control risk too low, based on the auditor's sample.

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

Holding other planning considerations equal, a decrease in the amount of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to: a. Perform the planned auditing procedures closer to the balance sheet date. b. Apply the planned substantive tests prior to the balance sheet date. c. Increase the assessed level of control risk for relevant financial statement assertions. d. Decrease the extent of auditing procedures to be applied to the class of transactions.

a. Perform the planned auditing procedures closer to the balance sheet date.

Which of the following procedures would an auditor most likely use to identify unusual year-end transactions? a. Performing analytical procedures. b. Testing arithmetic accuracy of the accounting records. c. Obtaining a client representation letter. d. Obtaining a legal inquiry letter.

a. Performing analytical procedures.

An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date rather than as of the balance sheet date. The auditor should be aware that this practice: a. Potentially increases the risk that errors that exist at the balance sheet date will not be detected. b. Should be especially considered when there are rapidly changing economic conditions. c. Presumes that the auditor will reperform the tests as of the balance sheet date. d. Eliminates the use of certain statistical sampling methods that would otherwise be available.

a. Potentially increases the risk that errors that exist at the balance sheet date will not be detected.

Which of the following procedures would an auditor most likely perform prior to the balance sheet date? a. Review detail and test significant travel and entertainment expenses. b. Review subsequent events. c. Send inquiry letter to client's legal counsel. d. Perform search for unrecorded liabilities.

a. Review detail and test significant travel and entertainment expenses.

Which of the following best describes the method of determining the ULRD? a. Sample rate of deviation + Allowance for sampling risk. b. Risk of underreliance + Allowance for sampling risk. c. Expected population deviation rate + Allowance for sampling risk. d. Tolerable rate of deviation + Allowance for sampling risk.

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

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

a. Selecting purchase orders for indication of proper authorization.

An auditor decides to perform substantive tests on a client's property and equipment balance as of an interim date. The auditor has not obtained evidence about the operating effectiveness of relevant controls. What additional work must be performed to extend the audit conclusions from the interim date to the balance sheet date? a. Substantive procedures for the period between the interim date and the balance sheet date. b. Analytical comparison of the current-year interim balance with the prior-year interim balance. c. Tests of controls for the period between the interim date and the balance sheet date. d. Tests of controls for the period between the beginning of the fiscal year and the interim date.

a. Substantive procedures for the period between the interim date and the balance sheet date.

An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the: a. Substantive tests. b. Compliance tests. c. Tests of controls. d. Attribute tests.

a. Substantive tests.

An audit client sells 15 to 20 units of a product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past five years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue? a. The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period. b. The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales. c. The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management. d. The auditor should review period-end compensation to determine if bonuses were paid to meet earnings goals.

a. The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.

PCAOB standards state that the relevance of audit evidences depends on all but which of the following? a. The auditor's risk assessment. b. The timing of the audit procedure. c. Whether the audit procedure is designed to directly test an assertion. d. Whether the audit procedure is designed to test for an understatement or overstatement.

a. The auditor's risk assessment.

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

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

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 rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate. b. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate. c. The deviation rates of both the auditor's sample and the population is less than the tolerable rate. d. The deviation rates of both the auditor's sample and the population exceed the tolerable rate.

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

Which of the following is not true with respect to the use of nonstatistical sampling? a. The use of nonstatistical sampling generally results in a smaller sample size. b. The use of nonstatistical sampling does not permit the auditor to control exposure to the risk of overreliance. c. The use of nonstatistical sampling is permissible under generally accepted auditing standards. d. Auditors may use block and haphazard selection methods when using nonstatistical sampling.

a. The use of nonstatistical sampling generally results in a smaller sample size.

Financial statements include _______. a. a variety of items that cannot be measured precisely and must be estimated by client management. b. a variety of items that can be measured precisely and must be estimated by client management. c. a variety of items that can be measured precisely and should not be estimated by client management. d. a variety of items that cannot be measured precisely and must be estimated by the internal auditors.

a. a variety of items that cannot be measured precisely and must be estimated by client management.

