AUD Module 10-- Audit Sampling

Which of the following best illustrates the concept of sampling risk? A. A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest. B. An auditor may select audit procedures that are not appropriate to achieve the specific objective. C. An auditor may fail to recognize errors in the documents examined for the chosen sample. D. The documents related to the chosen sample may not be available for inspection.

A. A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.

Auditors often utilize sampling methods when performing tests of controls. Which of the following sampling methods is most useful when testing controls? A. Attribute sampling. B. Variable sampling. C. Unrestricted random sampling with replacement. D. Stratified random sampling.

A. Attribute sampling

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 the I. Likely rate of deviations. II. Allowable risk of assessing control risk too high. A. I only. B. II only. C. Both I and II. D. Either I or II.

A. I only

Which of the following best describes the distinguishing feature of statistical sampling? A. It provides for measuring mathematically the degree of uncertainty that results from examining only a part of the data. B. It allows the auditor to have the same degree of sampling risk as with nonstatistical sampling but with substantially less work. C. It allows the auditor to substitute sampling techniques for audit judgment. D. It provides for measuring the actual misstatements in financial statements in terms of sampling risk and allowance for sampling risk.

A. It provides for measuring mathematically the degree of uncertainty that results from examining only a part of the data.

Which of the following is the primary objective of probability‐proportional‐to‐size sampling? A. To identify overstatement errors. B. To increase the proportion of smaller‐value items in the sample. C. To identify items where controls were not properly applied. D. To identify zero and negative balances.

A. To identify overstatement errors

Which of the following factors is/are considered in determining the sample size for a test of controls? Expected deviation rate Tolerable deviation rate A. Yes Yes B. No No C. No Yes D. Yes No

A. Yes Yes

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

B. Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate.

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

B. Estimate whether the dollar amount of inventory is reasonable

An auditor is testing internal 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

An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following sampling types of risks? A. Incorrect rejection. B. Incorrect acceptance. C. Assessing control risk too low. D. Assessing control risk too high.

B. Incorrect acceptance

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 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 exceed the tolerable rate. D. The deviation rates of both the auditor's sample and the population are less than 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.

In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if A. Probability‐proportional‐to‐size (PPS) sampling is used. B. The population has highly variable recorded amounts. C. The auditor's estimated tolerable misstatement is extremely small. D. The standard deviation of recorded amounts is relatively small.

B. The population has highly variable recorded amounts.

In a PPS sampling application, the sampling interval was $6,000. The auditor discovered that a selected account receivable having a recorded amount of $5,000 had an audit amount of $1,000. What was the projected error associated with this sample? A. $ 4,000 B. $ 1,200 C. $ 4,800 D. $ 3,200

C. $4,800

When using a statistical sampling plan, the auditor would probably require a smaller sample if the A. Population increases. B. Desired sampling risk decreases. C. Desired sampling risk increases. D. Expected error occurrence rate increases.

C. Desired sampling risk decreases

Which of the following most likely would be an advantage in using classical variables sampling rather than probability‐proportional‐to‐size (PPS) sampling? A. An estimate of the standard deviation of the population's recorded amounts is not required. B. The auditor rarely needs the assistance of a computer program to design an efficient sample. C. Inclusion of zero and negative balances generally does not require special design considerations. D. Any amount that is individually significant is automatically identified and selected.

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

An auditor should consider the tolerable rate of deviation when determining the number of check requests to select for a test to obtain assurance that all check requests have been properly authorized. The auditor should also consider The average dollar value of the check requests The allowable risk of assessing control risk too low A. Yes Yes B. Yes No C. No Yes D. No No

C. No Yes

In estimation sampling for variables, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor's needs in a given situation? A. The qualitative aspects of errors. B. The total dollar amount of the population. C. The acceptable level of risk. D. The estimated rate of error in the population.

C. The acceptable level of risk

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

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

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

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

Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a dollar value? A. Attribute sampling. B. Stop‐or‐go sampling. C. Variables sampling. D. Random‐number sampling.

C. Variables sampling

Hill has decided to use (PPS) sampling, sometimes called dollar‐unit sampling, in the audit of a client's accounts receivable balances. Hill plans to use the following PPS sampling table: Reliability Factors for Errors of Overstatement Risk of Incorrect Acceptance Number of Overstatements 1% 5% 10% 15% 20% 0 4.61 3.00 2.31 1.90 1.61 1 6.64 4.75 3.89 3.38 3.00 2 8.41 6.30 5.33 4.72 4.28 3 10.05 7.76 6.69 6.02 5.52 4 11.61 9.16 8.00 7.27 6.73 ADDITIONAL INFORMATION Tolerable misstatement (net of the effect of expected misstatements) $ 24,000 Risk of incorrect acceptance 20% Number of misstatements allowed 1 Recorded amount of accounts receivable $240,000 Number of accounts 360 What sample size should Hill use? A. 120 B. 108 C. 60 D. 30

D. 30

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 risk of incorrect acceptance and the risk of assessing control risk too low for internal control relate to the A. Preliminary estimates of materiality levels. B. Allowable risk of tolerable misstatement. C. Efficiency of the audit. D. Effectiveness of the audit

D. Effectiveness of the audit

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

D. Sample size