ch 9 practice questions

2) If all other factors specified in an attributes sampling plan remain constant, decreasing the tolerable rate and decreasing the risk of assessing control risk too low would have what effect on sample size? A) Increase. B) Remain the same. C) Decrease. D) Indeterminate, depends upon exact change being made.

A) Increase

3) If all other factors specified in an attributes sampling plan remain constant, decreasing the tolerable rate and increasing the estimated population deviation rate would have what effect on sample size? A) Increase. B) Remain the same. C) Decrease. D) Indeterminate, depends upon exact change being made.

A) Increase

47) 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 deviations 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.

When performing tests of controls over authorization of cash receipts, which of the following sampling methods would be most appropriate? A) Attributes. B) Ratio. C) Stratified. D) Variables

A) Attributes

17) The auditors expect a population deviation rate of billing errors of two percent, and have established a tolerable rate of five percent. The sampling approach most likely to be used is: A) Attributes sampling. B) Stratified sequential sampling. C) Discovery sampling. D) None, as sampling does not seem appropriate in this situation.

A) Attributes sampling

42) In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the: A) Efficiency of the audit. B) Effectiveness of the audit. C) Selection of the sample. D) Audit quality controls.

A) Efficiency of the audit.

14) When the auditors have chosen to test a control, what relationship will the tolerable rate normally have when compared to the expected rate of deviations in the sample? A) Exceed. B) Equal. C) Be less than. D) Indefinite.

A) Exceed

16) When using sampling for tests of controls, which of the following audit consequences may follow? A) If sample results indicate that the control is operating effectively, but in fact it is not, control risk will be assessed too low. B) If sample results indicate that the control is operating effectively, but in fact it is not, control risk will be assessed too high. C) If sample results indicate that the control is not operating effectively, but in fact it is operating effectively, the audit is likely to be faulty because of reduced substantive tests. D) If sample results indicate that the control is not operating effectively, but in fact it is operating effectively, control risk will be assessed too low

A) If sample results indicate that the control is operating effectively, but in fact it is not, control risk will be assessed too low.

37) If all other factors specified in an attributes sampling plan remain constant, changing the specified tolerable rate from 8% to 6%, and changing the specified risk of assessing control risk too low from 7% to 3% would cause the required sample size to: A) Increase. B) Remain the same. C) Decrease. D) Change by 4%.

A) Increase.

4) A decrease in the tolerable misstatement has what effect on the required sample size? A) Increases. B) Decreases. C) No effect. D) Indeterminate

A) Increases

10) Which of the following is generally not true about statistical sampling as compared to nonstatistical sampling? A) Statistical samples are more representative of the population. B) Statistical sample plans involve additional costs of evaluation. C) Statistical sampling allows a more objective evaluation of sample results. D) Statistical sampling may assist the auditors in designing more efficient samples

A) Statistical samples are more representative of the population

32) Which of the following statements is correct about the sample size in statistical sampling when testing internal controls? A) The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size. B) As the likely rate of deviation decreases, the auditor should increase the planned sample size. C) The allowable risk of assessing control risk too low has no effect on the planned sample size. D) Of all the factors to be considered, the population size has the greatest effect on the sample size.

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

40) Which of the following statements is correct concerning statistical sampling in tests of controls? A) The population size has little effect on determining sample size except for very small populations. B) The expected population deviation rate has little or no effect on determining sample size except for very small populations. C) As the population size doubles, the sample size also should double. D) For a given tolerable rate, a larger sample size should be selected as the expected population deviation rate decreases.

A) The population size has little effect on determining sample size except for very small populations.

28) Which of the following situations will result in the auditors concluding that the risk of material misstatement is too high when using nonstatistical sampling for substantive tests? A) The projected misstatement exceeds the tolerable misstatement. B) The allowance for sampling risk exceeds the projected misstatement. C) The risk of incorrect acceptance exceeds the risk of incorrect rejection. D) The tolerable misstatement exceeds the sample net misstatement.

