Auditing Module E
18) Place the following steps in the sampling process in the order in which they are performed. 1 = Measure sample items 2 = Select sample items 3 = Define the population A) 1, 2, 3. B) 3, 1, 2. C) 2, 1, 3. D) 3, 2, 1.
-Answer: D Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
27) A sample selection method in which a series of contiguous items are selected from the population is referred to as: A) block selection. B) haphazard selection. C) systematic random selection. D) unrestricted random selection.
Answer: A Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
36) Which of the following characteristics of substantive procedures is most closely associated with the use of sampling? A) Extent of further audit procedures. B) Nature of further audit procedures. C) Timing of further audit procedures. D) All of these are closely associated with the use of sampling.
Answer: A Difficulty: 1 Easy Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
57) The upper limit on misstatement is: A) an adjustment of the sample estimate of misstatement to reflect the desired level of sampling risk. B) an adjustment of the sample deviation rate to reflect the desired level of sampling risk. C) the maximum rate of deviation that could exist before auditors would reduce the reliance on an internal control. D) the maximum misstatement that could exist before auditors would conclude that the account balance is not fairly stated.
Answer: A Difficulty: 1 Easy Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
3) Nonsampling risk can occur in which of the following types of sampling plans: A) Statistical sampling: Yes; Nonstatistical sampling: Yes B) Statistical sampling: Yes; Nonstatistical sampling: No C) Statistical sampling: No; Nonstatistical sampling: Yes D) Statistical sampling: No; Nonstatistical sampling: No
Answer: A Difficulty: 1 Easy Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
8) Which of the following types of sampling applications can appropriately be used under generally accepted auditing standards? A) Statistical sampling: Yes; Nonstatistical sampling: Yes B) Statistical sampling: Yes; Nonstatistical sampling: No C) Statistical sampling: No; Nonstatistical sampling: Yes D) Statistical sampling: No; Nonstatistical sampling: No
Answer: A Difficulty: 1 Easy Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
47) Which of the following actions can be used to control the audit team's exposure to sampling risk? Determining an appropriate sample size Performing appropriate types of audit Procedures A. Yes No B. Yes Yes C. No Yes D. No No A) Option A B) Option B C) Option C D) Option D
Answer: A Difficulty: 1 Easy Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Remember AACSB: Analytical Thinking; Reflective Thinking
58) Which of the following is not correct with respect to sample size? A) In a statistical sampling application, the determination of sample size is used to control the auditor's exposure to sampling risk. B) As the desired level of sampling risk decreases, the necessary sample size decreases. C) Auditors determine sample size after defining the characteristic of interest and the population of interest. D) As the expected misstatement (or expected rate of deviation) increases, the necessary sample size increases.
Answer: A Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking
68) Which of the following statements is true about haphazard selection? A) Under haphazard selection, bias in selecting items (either conscious or unconscious) often exists. B) Haphazard selection can be described in sufficient detail to allow sample selection to be replicated by others. C) Under haphazard selection, the items are selected in an unstructured and careless manner. D) Haphazard selection allows individuals to measure the probability of selecting sample items.
Answer: A Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
75) Based on the results of attributes sampling, the audit team assessed control risk too low and did not modify the nature, timing, and extent of its further audit procedures to reduce detection risk. This situation would most likely result in a(n) A) higher level of audit risk than planned. B) lower level of inherent risk. C) greater efficiency loss. D) lower effectiveness loss.
Answer: A Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Apply AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
33) While performing an audit of accounts receivable, Allen, CPA, found that the sample results supported the conclusion that the accounts receivable balance was materially misstated. However, the balance was, in fact, not materially misstated. This situation illustrates the risk of: A) incorrect rejection. B) incorrect acceptance. C) Overreliance. D) Underreliance.
Answer: A Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
40) In performing variables sampling, the auditor will conclude that the account balance is not materially misstated if the ________ is less than or equal to ________. A) upper limit on misstatement; tolerable misstatement. B) expected error; tolerable misstatement. C) tolerable misstatement; upper limit on misstatement. D) tolerable misstatement; expected error.
Answer: A Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
62) For which of the following audit tests would an auditor most likely use attributes sampling? A) Inspecting purchase orders for proper approval by supervisors. B) Making an independent estimate of recorded payroll expense. C) Determining that all payables are recorded at year end. D) Selecting accounts receivable for confirmation of account balances.