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. decrease detection risk. b. decrease substantive procedures. c. increase inherent risk. d. increase overall materiality levels.

a. decrease detection risk.

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

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

The amount of estimation uncertainty is not affected by _______. a. the nature of auditing the estimate. b. the extent to which a generally accepted method or model is available to aid in developing the estimate. c. All of these answers are correct. d. the subjectivity of the assumptions used to make the estimate.

a. the nature of auditing the estimate.

If the client has well-designed, implemented, and documented controls over the preparation of accounting estimates, then an appropriate risk response would be _______. a. to test the operating effectiveness of the controls. b. to obtain written representation from management to this effect, which negates the need for any testing. c. to test the operating effectiveness of the assertions. d. to focus this audit time on another area, and conclude there is no material risk in this area.

a. to test the operating effectiveness of the controls.

Which of the following sampling risks does the audit team control in an attributes sampling application (ROO = risk of overreliance, ROU = risk of underreliance)? a. ROO: Yes ROU: No b. ROO: No ROU: No c. ROO: No ROU: Yes d. ROO: Yes ROU: Yes

a. ROO: Yes ROU: No

If the sample evidence does not support the planned level of control risk, the audit team could a. Expand the sample to achieve an observed ULRD less than the tolerable rate of deviation. b. All of these answers are acceptable. c. Perform additional substantive procedures, reducing the necessary level of detection risk. d. Increase the assessed level of control risk.

b. All of these answers are acceptable.

An auditor is testing a client's pension benefit obligation. Which of the following types of evidence would be most appropriate for determining that the financial statement balance is fairly stated? a. A client-prepared schedule showing accounting entries made to the general ledger balance. b. An actuarial valuation obtained by an outside firm. c. Confirmation of payments received by retirees. d. Analytical procedures that compare last year's balance to this year's balance.

b. An actuarial valuation obtained by an outside firm.

Why does the risk of overreliance have an inverse relationship with sample size? a. As the audit team requires greater compliance with the control policy or procedure, the audit team must examine a greater number of items. b. As the audit team is less concerned with making an incorrect conclusion with respect to reliance on the client's internal control, the audit team can appropriately examine fewer items. c. As the level of control risk increases, the audit team is placing less reliance on internal control and can appropriately examine fewer items. d. As the audit team expects fewer deviations from the control policy or procedure, the audit team can appropriately examine fewer items.

b. As the audit team is less concerned with making an incorrect conclusion with respect to reliance on the client's internal control, the audit team can appropriately examine fewer items.

Before applying principal substantive tests to the details of accounts at an interim date prior to the balance sheet date, an auditor should: a. Assess control risk at a low level for the assertions embodied in the accounts selected for interim testing. b. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable. c. Obtain written representations from management that all financial records and related data will be made available. d. Determine that the accounts selected for interim testing are not material to the financial statements taken as a whole.

b. Consider whether the amounts of the year-end balances selected for interim testing are reasonably predictable.

An auditor 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%); however, because the account balance affected by this control is highly susceptible to fraud, it is important that the auditor obtain a high level of assurance that deviations occur at no higher than a predetermined (low) rate. Which of the following sampling methods would the auditor most likely use to evaluate this control? a. Statistical sampling. b. Discovery sampling. c. Sequential sampling. d. Attributes sampling.

b. Discovery sampling.

To determine the sample size for a test of controls, an auditor should consider the tolerable deviation rate, the allowable risk of assessing control risk too low, and the: a. Risk of incorrect rejection. b. Expected deviation rate. c. Upper deviation rate. d. Risk of incorrect acceptance.

b. Expected deviation rate.

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. High control risk when the actual operating effectiveness of the control would justify a lower control risk assessment. c. Low control risk when the actual operating effectiveness of the control justifies a low control risk assessment. d. High control risk when the actual operating effectiveness of the control would justify a higher control risk assessment.

