Final Exam- Audit

Which of the following types of sampling allows an auditor to quantify sampling risk? A. Stratified nonstatistical. B. Haphazard. C. Attribute. D. Block.

Attribute.

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

Attributes.

In which of the following situations is attribute sampling likely to be used? A. Determining the estimated number of occurrences of improperly authorized cash disbursements. B. Making selections from a cash disbursements journal to test liabilities for understatement. C. Examining invoices and canceled checks in support of recorded operating expenses. D. Inquiring of the client the number of occurrences of fraud during the year.

Determining the estimated number of occurrences of improperly authorized cash disbursements.

Which of the following statements is true concerning statistical sampling in tests of controls? A. As the population size increases, the sample size should increase proportionately. B. Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements. C. There is an inverse relationship between the expected population deviation rate and the sample size. D. In determining the tolerable deviation rate, an auditor considers detection risk and the sample size.

Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements.

To quantify the risk that sample evidence leads to erroneous conclusions about the sampled population, A. Each item in the sampled population must have an equal chance of being selected. B. Each item in the sample population must have a chance of being selected that is proportional to its carrying amount. C. Each item in the sampled population must have an equal or known probability of being selected. D. The precise number of items in the population must be known

Each item in the sampled population must have an equal or known probability of being selected.

The risk of incorrect acceptance and the risk of overreliance relate to the A. Effectiveness of the audit. B. Efficiency of the audit. C. Preliminary estimates of materiality levels. D. Tolerable misstatement.

Effectiveness of the audit.

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 A. Indicates a deviation from the prescribed activity. B. Cannot be located in the voucher file. C. Has been properly voided. D. Represents a dollar amount that is material.

Has been properly voided.

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

II.

For which of the following audit tests is an auditor most likely to use attribute sampling? A. Estimating the amount in an expense account. B. Identifying entries posted to incorrect accounts. C. Evaluating the reasonableness of depreciation expense. D. Selecting receivables for confirmation of account balances.

Identifying entries posted to incorrect accounts.

An auditor suspects that the invoices from a small number of vendors contain serious misstatements and therefore limits the sample to those vendors only. A major disadvantage of selecting such a directed sample of items to examine is the A. Difficulty in obtaining sample items. B. Inability to quantify the sampling error related to the total population of vendor invoices. C. Absence of a normal distribution. D. Tendency to sample a greater number of units.

Inability to quantify the sampling error related to the total population of vendor invoices.

Which of the following combinations results in a decrease in sample size in an attribute sample? Allowable Risk Tolerable Rate Expected Pop. Dev. Rt A. Increase Decrease Increase B. Decrease Increase Decrease C. Increase Increase Decrease D. Increase Increase Increase

Increase Increase Decrease

If an auditor of a nonissuer discovers an 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 A. Increase the assessed risks of material misstatement. B. Propose an audit adjustment. C. Increase the tolerable rate of deviation. D. Extrapolate the impact of the exceptions on other key controls requiring management review.

Increase the assessed risks of material misstatement.

The risk of underreliance is the risk that the sample selected to test controls A. Indicated that the controls are less effective than they actually are. B. Contains misstatements that could be material to the financial statements when aggregates with misstatements in other account balances of transaction classes. C. Contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole. D. Does not support the tolerable misstatement for some or all financial statement assertions.

Indicated that the controls are less effective than they actually are.

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 A. The only deviation discovered in the sample. B. Identical to a deviation discovered during the prior year's audit. C. Caused by an employee's misunderstanding of instructions. D. Initially concealed by a forged document.

Initially concealed by a forged document.

For which of the following audit tests would an auditor most likely use attribute sampling? A. Making an independent estimate of the amount of a LIFO inventory. B. Examining invoices in support of the measurement of fixed asset additions. C. Selecting accounts receivable for confirmation of account balances. D. Inspecting employee time cards for proper approval by supervisors.

Inspecting employee time cards for proper approval by supervisors.