Answer: A Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
72) Auditors use attributes sampling in assessing the effectiveness of a client's internal controls to determine: A) the extent to which internal controls are operating as intended to prevent or detect misstatements. B) the degree of inherent risk associated with various account balances or classes of transactions. C) the degree of risk present in the client's business environment. D) the accuracy of the client's account balances or classes of transactions.
Answer: A Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
43) Which of the following is not true with respect to the risk of incorrect acceptance? A) It results in an efficiency loss to the auditor. B) It occurs when the auditor's sample indicates that the account balance is fairly stated. C) It occurs when the true misstatement in the account balance exceeds tolerable misstatement. D) The auditor can measure the exposure to this risk when using statistical sampling applications.
Answer: A Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
14) Which of the following statements best describes nonstatistical sampling? A) Nonstatistical sampling does not allow the auditor to measure the exposure to sampling risk. B) Nonstatistical sampling only selects very large dollar items for examination. C) Nonstatistical sampling should be used only in situations in which the auditor anticipates issuing a qualified or adverse opinion on the client's financial statements. D) Nonstatistical sampling should be used when the auditor selects a substantive audit approach.
Answer: A Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
7) In which of the following situations would the use of sampling be most appropriate? A) The need for precise information is less important. B) The number of items comprising the population is smaller. C) The likelihood of selecting a representative sample is relatively low. D) The use of sampling would be appropriate in all of these situations.
Answer: A Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
70) All of the following are advantages of statistical sampling except: A) statistical sampling eliminates the auditors' exposure to nonsampling risk. B) statistical sampling allows the probability of selecting sample items to be determined. C) statistical sampling allows the sample selection process to be replicated. D) statistical sampling increases the likelihood of selecting a representative sample.
Answer: A Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
11) In which of the following types of sampling applications is the auditor exposed to sampling risk? A) Statistical sampling: Yes; Nonstatistical sampling: Yes B) Statistical sampling: Yes; Nonstatistical sampling: No C) Statistical sampling: No; Nonstatistical sampling: Yes D) Statistical sampling: No; Nonstatistical sampling: No
Answer: A Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
6) An auditor is most likely to use statistical sampling under which of the following situations? A) Random numbers can be associated with population items. B) Strictly defensible results based on mathematics are not necessary. C) The auditor has a very good knowledge of the population. D) The population is very diverse with some segments especially prone to misstatement.
Answer: A Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
54) Which of the following is the most likely outcome when the upper limit rate of deviation is less than the tolerable rate of deviation? A) The auditor would be exposed to the risk of overreliance. B) The auditor would decide to reduce the planned degree of reliance on internal control. C) The auditor would increase the extent of further audit procedures. D) The auditor would be exposed to a potential efficiency loss.
Answer: A Difficulty: 3 Hard Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Apply AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
Accessibility: Keyboard Navigation 59) When examining the client's internal control, what is the relationship of each of the following with sample size? Expected rate of deviation Risk of overreliance A. Direct Direct B. Direct Inverse C. Inverse Inverse D. Inverse Direct A) Option A B) Option B C) Option C D) Option D
Answer: B Difficulty: 1 Easy Topic: An Overview of Audit Sampling Learning Objective: E-04 Understand how the basic steps and procedures used in a sampling plan apply to an audit. Blooms: Understand AACSB: Analytical Thinking
26) A sample selection method in which items are selected in a nonsystematic manner is referred to as: A) block selection. B) haphazard selection. C) systematic random selection. D) unrestricted random selection.
Answer: B Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
64) Which of the following sampling activities is not performed during the planning stage of the audit? A) Define the population. B) Determine the sample size. C) Determine the objective of sampling. D) Define the characteristic of interest.
Answer: B Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
29) Which of the following does not affect the sample size in an attributes sampling application? A) Expected population deviation rate. B) Upper limit rate of deviation. C) Sampling risk. D) Tolerable rate of deviation.
Answer: B Difficulty: 2 Medium Topic: An Overview of Audit Sampling Learning Objective: E-04 Understand how the basic steps and procedures used in a sampling plan apply to an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
19) Why is defining the population so important in a sampling application? A) To permit the auditor to select the appropriate type of substantive procedure. B) To ensure that the results appropriately represent the entire population. C) To reduce sampling risk to the appropriate level. D) To allow the auditor to appropriately measure sample items.
Answer: B Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
22) Which of the following most closely represents an unrestricted random selection procedure? A) Identifying a starting point within the population and bypassing a fixed number of items. B) Matching items in the population to a series of randomly selected numbers. C) Randomly selecting invoices to customers whose last names start with "W". D) Randomly picking items from an accounts receivable file.