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

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

b. Identifying entries posted to incorrect accounts.

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

b. Measure the sufficiency of the audit evidence obtained.

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? a. Accounts receivable. b. Payroll expense. c. Accounts payable. d. Advertising expense.

b. Payroll expense.

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: a. Tolerable rate of deviations. b. Planned reliance on the prescribed control. c. Planned reliance on substantive tests. d. Assessed level of control risk.

b. Planned reliance on the prescribed control.

An auditor's decision whether to apply analytical procedures as substantive tests usually is determined by the: a. Availability of documentary evidence that should be verified. b. Precision and reliability of the data used to develop expectations. c. Number of transactions recorded just before and just after the year end. d. Extent of accounting estimates used in preparing the financial statements.

b. Precision and reliability of the data used to develop expectations.

An overall response to address a high-assessed risk of material misstatement at the financial statement level of a nonissuer may include: a. Emphasizing the need for more accounting staff. b. Providing more supervision of the audit team. c. Incorporating additional predictability into the selection of procedures. d. Increasing reliance on results of internal control testing.

b. Providing more supervision of the audit team.

If interim substantive procedures for an account identified no exceptions, which of the following would the auditor not perform on that account at year-end? a. Substantive analytical procedures of the period since the interim testing date. b. Tests of details for the entire year under audit. c. Tests of details of activity during the period since the interim testing date. d. Reconciliation of year-end balances to interim balances.

b. Tests of details for the entire year under audit.

Which of the following is a requirement for an audit of both an issuer's and a nonissuer's financial statements? a. The auditor is required to refer to a recognized control framework in performing the audit of internal control over financial reporting. b. The auditor is required to assess the risk of fraud. c. The auditor is required to assess the effectiveness of management's assessment of the company's internal control over financial reporting. d. The auditor is required to express an opinion on the effectiveness of the company's internal control over financial reporting.

b. The auditor is required to assess the risk of fraud.

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

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

While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate? a. Send negative accounts receivable confirmations instead of positive accounts receivable confirmations. b. Use more experienced audit team members to perform year-end testing. c. Move detailed analytical procedures from year end to interim. d. Increase the dollar threshold of vouching customer invoices.

b. Use more experienced audit team members to perform year-end testing.

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. haphazard selection. b. block selection. c. monthly selection. d. random selection.

b. block selection.

When an auditor increases the assessed level of control risk because certain control procedures were determined to be ineffective, the auditor would most likely increase the: a. level of inherent risk. b. extent of tests of details of balances. c. detection risk. d. extent of tests of controls.

b. extent of tests of details of balances.

An erroneous decision to assess control risk at excessively high levels can have an adverse effect on: a. the type of report the auditor decides to render. b. the efficiency of an audit engagement. c. the effectiveness of an audit engagement. d. the validity of an audit.

b. the efficiency of an audit engagement.

If the_________exceeds the___________ , the audit team would decide to rely on internal control as planned and maintain control risk at planned levels. a. expected population deviation rate; tolerable rate of deviation. b. tolerable rate of deviation; ULRD. c. ULRD; tolerable rate of deviation. d. tolerable rate of deviation; expected population deviation rate.

b. tolerable rate of deviation; ULRD.

When examining the client's internal control, what is the relationship of each of the following with sample size? a. Expected rate of deviation: Inverse Risk of overreliance: Direct b. Expected rate of deviation: Direct Risk of overreliance: Inverse c. Expected rate of deviation: Direct Risk of overreliance: Direct d. Expected rate of deviation: Inverse Risk of overreliance: Inverse

b. Expected rate of deviation: Direct Risk of overreliance: Inverse

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

b. Tolerable Rate of Deviation: No Expected Population Deviation Rate: Yes

Providing more supervision during an audit of a nonissuer in response to assessed risks of material misstatement at the financial statement level is an example of: a. Further audit procedures. b. Tests of controls. c. An overall response. d. A substantive response.

c. An overall response.

