External Auditing Quiz 7
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? A. Incorrect rejection B. Incorrect acceptance C. Assessing control risk too low D. Assessing control risk too high
A.
In a probability-proportional-to-size (PPS) sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $12,000 had an audited amount of $11,000. If this were the only misstatement discovered by the auditor, the projected misstatement of this sample would be A. $1,000 B. $833 C. $960 D. $10,000
A. Under PPS sampling, an interval is determined by dividing the total value of the population by the sample size. When an item is selected from an interval that has a value lower than the interval amount, any error is measured as a percentage of the item's value and that percentage is applied to the interval, resulting in a larger error measurement. When the item has a value that is equal to or greater than the interval amount, any error identified is assumed to be the projected misstatement without adjustment. With an interval of $10,000 and a sample item with a greater recorded amount of $12,000, a $1,000 error would be considered the projected misstatement.
An auditor performs attribute sampling to test for proper cancellation of payment vouchers. In a sample population of 100, two vouchers are missing the proper cancellation, while one simply cannot be located. The error rate of the sample is A. 3% B. 2% C. Cannot be determined without knowing standard deviation D. 4%
A. When performing an attribute sample, it is considered a deviation when the client cannot provide a document that the auditor wishes to examine. As a result, there are 3 errors in a population or 100 indicating a 3% error rate.
Which of the following characteristics most likely would be an advantage of using probability-proportional-to-size (PPS) sampling rather than classical variables sampling? A. The selection of negative balances requires no special design considerations. B. The sampling process can begin before the complete population is available. C. It is particularly effective for detecting understatements. D. The sample size can generally be lower even if many errors are expected.
B.
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 $3,000 had an audit amount of $2,700. If this were the only error discovered by the auditor, the projected error of this sample would be A. $2,300 B. $500 C. $300 D. $800
B. With an audited amount of $2,700 compared to a recorded amount of $3,000, the auditor has detected a $300 error, representing 10% of the recorded amount. Since an interval is $5,000, the projected error would be 10% of $5,000 or $500.
For which of the following audit tests would an auditor most likely use variables sampling? A. Inspecting purchase orders for proper approval by supervisors. B. Confirming proof of cancellation for a sample of payment vouchers with cash disbursements C. Determining that all payables are recorded at year end D. Confirming that monthly reconciliations of key balance sheet accounts were conducted.
C.
When evaluating results of testing a sample using attribute sampling, the auditor considers the sample's final error rate to be equal to A. Errors in the sample / total elements in the sample. B. (Errors in the sample + missing elements in the sample) / total elements in the sample. C. (Errors in the sample + missing elements in the sample) / total elements in the sample + allowance for sampling risk D.((Errors in the sample + missing elements in the sample) / total elements in the sample + allowance for sampling risk) x proportion of sample to population
C.
What is an auditor's evaluation of a statistical sample for attributes when a test of 150 documents results in 8 deviations if tolerable rate is 6%, the expected population deviation rate is 4%, and the allowance for sampling risk is 1%? A. Modify the planned assessed level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate. B. Accept the sample results as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate. C. Accept the sample results as support for the planned assessed level of control risk because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate. D. Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
D.
Which of the following statements are ordinarily correct about the sample size in statistical sampling when testing controls? I. There is an inverse relationship between the amount of tolerable deviation rate and sample size. II. There is a direct relationship between the expected deviation rate and the sample size. III. There is an inverse relationship between the amount of acceptable risk of assessing the deviation rate too low and sample size. A. II and III only B. II only C. I and III only D. I, II, and III
D.