Answer: B Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
71) An auditor is reviewing a sample of cash disbursements to ensure that the appropriate supporting documents were received prior to payment. Which type of sampling approach would the auditor use to perform this test? A) Collective sampling. B) Attributes sampling. C) Variables sampling. D) Quality sampling.
Answer: B Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
77) All of the following are correct regarding variables sampling, except: A) variables sampling is used to examine a population when auditors want to estimate the amount (or value) of some characteristic of that population. B) the risk of incorrect rejection is of more concern to auditors than the risk of incorrect acceptance. C) auditors can use either statistical or nonstatistical sampling approaches to variables sampling. D) to determine if an account balance is fairly stated, auditors compare the adjusted sample estimate of the misstatement to the tolerable misstatement.
Answer: B Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
63) 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 types of sampling risks? A) Incorrect rejection. B) Incorrect acceptance. C) Overreliance. D) Underreliance.
Answer: B Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
9) Which of the following would typically result in nonsampling risk? A) Selecting a nonrepresentative sample. B) Making a mistake in recording sample results. C) Intentionally omitting several items in the population from examination. D) None of these result in nonsampling risk.
Answer: B Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Apply AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
61) Which of the following statements about audit sampling risks is correct? A) Nonsampling risk arises from the possibility that, when a substantive test is related to a sample of items, conclusions might be different than if the auditor had tested each item in the population. B) Nonsampling risk can arise because an auditor failed to recognize misstatements. C) Sampling risk is derived from the uncertainty in applying audit procedures to specific risks. D) Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective.
Answer: B Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Evaluate AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
16) Which of the following statements is true with regard to sampling? A) Sampling can only be used in situations in which the population is relatively homogenous in nature. B) Sampling is typically more efficient than examining the entire population. C) Sampling is typically more effective than examining the entire population. D) Sampling should be used when the need for more precise information is important.
Answer: B Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
48) Which of the following is not true with respect to the use of statistical and nonstatistical sampling? A) Statistical sampling allows the auditor to quantitatively measure the sufficiency of evidence gathered. B) Statistical sampling does not require auditors to utilize extensive judgment during the sampling process. C) Statistical sampling allows the auditor to make quantitative statements with respect to the results of the sampling procedures. D) Both statistical and nonstatistical sampling are permissible under generally accepted auditing standards.
Answer: B Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
12) Which of the following allow the auditor to limit the exposure to sampling risk? A) Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: Yes B) Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: No C) Determining an appropriate sample size: No; Performing an appropriate audit procedure: Yes D) Determining an appropriate sample size: No; Performing an appropriate audit procedure: No
Answer: B Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
46) Which of the following would be an example of an action that exposes an auditor to nonsampling risk? A) The audit team draws a sample of transactions from throughout the entire period under audit. B) The audit team uses an inappropriate type of audit procedure to evaluate sample evidence. C) The audit team uses professional judgment in evaluating sample results. D) The audit team limits the selection of sample items to larger dollar balances in an account.
Answer: B Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
42) Why does the risk of incorrect rejection result in an efficiency loss to the auditor? A) Additional time is necessary to propose adjustments to the client's account balances. B) The auditor typically expands the sample to examine additional components or transactions of the account balance. C) More detailed audit procedures are performed on sample items already examined by the auditor. D) The auditor typically extends the study of internal control to attempt to obtain a reduction in the level of risk of material misstatement.
Answer: B Difficulty: 3 Hard Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
44) Which of the following has a direct relationship with sample size in a variables sampling application? A) Tolerable misstatement: Yes; Expected error: Yes B) Tolerable misstatement: Yes; Expected error: No C) Tolerable misstatement: No; Expected error: Yes D) Tolerable misstatement: No; Expected error: No
Answer: C Difficulty: 1 Easy Topic: An Overview of Audit Sampling Learning Objective: E-04 Understand how the basic steps and procedures used in a sampling plan apply to an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
21) After the auditor has defined the population to be examined, the next step would be to: A) define the characteristic of interest. B) select the sample items. C) determine the sample size. D) measure the sample items.
Answer: C Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
25) The method of sample selection in which a random starting point is selected and a fixed number of items are bypassed prior to the next item being selected is referred to as: A) block selection. B) haphazard selection. C) systematic random selection. D) unrestricted random selection.
Answer: C Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
20) Which of the following steps in the sampling process is ordinarily performed last? A) Determine the objective of sampling. B) Measure sample items. C) Evaluate the sample results. D) Define the characteristic of interest.