A) The projected misstatement exceeds the tolerable misstatement.

20) Which of the following types of risk is of critical importance to auditors in performing tests of controls? A) The risk of assessing control risk too low. B) The risk of assessing control risk too high. C) The risk of incorrect acceptance. D) The risk of incorrect rejection.

A) The risk of assessing control risk too low.

6) In performing a test of a control last year the auditors specified a tolerable deviation rate of X percent. This year the auditors have specified a tolerable rate of less than X percent. Assuming that all other factors remain the same, which of the following is true regarding the relationship between this year's sample size compared to last year's sample size? A) This year's sample is larger than last year's sample. B) This year's sample is smaller than last year's sample. C) This year's sample is equal to last year's sample. D) This year's sample is indeterminate in relation to last year's sample.

A) This year's sample is larger than last year's sample

51) Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate when: A) The total book value is known and corresponds to the sum of all the individual book values. B) A book value for each sample item is unknown. C) There are some observed differences between audited values and book values. D) The audited values are nearly proportional to the book value.

B) A book value for each sample item is unknown.

13) Changing from a sampling plan using random selection without replacement to random selection with replacement has what effect on the required sample size? A) Increases. B) Decreases. C) No effect. D) An indeterminate effect.

B) Decreases

15) Decreases in the estimated standard deviation have what effect on required sample size? A) Increases. B) Decreases. C) No effect. D) Indeterminate.

B) Decreases

22) What effect does increasing the risk of incorrect acceptance have on sample size? A) Increases. B) Decreases. C) No effect. D) Indeterminate.

B) Decreases.

A dual purpose test simultaneously: A) Addresses two different accounts B) Functions as a substantive test and as a test of controls C) Functions as an analytical procedure and a substantive test D) Substantiates an ending balance and the transactions making up the balance

B) Functions as a substantive test and as a test of controls

44) 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. This situation illustrates the risk of: A) Incorrect acceptance. B) Incorrect rejection. C) Assessing control risk too high. D) Assessing control risk too low.

B) Incorrect rejection.

43) When performing a test of a control over cash disbursements, a CPA may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population: A) Must be recorded in a systematic pattern before the sample can be drawn. B) May occur in a systematic pattern and destroy the sample randomness. C) May systematically occur more than once in the sample. D) Must be systematically replaced in the population after sampling.

B) May occur in a systematic pattern and destroy the sample randomness.

26) In the past, the auditors have found that the book value of a receivable account has been related to the amount the account is misstated (i.e., large accounts have large misstatements and small accounts have small misstatements). Which of the following techniques is most likely to be efficient? A) Mean-per-unit estimation. B) Ratio estimation. C) Difference estimation. D) Sequential sampling estimation.

B) Ratio estimation.

Which of the following statistical sampling techniques involves taking samples in a series of stages? A) Systematic sampling. B) Sequential sampling. C) Continuous sampling. D) Multiple location sampling

B) Sequential sampling

25) An important statistic to consider when using a statistical sampling audit plan is the population variability. The population variability is measured by the A) Sample mean. B) Standard deviation. C) Median. D) Estimated population total minus the actual population total.

B) Standard deviation.

24) Which of the following is a correct statement with respect to evaluating results when using nonstatistical sampling for substantive tests? A) When the projected misstatement exceeds the tolerable misstatement, the auditor should conclude that the population is not misstated. B) The closer the projected misstatement is to the tolerable misstatement, the higher the risk of material misstatement. C) When the projected misstatement is equal to zero, the auditors may conclude with certainty that no misstatements exist in the account. D) When the projected misstatement percentage exceeds the risk of incorrect acceptance the auditors will generally conclude that the population is materially misstated.

B) The closer the projected misstatement is to the tolerable misstatement, the higher the risk of material misstatement.

