becker prob set 4

Which of the following statements about audit sampling risks is correct for a nonissuer?

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

An auditor randomly samples 50 out of 1,000 items and discovers an overstatement of $3,000. What is the projected misstatement for the entire population?

$60,000

In a probability-proportional-to-size sample with a sampling interval of $10,000, an auditor discoveredthat a selected account receivable with a recorded amount of $5000 had an audited amount of $4,000.If this were the only misstatement discovered by the auditor, the projected misstatement of this samplewould be:

$2000

In a probability-proportional-to-size sample with a sampling interval of $5,000, an auditor discovered that a selected account receivable with a recorded amount of $10,000 had an audit amount of $8,000. If this were the only error discovered by the auditor, the projected error of this sample would be

$2000

Henderson will use the following PPS sample table: What sample size should henderson use?

35

An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing CR too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the achieved upper precision limit to be 8%.

4.5%

When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should

Be related to preliminary judgments about materiality levels.

Which of the following statements is correct concerning statistical sampling in tests of controls?

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

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

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

An auditor examining inventory most likely would use variables sampling rather than attributes sampling to

Estimate whether the dollar amount of inventory is reasonable.

which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?

Expected Misstatement: Yes Tolerable Misstatement: Yes

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

Has been properly voided in the normal course of business.

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 only

The diagram below depicts the auditor's estimated maximum deviation rate compared with the tolerable rate and also depicts the true population deviation rate compared with the tolerable rate. As a result of testing controls, the auditor assess control risk higher than necessary and thereby increases substantive testing. this is illustrated by situation

II

As a result of tests of controls, the auditor assesses control risk too low and thereby decreases substantive testing. This is illustrated by situation:

III

The diagram below depicts the auditor's estimated maximum deviation rate compared with the tolerable rate and also depicts the true population deviation rate compared with the tolerable rate. As a result of testing controls, the auditor underrelies on the controls and increases substantive testing. This is illustrated by situation

III

For which of the following audit tests would a CPA most likely use attribute sampling?

Identifying entries posted to incorrect accounts

An audit partner is developing an office training program to familiarize his professional staff with statistical decision models applicable to the audit of dollar value balances. He wishes to demonstrate the relationship of sample sizes to population size and variability and the auditor's specifications as to tolerable misstatement and risk of incorrect acceptance. The partner prepared the following table to show comparative population characteristics and audit specifications of two populations.

Larger than the required sample size from population 2.

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

Increase in Tolerable Misstatement = Decrease sample size.Increase in Assessed Level of Control Risk = Increase sample size

If an auditor of a non-issuer discovers unexpectedly high number of deviations during procedures performed on a sample to test management's review and approval of time sheets, then the auditor would most appropriately

Increase the assessed risks of material misstatement

You are to indicate for the specified case from the above table the required sample size to be selected from population 1 relative to the sample from population 2. In case 3 the required sample size from population 1 is:

Indeterminate relative to the required sample size from population 2.

For which of the following audit tests would an auditor most likely use attribute sampling?

Inspecting employee time cards for proper approval by supervisors.

For which of the following audit tests would an auditor most likely use attributes sampling?

Inspecting purchase orders for proper approval by supervisors

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to

Measure the sufficiency of the evidential matter obtained

Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts?

Preliminary judgments about materiality levels.

Stratified mean per unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually:

Produces an estimate having a desired level of precision with a smaller sample size

Which of the following is a sampling risk that is associated with the efficiency of an audit?

Risk of assessing control risk too high.

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?

Stratify the cash disbursements population so that the unusually large disbursements are selected.

Which of the following audit procedures most likely will involve sampling?

Testing of process for approval of credit to customers for sales on account

Which of the following statements is correct concerning probability-proportional-to-size (PPS) sampling, also known as dollar unit sampling?

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

The degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. Which of the following is an example of nonsampling risk?

The auditor selecting inappropriate auditing procedures.

Which of the following statements is correct about the sample size in statistical sampling when testing internal controls?

The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size.

The use of ratio estimation sampling technique is most effective when

The calculated audit amounts are approximately proportional to the client's book amounts.

Samples to test internal controls are intended to provide a basis for a auditor to conclude whether

The controls are operating efficiently

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

The deviation rate in the auditors 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

The population has highly variable recorded amounts.

Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls?

The population size has little or no effect on the sample size.

An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that

There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.

Auditor is willing to accept a 2% risk of assessing control risk..... One invoice is selected by the auditor cannot be located. Which statement is true?

There is not enough information given to determine whether the auditor should rely on this control

Which of the following objectives is achieved when an auditor decides to employ classical variable sampling?

To determine the inventory quantities on hand.

Which of the following is the primary objective of probability proportional to sample size?

To identify overstatement errors.

Which of the following types of sampling allows an auditor to quantify sampling risk?

attribute

In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate?

attributes

in selecting an appropriate sample for a substantive test, the auditor most likely would stratify the population if the:

auditor plans to give greater representation to large recorded amounts

As a result of tests of controls, an auditor assesses control risk too high. This incorrect assessment most likely occurred because:

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

while performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. The situation illustrates the risk of

incorrect rejection

In assessing the tolerable rate of deviations of a test of controls that was performed using statistical sampling, an auditor should consider that:

deviations from pertinent controls at a given rate ordinarily result in misstatements at a lower rate

The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the:

effectiveness of the audit

The risk of incorrect rejection and assessing control risk too high relate to the

efficiency of the audit

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:

expected deviation rate

Which of the following factors is (are) considered in determining the sample size for a test of controls?