Answer: C Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
39) Which of the following components of the audit risk model is most closely associated with variables sampling? A) Audit risk. B) Risk of material misstatement. C) Detection risk. D) Analytical procedures risk.
Answer: C Difficulty: 1 Easy Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
53) The maximum rate of deviation that may exist in the operation of a control policy or procedure before the auditors would reduce reliance on internal control is referred to as: A) acceptable rate of deviation. B) control risk. C) tolerable rate of deviation. D) upper limit rate of deviation.
Answer: C Difficulty: 1 Easy Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
37) Which of the following sampling risks is associated with the use of variables 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
Answer: C Difficulty: 1 Easy Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
41) When the auditor concludes that the account balance is not materially misstated when, in fact, it is materially misstated, the auditor has committed the: A) risk of underreliance. B) risk of overreliance. C) risk of incorrect acceptance. D) risk of incorrect rejection.
Answer: C Difficulty: 1 Easy Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
15) In sampling, an individual makes a statement about a ________ of interest by examining a ________ (or subset) of items. A) sample; population. B) sampling unit; population. C) population; sample. D) population; sampling unit.
Answer: C Difficulty: 1 Easy Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
38) Which of the following does not have a direct relationship with sample size? A) Expected population deviation rate. B) Population size. C) Risk of overreliance. D) All of these have a direct relationship with sample size.
Answer: C Difficulty: 2 Medium Topic: An Overview of Audit Sampling Learning Objective: E-04 Understand how the basic steps and procedures used in a sampling plan apply to an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
23) A disadvantage of using a systematic random selection procedure is that: A) this type of procedure does not permit the auditor to measure the exposure to sampling risk. B) this type of procedure does not make all items available for selection. C) this type of procedure requires that the population be arranged in a random order. D) this type of procedure provides the auditor with a higher level of exposure to nonsampling risk compared to other selection procedures.
Answer: C Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
24) Which of the following is not a criterion for using a selection method with statistical sampling? A) The method provides a reasonable likelihood of selecting a representative sample. B) The method allows the probability of selecting sample items to be determined. C) The method specifically identifies each item in the population with a number. D) The method allows the selection process to be replicated.
Answer: C Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
49) 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) Defining the characteristic of interest. C) Defining the population. D) Determining the sample size.
Answer: C Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
50) Why is appropriately defining the population so important in a sampling application? A) To permit the appropriate number of sample items to be selected. B) To ensure that the appropriate audit procedures can be applied to sample items. C) To enhance the likelihood of obtaining a representative sample and meet the objective of the sampling application. D) To reduce the likelihood of failing to identify material misstatements in an account balance or class of transactions.
Answer: C Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
66) Which of the following appropriately describes the effect of sample size on sampling risk? A) Selecting a smaller sample decreases sampling risk. B) Selecting a larger sample increases sampling risk. C) Selecting a smaller sample increases sampling risk. D) The size of a sample is unrelated to sampling risk.
Answer: C Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
30) If the upper limit rate of deviation exceeds the tolerable rate of deviation, the auditor would most likely: A) accept the account balance as fairly stated. B) reject the account balance as fairly stated. C) increase the planned effectiveness of substantive procedures. D) not increase the planned effectiveness of substantive procedures.
Answer: C Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation
73) When evaluating the effectiveness of a client's internal controls with a tolerable rate of deviation of 5 percent, the audit team determined the upper limit rate of deviation to be 4 percent. Based on this information, which of the following decisions would the audit team most likely make? A) Reduce the planned degree of reliance on internal controls. B) Increase the extent of further audit procedures. C) Rely on internal controls as planned. D) Expand the sample to examine additional applications of the control.
Answer: C Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation
31) In the study of internal control, the auditor uses sampling to compare the ________ to the ________. A) adjusted estimate of misstatement; overall materiality. B) sampling risk; precision. C) adjusted estimate of the deviation rate; tolerable rate of deviation. D) precision interval; upper limit on misstatement.
Answer: C Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
32) 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 failing to perform sufficient substantive procedures. D) The risk of overreliance cannot be measured by the auditor during the sampling process.
Answer: C Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
10) If a golf professional is interested in determining whether a golf ball can be hit over 300 yards, which of the following relationships between the adjusted sample estimate of distance and the actual distance would represent sampling risk? A) Adjusted estimate = 295 yards, Actual = 298 yards. B) Adjusted estimate = 305 yards, Actual = 301 yards. C) Adjusted estimate = 310 yards, Actual = 295 yards. D) All of these are examples of sampling risk.