12) When the auditors have decided to use statistical rather than nonstatistical sampling, a disadvantage is that: A) Designing efficient samples is more difficult. B) The costs of training staff may be higher. C) Sampling without replacement must be used. D) Objectively evaluating results is impossible

B) The costs of training staff may be higher

45) An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by the client's control procedures. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the reasons for this limitation and: A) Evaluate the results as if the sample size had been 19. B) Treat the missing check as a deviation for the purpose of evaluating the sample. C) Treat the missing check in the same manner as the majority of the other 19 checks, i.e., countersigned or not. D) Choose another check to replace the missing check in the sample.

B) Treat the missing check as a deviation for the purpose of evaluating the sample.

46) There are many kinds of statistical estimates that an auditor may find useful, but basically every statistical estimate in auditing is of either a quantity or of an error rate. The statistical terms that roughly correspond to "quantities" and "occurrence rate," respectively, are: A) Attributes and variable. B) Variables and attributes. C) Constants and attributes. D) Constants and variables.

B) Variables and attributes.

38) Which of the following factors does an auditor need to consider in planning a particular audit sample for a test of control? A) Estimated standard deviation. B) Total dollar amount of the items to be sampled. C) Acceptable level of risk of assessing control risk too low. D) Tolerable misstatement.

C) Acceptable level of risk of assessing control risk too low.

19) Which of the following may be used to reduce the risk of nonsampling errors? A) Increasing the size of audit samples. B) Stratifying audit samples. C) Adequately planning audit samples. D) Using statistical sampling techniques.

C) Adequately planning audit samples.

23) The 3,000 accounts receivable of DEF Company have a total book value of $60,000. Bob Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of $2,100. Using the difference estimation technique, Smith has properly estimated a projected misstatement of an overstatement of $6,000 for the entire population. The audited value of Smith's sample is: A) $1,700 B) $1,800 C) $1,900 D) $2,300

C) $1,900

33) To determine sample size in an attribute sampling application, what must be specified? A) Population mean, expected error rate, allowance for sampling risk. B) Allowance for sampling risk, risk of assessing control risk too low, standard deviation. C) Allowance for sampling risk, risk of assessing control risk too low, expected deviation rate. D) Population mean, standard deviation, allowance for sampling risk.

C) Allowance for sampling risk, risk of assessing control risk too low, expected deviation rate.

48) Which of the following statistical selection techniques is least desirable for use by an auditor? A) Systematic selection. B) Stratified selection. C) Block selection. D) Sequential selection.

C) Block selection.

41) An advantage of using statistical sampling techniques is that such techniques: A) Mathematically measure risk. B) Eliminate the need for judgmental decisions. C) Define the values of the allowance for sampling risk and tolerable misstatement required to provide audit satisfaction. D) Have been established in the courts to be superior to judgmental sampling.

C) Define the values of the allowance for sampling risk and tolerable misstatement required to provide audit satisfaction.

39) When using a statistical sampling plan, the auditors would probably require a smaller sample if the: A) Population increases. B) Tolerable misstatement decreases. C) Desired risk of incorrect acceptance increases. D) Expected deviation rate increases.

C) Desired risk of incorrect acceptance increases.

31) Statistical sampling generally may be applied to test internal control when the client's internal control procedures: A) Depend primarily on appropriate segregation of duties. B) Are carefully reduced to writing and are included in client accounting manuals. C) Leave an audit trail in the form of evidence of compliance. D) Enable the detection of material fraud in the accounting records

C) Leave an audit trail in the form of evidence of compliance.

11) When using statistical sampling, which of the following need not be known to evaluate the results of an attributes sample? A) Sample size. B) Risk of assessing control risk too low. C) Number of deviations in the population. D) Number of deviations found in the sample.

C) Number of deviations in the population

5) Which of the following is not generally used for selecting samples? A) Random number tables. B) Random number generators. C) Physical representation numbers. D) Systematic selection.