For which of the following audit tests would an auditor most likely use attribute sampling? A. Making an independent estimate of recorded payroll expense. B. Determining that all payables are recorded at year end. C. Inspecting purchase orders for proper approval by supervisors. D. Selecting accounts receivable for confirmation of account balances.

Inspecting purchase orders for proper approval by supervisors.

An advantage if statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to A. Minimize the failure to detect errors and fraud. B. Eliminate the risk of nonsampling errors. C. Reduce the level of audit risk and immateriality to a relatively low amount. D. Measure the sufficiency of the evidence obtained.

Measure the sufficiency of the evidence obtained.

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%? A. Modify the planned assessed risk of material misstatement because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate. B. Accept the sample results as support for the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate. C. Accept the sample results as support for the assessed risk of material misstatement because the tolerable deviation rate minus the allowance for sampling risk equals the expected population deviation rate. D. Modify the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Modify the assessed risk of material misstatement because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

As a result of tests of controls, an auditor overrelied on controls and decreased substantive testing. This assessment occurred because the true deviation rate in the population was A. More than the deviation rate in the auditor's sample. B. More than the risk of overreliance, based on the auditor's sample. C. Less than the risk of overreliance, based on the auditor's sample. D. Less than the deviation rate in the auditor's sample.

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 Avg. $ Value of Check Requests Allowable Risk A. Yes Yes B. Yes No C. No Yes D. No No

No Yes

The sample size of a test of controls varies inversely with Expected Pop. Dev. Rate Tolerable Pop. Dev. Rate A. Yes Yes B. No No C. Yes No D. No Yes

No Yes

The possibility of the auditor's failure to recognize a misstatement in an amount or a deviation from a prescribed control arises from A. Statistical risk. B. Sampling risk. C. The standard error of the mean. D. Nonsampling risk

Nonsampling risk

The auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects A. Statistical risk. B. Sampling risk. C. Audit risk. D. Nonsampling risk.

Nonsampling risk.

In attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the sample? A. Degree of assurance desired. B. Risk of overreliance. C. Tolerable population rate of deviation. D. Number of items in the population.

Number of items in the population.

As a result of tests of controls, an auditor underrelies on controls. This incorrect assessment most likely occurred because A. The assessed risk of material misstatement based on the auditor's sample is less than the actual risk. B. The auditor believes that the controls relate to management's assertions when, in fact, they do not. C. The auditor believes that the controls reduce the extent of substantive testing when, in fact, they do not. D. Operating effectiveness based on the auditor's sample is less than the true operating effectiveness of the controls.

Operating effectiveness based on the auditor's sample is less than the true operating effectiveness of the controls.

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the A. Population. B. Attribute of interest. C. Sample. D. Sampling unit.

Population

Which of the following factors is usually not considered in determining the sample size for a test of controls? A. Population size, when the population is large. B. Tolerable population deviation rate. C. Risk of overreliance. D. Expected population deviation rate.

Population size, when the population is large.

In attribute sampling, a 10% change in which of the following factors normally will have at least effect on the size of a statistical sample? A. Population size. B. Tolerable population deviation rate. C. Risk of overreliance. D. Expected population deviation rate.

Population size.

When using statistical sampling for testing the effectiveness of internal controls, an auditor's evaluation would include a statistical conclusion concerning whether A. Monetary precision is in excess of a certain predetermined amount. B. Population characteristics occur at least once in the population. C. Procedural deviations in the population were within an acceptable range. D. The population total is not misstated by more than a fixed amount.

Procedural deviations in the population were within an acceptable range.

An advantage of statistical over nonstatistical sampling methods in tests of controls is that the statistical methods A. Afford greater assurance than a nonstatistical sample of equal size. B. Provide an objective basis for quantitatively evaluating sample risks. C. Can more easily convert the sample into a dual-purpose test useful for substantive testing. D. Eliminate the need to use judgment in determining appropriate sample sizes.

Provide an objective basis for quantitatively evaluating sample risks.

A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the A. Risk of overreliance. B. Tolerable deviation rate. C. Expected population deviation rate. D. Sample size.

Sample size

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

Sample size.