Answer: C Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Apply AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
13) What is the primary drawback with respect to the use of sampling? A) Individuals may fail to obtain a true understanding of the question they are examining. B) The time spent in planning and selecting the sample may exceed the time savings from examining only a subset of the items. C) The conclusion reached by examining a sample of items may differ from the conclusion that would be reached if the entire population were examined. D) Sampling cannot be used to examine account balances that are material to the financial statements.
Answer: C Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
17) An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to: A) Eliminate nonsampling risk. B) reduce the level of audit risk and overall materiality to a relatively low level. C) measure the sufficiency of the evidence gathered. D) minimize the failure to detect misstatements and irregularities.
Answer: C Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
69) In a sampling application to determine the average age of employees in management positions, the sample estimate was 50 years, reliability was 80 percent, and precision was 10 years. Which of the following would most likely result from an increase in the desired level of reliability to 90 percent? A) The sample estimate would increase to 55 years. B) The precision interval would be 40 to 60 years. C) The precision interval would be 35 to 65 years. D) The precision interval would have a lower probability of including the true (unknown) population average.
Answer: C Difficulty: 3 Hard Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation
51) Which of the following sample selection techniques can be used with statistical sampling applications? Block selection Haphazard selection A. Yes No B. Yes Yes C. No Yes D. No No A) Option A B) Option B C) Option C D) Option D
Answer: D Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking
65) Documentation is required during which of the following stages of the sampling process? Measuring Sample Items Evaluating Sample Results A. Yes No B. No No C. No Yes D. Yes Yes A) Option A B) Option B C) Option C D) Option D
Answer: D Difficulty: 1 Easy Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Remember AACSB: Analytical Thinking
35) The type of sampling most frequently used by the auditors during their substantive procedures is referred to as: A) account balance sampling. B) attributes sampling. C) item sampling. D) variables sampling.
Answer: D Difficulty: 1 Easy Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
1) The set of items about which a conclusion is made in a sampling application is referred to as a(n) A) sampling unit. B) sample. C) population unit. D) population.
Answer: D Difficulty: 1 Easy Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
4) The probability that an auditor's conclusion based on a sample might be different from the conclusion based on the entire population identifies the concept of: A) confidence levels. B) nonsampling risk. C) nonstatistical sampling. D) sampling risk.
Answer: D Difficulty: 1 Easy Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Remember AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
76) While performing an audit of accounts payable, Clayton, CPA, is using variables sampling to determine the audited value of the account based on selected purchase orders. Which of the following options is most likely to reduce the necessary sample size? A) A decrease in the level of tolerable misstatement. B) An increase in the expected level of misstatement. C) An increase in the variability of the size of accounts payable transactions. D) An increase in the necessary risk of incorrect acceptance.
Answer: D Difficulty: 2 Medium Topic: An Overview of Audit Sampling Learning Objective: E-04 Understand how the basic steps and procedures used in a sampling plan apply to an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
80) An auditor is determining the appropriate sample size for a variables sampling application. Compared to prior engagements, the auditor concludes that the population variability has increased. In addition, the partner on the engagement is requiring lower levels of the risk of incorrect acceptance than those used in previous audits. What effect will these changes have on the auditor's determination of sample size? A) Both of these changes will decrease sample size. B) The increase in population variability will increase sample size; reducing sampling risk will have no effect on sample size. C) The increase in population variability will increase sample size; reducing sampling risk will decrease sample size. D) Both of these changes will increase sample size.
Answer: D Difficulty: 2 Medium Topic: An Overview of Audit Sampling Learning Objective: E-04 Understand how the basic steps and procedures used in a sampling plan apply to an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
67) Selecting the first five sales orders processed each month for examination is an example of which of the following types of selection method? A) Unrestricted random selection B) Systematic random selection C) Haphazard selection D) Block selection
Answer: D Difficulty: 2 Medium Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation
60) When considering the results of an attributes sampling application, the auditor compares which of the following two measures? A) Upper limit rate of deviation; sample rate of deviation. B) Tolerable rate of deviation; sample rate of deviation. C) Expected rate of deviation; upper limit rate of deviation. D) Upper limit rate of deviation; tolerable rate of deviation.
Answer: D Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
34) Which of the following risks expose the auditor to effectiveness losses? A) Risk of underreliance, risk of incorrect acceptance. B) Risk of overreliance, risk of incorrect rejection. C) Risk of underreliance, risk of incorrect rejection. D) Risk of overreliance, risk of incorrect acceptance.