expected deviation rate and tolerable deviation rate

An auditor is selecting vouchers for testing an entity's internal controls related to the proper approval of vouchers before checks are prepared. The auditor is matching random numbers with voucher numbers to determine which vouchers to inspect. If a random number matches a voided voucher, that voucher ordinarily is replaced by another voucher in the random sample if the voided voucher

has been properly voided

An auditor discovers that an account balance believed to be materially misstated based on an audit sample was not materially misstated based on the total population of the account balance. This is an example of which of the following sampling types of risks?

incorrect acceptance

An audit partner is developing an office training program to familiarize his professional staff with statistical decision models applicable to the audit of dollar value balances. He wishes todemonstrate the relationship of sample sizes to population size and variability and the auditor's specifications as to tolerable misstatement and risk of incorrect acceptance. The partner prepared the following table to show comparative population characteristics and audit specifications of two populations.Characteristics of Population 1 Relative to Population 2Audit Specifications as to a Sample from Population 1 Relative to aSample from Population 2SizeVariabilitySpecified Tolerable MisstatementSpecified Risk of Incorrect AcceptanceCase 1 Equal Equal Equal LowerCase 2 Equal Larger Larger EqualCase 3 Larger Equal Smaller HigherCase 4 Smaller Smaller Equal HigherCase 5 Larger Equal Equal LowerYou are to indicate for the specified case from the above table the required sample size to be selected from population 1 relative to the sample from population 2. In case 5 the required sample size from population 1 is:

indeterminate relative to the required sample size from population 2

In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was

initially concealed by a forged document.

Which of the following is a characteristic of nonstatisitical sampling?

it requires judgment to select a sample

An auditor uses variable sampling techniques to project the inventory balance each year for comparison with the client's assertion regarding the inventory balance in the financial statements. In 2017 the auditor sample size was 112 inventory inventory items. In 2018 the number of units in inventory, the tolerable misstatement, and required confidence were the same as in 2017; however, the population variability increased due to the introduction of a new product line. The 2018 required sample size would, therefore, be:

larger than the 2017 required sample size

Based on the information presented above, you are to indicate for the specified case from the table the required sample size to be selected from population 1 relative to the sample from population 2. In case 1, the required sample from population 1 is:

larger than the required sample size from population 2.B) equal to the required sample size from population 2.

What is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in 3 deviations if the tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling risk is 2%?

modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate

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:

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

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:

no, yes

The sample size of a test of controls varies inversely with (expected population exception rate, TER)

no, yes

In attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the sample?

number of items in the population

An auditor is using statistical sampling in testing whether cash disbursements were properly authorized....Under these circumstances, the auditor most likely would reduce the:

planned reliance on the prescribed control

When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible error in either direction. This statistical concept is known as:

precision

In a test of purchase orders, the auditor selected a random sample of 60 items out of a population of 1,200 purchase orders. The auditor discovered $4,000 in overstatement in the sample. The company's materiality is $65,000. The tolerable misstatement for purchases is $50,000. What should the auditor do next?

project the detected error to the entire population

An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

provide an objective basis for quantitatively evaluating sample risk

An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the

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

a principle advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the

sample size

Josh, a CPA.... He would also like to reduce the risk of incorrect acceptance, which was 5% in the previous year, to 3% in the current year. How will these changes affect sample size?

sample size will increase

Which of the following methods would not be used by an auditor to limit sampling risk?

select a nonrepresentative sample from the population

When planning which items to test during an audit to obtain sufficient audit evidence, the auditor may use all of the following methods except

selecting client recommended items

The following rates have been determined: table Which of the following is true?

since the tolerable deviation rate less the allowance for sampling risk is less than the sample deviation rate, the auditor may not reply on the control.

Based on the information presented above, you are to indicate for the specified case from the table the required sample size to be selected from population 1 relative to the sample from population 2. In case 4, the required sample from population 1 is:

smaller than the required sample size from population 2.

while testing a sample of an audit clients bank reconciliations during the year under audit an auditor notices that several immaterial deposits in transit did not clear the bank in a timely manner the auditor suspects there may be fraud of the following audit responses is most appropriate in this situation

the auditor should consider the implication for the integrity of management or employees and the possible effect on other aspects of the audit

Which of the following would be a consideration in planning an auditor's sample for a test of controls?

the auditor's allowable risk of assessing control risk too low.

The auditor may decide to decrease the acceptable level of risk when:

the cost and effort of selecting additional sample items is low

What is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results results in three deviations if the tolerable deviation rate is 7%, the expected population rate is 5%, and the allowance for sampling risk is 2%?

the planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls?

the population size has little effect on the sample size

which risk, when assessed at a high level, is most likely to result in an inappropriate opinion on financial statements which are not fairly stated?

the risk of incorrect acceptance

Which of the following characteristics most likely would be an advantage of using classical variables sampling rather than probability-proportional-to-size (PPS) sampling?

the selection of negative balances requires no special design considerations.

which of the following factors would the auditor not explicitly consider when determining sample size in an attribute sample for a test of controls?

the tolerable misstatment

Stratified sampling would best be used in a situation where

there is a lot of variation among items in the population

Which of the following statements is correct concerning statistical sampling in tests of controls?

there is an inverse relationship between the sample size and the tolerable rate

In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of assessing control risk too low, and the:

tolerable deviation rate

An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent.In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the?

tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent).

Which of the following sampling methods would be used to estimate a numeric measurement of a population as a dollar value?

variable sampling

Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a dollar value?

variables sampling

To calculate the required sample size, the auditor usually determined the:

yes, yes