Which of the following audit procedures most likely will involve sampling? A. Analyses of controls to determine the appropriate segregation of duties. B. Tests of automated application controls when effective information technology general controls are present. C. Testing of process for approval of credit to customers for sales on account. D. Risk assessment procedures performed to obtain an understanding of internal control.

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

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

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

As a result of sampling procedures applied as tests of controls, an auditor incorrectly underrelies on controls. The most likely explanation for this situation is that A. The deviation rate in the auditor's sample exceeds the tolerable population deviation rate, but the deviation rate in the population is less than the tolerable population deviation rate. B. The deviation rate in the auditor's sample is less than the tolerable population rate, but the deviation rate in the population exceeds the tolerable population rate. C. The deviation rates of both the auditor's sample and the population exceed the tolerable population rate. D. The deviation rates of both the auditor's sample and the population are less than the tolerable population rate.

The deviation rate in the auditor's sample exceeds the tolerable population deviation rate, but the deviation rate in the population is less than the tolerable population deviation rate.

Which of the following best describes what the auditor means by the rate of occurrence in an attribute sampling plan? A. The degree of confidence that the sample is representative of the population. B. The estimated frequency with which a certain characteristic occurs within a population. C. The number of deviations that can be estimated to be contained in the sample. D. The dollar range within which the true population total can be expected to fall.

The estimated frequency with which a certain characteristic occurs within a population.

Which of the following statements is true concerning statistical sampling in tests of controls? A. The population size has little or no 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.

The population size has little or no effect on determining sample size except for very small populations.

Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls? A. There is no relationship between the tolerable population deviation rate and the sample size. B. As the population size doubles, the sample size should increase by about 67%. C. The sample size is inversely proportional to the expected population deviation rate. D. The population size has little or no effect on the sample size.

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

Statistical sampling may be used to test the effectiveness of controls. The auditor's procedures should result in a statistical conclusion about A.The population value not being misstated by more than a fixed amount. B. Monetary precision exceeding a certain predetermined amount. C. Population characteristics occurring at least once in the population. D. The relation of the population deviation rate to the tolerable rate.

The relation of the population deviation rate to the tolerable rate.

Which of the following is a true statement about statistical sampling in tests of controls? A. As the population size doubles, the sample size also should double. B. The qualitative aspects of deviations are not considered by the auditor. C. Deviations from controls at a given rate usually result in misstatements at a higher rate. D. The relationship between the sample size and the tolerable population deviation rate is inverse.

The relationship between the sample size and the tolerable population deviation rate is inverse.

Fact Pattern: In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of the risk of material misstatement because the A. Tolerable deviation rate (7%) was less than the achieved upper deviation limit (8%). B. Expected deviation rate (7%) was more than the percentage of deviations in the sample (3.5%). C. Achieved upper deviation limit (8%) was more than the percentage of deviations in the sample (3.5%). D. Expected deviation rate (2.5%) was less than the tolerable deviation rate (7%).

Tolerable deviation rate (7%) was less than the achieved upper deviation limit (8%).

In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of overreliance, and the A. Population size. B. Risk of incorrect acceptance. C. Nature and cause of deviations. D. Tolerable population deviation rate.

Tolerable population deviation rate.

An auditor plans to examine a sample of 20 purchase orders for proper approvals as prescribed by the client's internal control. One of the purchase orders in the chosen sample of 20 cannot be found, and the auditor is unable to use alternative procedures to test whether that purchase order was properly approved. The auditor should A. Choose another purchase order to replace the missing purchase order in the sample. B. Select a completely new set of 20 purchase orders. C. Treat the missing purchase order as a deviation for the purpose of evaluating the sample. D. Consider this test of controls invalid and proceed with substantive procedures because internal control is ineffective.

Treat the missing purchase order as a deviation for the purpose of evaluating the sample.

Which of the following factors is(are) considered in determining the sample size for a test of controls? Exp. Pop. Dev. Rate Tolerable Pop. Dev. Rate A. Yes No B. No No C. Yes Yes D. No Yes

Yes Yes