Answer: D Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Remember AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
55) In which of the following circumstances would the auditor most likely use variables sampling? A) Identifying the susceptibility of the account balance to misstatement. B) Evaluating the operating effectiveness of specific control procedures. C) Evaluating the operating design of specific control procedures. D) Determining whether the client's accounts receivable balance is correctly recorded.
Answer: D Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
78) An auditor using variables sampling to perform substantive procedures concludes that the account balance is misstated. This conclusion is the result of which of the following? A) The actual rate of deviation is greater than the tolerable rate of deviation. B) The upper limit on misstatement is less than the tolerable misstatement. C) The upper limit rate of deviation is less than the tolerable rate of deviation. D) The upper limit on misstatement is greater than the tolerable misstatement.
Answer: D Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
74) The audit team decided to reduce planned reliance on internal controls based on the results of attributes sampling. However, the actual rate of deviation in the population is lower than the tolerable rate of deviation. Which type of risk and loss is the audit team exposed to? A) Risk of overreliance; efficiency loss. B) Risk of underreliance; effectiveness loss. C) Risk of overreliance; effectiveness loss. D) Risk of underreliance; efficiency loss.
Answer: D Difficulty: 2 Medium Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Understand AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
5) Select the description that best illustrates sampling risk. A) Applying audit procedures, which are inappropriate for the audit objectives. B) Failing to recognize misstatements or deviations in the documents examined. C) Arriving at incorrect statistical conclusions due to computational errors. D) Choosing a sample which has proportionately more errors than the population.
Answer: D Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Apply AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
2) Which of the following is not an advantage of statistical sampling? A) Statistical sampling provides auditors with a sufficient sample size that controls exposure to sampling risk. B) Statistical sampling uses selection methods that expose all items in the population to selection. C) Statistical sampling evaluates the sample evidence in such a manner that controls exposure to sampling risk. D) Statistical sampling deploys audit procedures that allow auditors to more effectively evaluate evidence.
Answer: D Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
28) The precision interval has a ________ percent probability of including the ________. A) sampling risk; adjusted sample estimate. B) sampling risk; true population value. C) 1 minus sampling risk; adjusted sample estimate. D) 1 minus sampling risk; true population value.
Answer: D Difficulty: 3 Hard Topic: The Basic Steps Involved with Sampling Learning Objective: E-02 Understand the basic steps and procedures used in implementing a sampling plan. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
56) Which of the following is the least likely outcome when the upper limit on misstatement exceeds the tolerable misstatement? A) The auditor would be exposed to the risk of incorrect rejection. B) The auditor would be exposed to an efficiency loss. C) The auditor would consider expanding the sample to evaluate additional transactions or components of the account balance. D) The auditor would conclude that the account balance is fairly stated.
Answer: D Difficulty: 3 Hard Topic: Use of Sampling in the Audit Learning Objective: E-03 Identify the two situations in which sampling is used in an audit. Blooms: Apply AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
52) Which of the following activities is least likely to result in the audit team's exposure to sampling risk? A) Identifying all components of a client's accounts receivable balance. B) Determining the appropriate number of components of a client's accounts receivable balance for confirmation. C) Selecting components of a client's accounts receivable balance for confirmation. D) Evaluating confirmations returned from the client's customers and following up on any discrepancies noted by the customers.
Answer: D Difficulty: 3 Hard Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Apply AACSB: Analytical Thinking; Reflective Thinking Accessibility: Keyboard Navigation
45) Which of the following situations is true with respect to sampling? A) Sampling results in a tradeoff of efficiency for greater effectiveness. B) Sampling is most useful when the need for exact information is very important. C) A well
designed sample can appropriately limit the exposure to nonsampling risk. D) Sampling is more appropriate when the number of items comprising the population is relatively large. -Answer: D Difficulty: 2 Medium Topic: What is Sampling? Learning Objective: E-01 Understand the basic principles of sampling, including the differences between statistical and nonstatistical sampling and sampling and nonsampling risk. Blooms: Understand AACSB: Analytical Thinking Accessibility: Keyboard Navigation
79) Tests performed by auditors that examine evidence for both control attributes and monetary misstatements are known as: A) standard
purpose tests. B) multi-function tests. C) dual-purpose tests. D) substantive tests. -Answer: C Difficulty: 1 Easy Topic: An Overview of Audit Sampling Learning Objective: E-04 Understand how the basic steps and procedures used in a sampling plan apply to an audit. Blooms: Remember AACSB: Analytical Thinking Accessibility: Keyboard Navigation