Which of the following statements is correct concerning an auditor's assessment of control risk? a. Evidence about the operation of controls in prior audits may not be considered during the current year's assessment of control risk. b. The lower the assessed level of control risk, the less assurance the evidence must provide that the controls are operating effectively. c. Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control. d. The basis for an auditor's conclusions about the assessed level of control risk need not be documented unless the auditor's risk assessment is based on the effective operation of controls.

c. Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control.

Which statement is true with respect to discussion among engagement personnel regarding the risk of material misstatement due to fraud? a. All key members of the audit team should be brought to a single location to facilitate communication. b. Discussion among engagement personnel regarding the risk of material misstatement due to fraud is recommended but not required. c. Audit documentation must include a description of the discussion. d. The discussion should occur only during the planning stage of the audit.

c. Audit documentation must include a description of the discussion.

As a result of tests of controls, an auditor assesses control risk too high. This incorrect assessment most likely occurred because: a. Control risk based on the auditor's sample is less than the true operating effectiveness of the client's control activity. b. The auditor believes that the control activity will reduce the extent of substantive testing when, in fact, it will not. c. Control risk based on the auditor's sample is greater than the true operating effectiveness of the client's control activity. d. The auditor believes that the control activity relates to the client's assertions when, in fact, it does not.

c. Control risk based on the auditor's sample is greater than the true operating effectiveness of the client's control activity.

Assume that the audit team wishes to determine the extent to which a particular control policy was functioning as intended. Identifying applications of the control throughout the period under audit would be most closely related to which of the following steps in sampling? a. Determining the objective of sampling. b. Determining the sample size. c. Defining the population. d. Defining the characteristic of interest.

c. Defining the population.

Which of the following would not be an example of nonsampling risk in an attributes sampling application? a. Incorrectly accumulating the number of deviations. b. Failure to notice a deviation from prescribed control procedures. c. Incorrectly estimating the expected population deviation rate. d. Failure to perform the appropriate type of test of controls procedure.

c. Incorrectly estimating the expected population deviation rate.

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

c. It is simpler to use.

Which of the following statements about audit sampling risks is correct for a nonissuer? a. Sampling risk is derived from the uncertainty in applying audit procedures to specific risks. b. 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. c. Nonsampling risk can arise because an auditor failed to recognize misstatements. d. Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective.

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

Analytical procedures are most appropriate when testing which of the following types of transactions? a. Payroll and benefit liabilities. b. Acquisitions and disposals of fixed assets. c. Operating expense transactions. d. Long-term debt transactions.

c. Operating expense transactions.

An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods: a. Can more easily convert the sample into a dual-purpose test useful for substantive testing. b. Afford greater assurance than a nonstatistical sample of equal size. c. Provide an objective basis for quantitatively evaluating sample risk. d. Eliminate the need to use judgment in determining appropriate sample sizes.

c. Provide an objective basis for quantitatively evaluating sample risk.

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. Discovery sampling. b. Statistical sampling. c. Sequential sampling. d. Attributes sampling.

c. Sequential sampling.

Which of the following is an example of an inherent risk that an auditor should consider? a. Inaccurate physical inventory count. b. An incorrect formula in a worksheet used to calculate a LIFO inventory reserve. c. Technological developments that may render inventory obsolete. d. Posting of unauthorized journal entries.

c. Technological developments that may render inventory obsolete.

Under which circumstance would an auditor be most likely to perform substantive tests before the balance sheet date? a. The account in question fluctuates based on management's discretion. b. The account in question is not reasonably predictable in terms of its relative significance to the financial statements. c. The account in question has very little activity from year to year. d. The account in question has a high level of both inherent risk and control risk.

c. The account in question has very little activity from year to year.

Which of the following factors would least likely affect the extent of the auditor's consideration of the client's internal controls? a. The extent to which other tests provide evidence about the same assertion. b. The expected deviation rate from the control. c. The amount of time budgeted to complete the engagement. d. How frequently the control is performed.

c. The amount of time budgeted to complete the engagement.