C) Physical representation numbers

36) An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items. From experience, the auditor knows that a few specific items are subject to unusually large amounts of shrinkage. In using statistical sampling, the auditor's best course of action is to: A) Eliminate any of the items known to be subject to unusually large amounts of shrinkage. B) Increase the sample size to lessen the effect of the items subject to unusually large amounts of shrinkage. C) Stratify the inventory population so that items subject to unusually large amounts of shrinkage are reviewed separately. D) Continue to draw new samples until a sample is drawn which includes none of the items known to be subject to large amounts of shrinkage.

C) Stratify the inventory population so that items subject to unusually large amounts of shrinkage are reviewed separately.

35) In testing accounts receivable, an auditor sends out positive confirmation requests to 100 randomly selected customers. A customer returns the confirmation indicating that the balance is correct when, in fact, the balance is overstated. This is an example of: A) Projected misstatement. B) Sampling error. C) Standard error. D) Nonsampling error.

D) Nonsampling error.

29) During the final planning of the accounts receivable plan a CPA specified a tolerable misstatement of $30,000, instead of the $20,000 contained in the preliminary audit plan. What would be the impact of this change? A) A decrease in population standard deviation. B) An increase in sample standard deviation. C) An increase in required sample size. D) A decrease in the required sample size.

D) A decrease in the required sample size.

50) In variables estimation sampling, the sample standard deviation is used to calculate the: A) Point estimate of central tendency. B) Tainting of the sample interval. C) Risk of incorrect acceptance. D) Allowance for sampling risk.

D) Allowance for sampling risk.

30) Which of the following is an advantage of systematic selection over random number selection? A) It provides a stronger basis for statistical conclusions. B) It enables the auditor to use the more efficient "sampling with replacement" tables. C) There may be correlation between the location of items in the population, the feature of sampling interest, and the sampling interval. D) It does not require establishment of correspondence between random numbers and items in the population.

D) It does not require establishment of correspondence between random numbers and items in the population.

18) The auditors expect a population deviation rate of billing errors of eight percent, and have established a tolerable rate of five percent. The sampling approach most likely to be used is: A) Attributes sampling. B) Stratified random sampling. C) Variables sampling. D) None, as sampling does not seem appropriate in this situation

D) None, as sampling does not seem appropriate in this situation

21) The auditors' failure to recognize a misstatement in an amount or a deviation in an internal control data processing procedure is described as a: A) Statistical error. B) Sampling misstatement. C) Standard error of the mean. D) Nonsampling error.

D) Nonsampling error.

27) Which of the following statements is correct concerning the use of nonstatistical sampling for substantive tests? A) Its use is generally acceptable only for populations with an immaterial book value. B) It requires the use of structured sample size selection techniques to be acceptable. C) It may be especially useful in circumstances in which the combination of inherent and control risk is at the maximum level. D) Results will be projected to the population.

D) Results will be projected to the population

7) The auditor using nonstatistical attributes sampling, but who nevertheless has chosen the sample in conformity with random selection procedures: A) Need not consider the risk of assessing control risk too low. B) Has committed a nonsampling error. C) Will have to use discovery sampling techniques to evaluate the results. D) Should compare the deviation rate of the sample to the tolerable rate.

D) Should compare the deviation rate of the sample to the tolerable rate

49) Various factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? A) Lower assessment of control risk. B) Greater reliance on analytical procedures. C) Smaller expected frequency of misstatements. D) Smaller measure of tolerable misstatement.

D) Smaller measure of tolerable misstatement.

34) The tolerable deviation rate in sampling for tests of controls is: A) Used to determine the probability of the auditor's conclusion based upon reliance factors. B) The probability that the financial statements are not materially in error. C) A measure of the reliability of substantive tests. D) The rate the auditor will tolerate without modifying the planned assessment of control risk

D) The rate the auditor will tolerate without modifying the planned assessment of control risk