The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider? a. Interrelationships of financial information. b. Nonfinancial information that may affect financial information. c. The nature of the assertion tested. d. Explanations provided by the client.

c. The nature of the assertion tested.

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. Tolerable rate of deviation. d. Sample rate of deviation.

c. Tolerable rate of deviation.

Under which of the following circumstances should an auditor consider confirming the terms of a large complex sale? a. When the combined assessed level of inherent and control risk over the sale is moderate. b. When the assessed level of detection risk over the sale is high. c. When the combined assessed level of inherent and control risk over the sale is high. d. When the assessed level of control risk over the sale is low.

c. When the combined assessed level of inherent and control risk over the sale is high.

When testing internal controls, which of the following statements is not true with respect to the use of nonstatistical sampling? a. Auditors are required to use professional judgment in evaluating the sample results in a nonstatistical sampling application. b. Nonstatistical sampling does not require the use of random selection techniques. c. When using nonstatistical sampling, auditors are required to quantify the parameters used to determine sample size. d. Nonstatistical sampling is permitted in the audits of both public and nonpublic entities.

c. When using nonstatistical sampling, auditors are required to quantify the parameters used to determine sample size.

When the audit population can efficiently be tested using traditional audit tests, the auditor is more likely to use _______. a. substantive procedures. b. none of these answers are correct. c. audit sampling. d. audit data analytics.

c. audit sampling.

If the auditor were interested in ensuring that all sales have been recorded, the population would be defined as: a. shipping documents. b. entries in the cash receipts journal. c. entries in the general journal. d. remittance advices.

c. entries in the general journal.

When performing attributes sampling, the appropriate AICPA Sample Size Table is initially selected based on the auditors' assessment of the a. risk of underreliance. b. expected population deviation rate. c. risk of overreliance. d. tolerable rate of deviation.

c. risk of overreliance.

When the auditor concludes that a control is functioning properly when, in fact, it is not, the auditor has committed the: a. risk of incorrect acceptance. b. risk of underreliance. c. risk of overreliance. d. risk of incorrect rejection.

c. risk of overreliance.

To statistically evaluate an attributes sampling application, the auditor would not need to know: a. the actual deviations in the sample. b. the upper limit rate of deviation. c. the actual population size. d. The auditor must know all of these factors in order to evaluate an attributes sampling application. e. the acceptable risk of overreliance

c. the actual population size.

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 expected population deviation rate is 4%. c. the sample rate of deviation is 4%. d. the critical rate of occurrence is 4%.

c. the sample rate of deviation is 4%.

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent: a. As a substantive test: No In the final review stage: No b. As a substantive test: Yes In the final review stage: No c. As a substantive test: No In the final review stage: Yes d. As a substantive test: Yes In the final review stage: Yes

c. As a substantive test: No In the final review stage: Yes

Which of the following is true about using analytical procedures as a substantive test? a. Analytical procedures are required to be used to some extent as a substantive test. b. Analytical procedures are not required to be used as a substantive test and are more likely to be used when transactions affecting the account are subject to management discretion. c. Analytical procedures are only required to be used as a substantive test for material account balances and classes of transactions. d. Analytical procedures are not required to be used as a substantive test and are more likely to be used for accounts that are predictable.

d. Analytical procedures are not required to be used as a substantive test and are more likely to be used for accounts that are predictable.

Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should: a. Project sampling risk at the maximum for tests covering the remaining period. b. Consider the likelihood of assessing the risk of incorrect rejection too low. c. Ascertain that accounts receivable are immaterial to the financial statements. d. Assess the difficulty in controlling the incremental audit risk.

d. Assess the difficulty in controlling the incremental audit 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. Select the sample. b. Perform tests of control procedures. c. Determine the sample size. d. Define the deviation conditions.

d. Define the deviation conditions.

Which of the following steps in attributes sampling is most closely related to identifying key controls corresponding to the relevant management assertions? a. Define the population. b. Define the deviation condition. c. Determine the sample size. d. Determine the objective of sampling.

d. Determine the objective of sampling.

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

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

Which of the following statements is correct concerning statistical sampling in tests of controls? a. In determining tolerable rate, an auditor considers detection risk and the sample size. b. As the population size increases, the sample size should increase proportionately. c. There is an inverse relationship between the expected population deviation rate and the sample size. d. Deviations from specific control activities at a given rate ordinarily result in misstatements at a lower rate.

d. Deviations from specific control activities at a given rate ordinarily result in misstatements at a lower rate.

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.

In order to respond to the increased risks that could be present in the initial audit of an entity, an external auditor should consider the assignment of: a. Accounting personnel with appropriate levels of capabilities and competence. b. Internal audit personnel with appropriate levels of capabilities and competence. c. Senior management with appropriate levels of capabilities and competence. d. External audit personnel with appropriate levels of capabilities and competence.

d. External audit personnel with appropriate levels of capabilities and competence.

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

d. Has been properly voided in the normal course of business.

If an audit team calculated a 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 maximum level (100 percent) because the company's performance failed the test. b. Decreased and substantive procedures should be adjusted accordingly. c. Assessed at the level associated with the 4 percent tolerable rate of deviation. d. Increased and substantive procedures should be adjusted accordingly.

d. Increased and substantive procedures should be adjusted accordingly.

Which of the following major stages of the audit is most closely related to attributes sampling? a. Searching for the possible occurrence of subsequent events. b. Performing substantive procedures. c. Determining preliminary levels of materiality. d. Performing tests of controls.

d. Performing tests of controls.

Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertions and risks? a. The relevant internal control components are not well documented. b. The cost of substantive procedures will exceed the cost of testing the relevant controls. c. The internal auditor already has tested the relevant controls and found them effective. d. Testing the operating effectiveness of the relevant controls would not be efficient.

d. Testing the operating effectiveness of the relevant controls would not be efficient.

Which of the following is an important consideration when deciding the nature of tests to use in a financial statement audit? a. The use of tests of controls should be considered without regard to the level of assurance required. b. Analytical procedures are an inefficient means of obtaining assurance. c. Tests of details typically provide a low level of assurance. d. The procedures to be applied on a particular engagement are a matter of the auditor's professional judgment.

d. The procedures to be applied on a particular engagement are a matter of the auditor's professional judgment.

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 underreliance is not related to the audit team's study and evaluation of internal control. b. Only the risk of overreliance results in an incorrect audit decision. c. The risk of underreliance can be controlled by performing tests of controls during the interim period. d. The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels.

d. 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 than the risk of underreliance? a. The risk of overreliance cannot be controlled by the auditor during the sampling process. b. The risk of underreliance is not a type of sampling risk. c. The risk of overreliance exposes the auditor to an efficiency loss. d. The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures.

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

Which one of the below factors is not included in the PCAOB auditing standards as one that should influence the nature and extent of necessary planning activities? a. The size and complexity of the client company. b. Changes in circumstances that occur during the audit. c. The auditor's previous experience with the company. d. The size of the auditing firm and the number of auditors assigned to the audit.

d. The size of the auditing firm and the number of auditors assigned to the audit.

Accounting estimates, by their nature _______. a. should not be estimated by management, but rather by the auditor at the end of the period. b. involve objective decision making on the part of management. c. should cause little or no variance at the end of the period. d. involve subjective decision making on the part of management.

d. involve subjective decision making on the part of management.

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 incorrect acceptance. b. risk of incorrect rejection. c. risk of underreliance. d. risk of overreliance.

d. risk of overreliance.

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. tolerable rate of deviation. b. expected population deviation rate. c. risk of underreliance. d. sample rate of deviation.

d. sample rate of deviation.