Audit Ch 8

Which of the following data analytics tools might an auditor use to test the completeness assertion for sales? a. Analyze data to assess the proper operation of sales cutoff tests around year-end. b. Age accounts receivable. c. Use data visualization tools to evaluate disclosures about sales and profitability. d. All of the above.

a. Analyze data to assess the proper operation of sales cutoff tests around year-end.

MUS is based on which of following? a. Attributes sampling. b. Classical variables sampling. c. Population variability sampling. d. Expected error sampling

a. Attributes sampling

Which of the following occurs when, based on sample results, control risk is assessed excessively high? a. Audit inefficiency. b. A less expensive audit. c. Reduction of substantive testing. d. Errors that are more likely to occur than anticipated.

a. Audit inefficiency.

In attributes sampling, which of the following does the risk of incorrect acceptance deal with? a. Effectiveness. b. Efficiency. c. Reliability. d. Both A and B.

a. Effectiveness.

Which of the following is a factor of nonsampling risk? a. Not carrying out the appropriate audit procedure. b. Having a sample which does not represent the population. c. Using a random sample selection. d. Using nonstatistical sampling.

a. Not carrying out the appropriate audit procedure.

When performing attributes sampling, which of the following varies directly with the sample size? a. The expected failure rate. b. The tolerable failure rate. c. The risk of overreliance. d. The nonsampling risk.

a. The expected failure rate.

Which of the following is the level at which the control's failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor's planned assessment of control risk in performing tests of account balances? a. Tolerable failure rate. b. Allowable risk of assessing control risk too low. c. Expected failure rate. d. Allowance for sampling error.

a. Tolerable failure rate.

An example of attributes testing involves obtaining evidence that the client has matched the vendor invoice details with a purchase order and receiving report before payment approval. a. True b. False

a. True

For tests of controls, the most commonly used statistical method is attributes sampling. a. True b. False

a. True

In sampling for substantive tests of details, the population is a group of items in an account balance that the auditor wants to test. a. True b. False

a. True

Increasing the expected failure rate will cause the sample size to increase. a. True b. False

a. True

Nonstatistical samples should be based on the same audit considerations as those used for statistical sampling. a. True b. False

a. True

Population items with zero balances have no chance of being selected using PPS sampling. a. True b. False

a. True

Projected misstatements are developed by extrapolation from the misstatements in sample items to the population. a. True b. False

a. True

Sample size in a MUS sample is a function of risk of incorrect acceptance, tolerable misstatement, and expected misstatement. a. True b. False

a. True

Statistical sampling assists auditors in determining the sufficiency of evidence gathered. a. True b. False

a. True

The tolerable failure rate is the level at which the control's failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor's planned assessment of control risk in performing tests of account balances. a. True b. False

a. True

Sampling risk deals with which of the following? a. Not carrying out the appropriate audit procedure. b. Drawing an incorrect inference from the sample results. c. Inappropriately diagnosing client's problems. d. Both A and C.

b. Drawing an incorrect inference from the sample results.

In attributes sampling, the risk of incorrect rejection deals with which of the following? a. Effectiveness. b. Efficiency. c. Reliability. d. Both A and B.

b. Efficiency.

In selecting a sample for attributes testing, systematic selection involves which of the following approaches? a. Each item in the population having an equal chance of selection. b. Every nth item being selected after a random start. c. An arbitrary selection with no conscious bias. d. Selecting all items on a day or week.

b. Every nth item being selected after a random start.

A sample which exceeds the tolerable rate of deviation results in the auditor's reliance on internal control effectiveness. a. True b. False

b. False

In MUS sampling basic precision is the upper misstatement limit when no misstatements are detected in a MUS sample. It is computed by multiplying the sampling interval by the error expansion factor. a. True b. False

b. False

Population items with a zero balance have the same chance of being chosen as those with dollar balances when using MUS sampling. a. True b. False

b. False

Simple random sampling, systematic sampling, and block sampling are acceptable sample selection methods for statistical sampling. a. True b. False

b. False

The audit objective of attributes sampling is to test the correctness of an account balance. a. True b. False

b. False

The tolerable misstatement is the level of misstatement the auditor expects to detect in the population. a. True b. False

b. False

When evaluating an MUS sample, if the auditor finds no misstatements in the sample, the misstatement projection is zero dollars, and the total estimated misstatement will equal the projected misstatement for items in lower-stratum. a. True b. False

b. False

When testing controls, the use of haphazard selection of a sample allows for random, statistical evaluation. a. True b. False

b. False

Concluding that the book value of inventory is correct when it is materially misstated is an example of which of the following risks? a. Incorrect rejection. b. Incorrect acceptance. c. Insufficient sample size. d. None of the above.

b. Incorrect acceptance.

While auditors may use either statistical or nonstatistical sampling, some auditors restrict the use of nonstatistical sampling for what reason? a. It is less effective. b. It is less objective. c. It is less efficient. d. It is less risky.

b. It is less objective.

When planning a test of details using MUS sampling, tolerable misstatement is usually set at what level? a. Higher than performance materiality. b. Lower than performance materiality c. Higher than the expected error amount. d. Lower than the expected error amount.

b. Lower than performance materiality

Which one of the following issues need not be addressed when planning an audit sample to test control procedures? a. Audit objective of the test. b. Minimum failure rate. c. Expected population deviation rate. d. Auditor's allowable risk of assessing control risk too low.

b. Minimum failure rate.

Which of the following is a method of reducing nonsampling risk? a. Proper supervision and instruction of the client's employees. b. Proper supervision and instruction of the audit team. c. The use of attributes sampling rather than variables sampling. d. Controls to ensure that the sample drawn is random and representative.

b. Proper supervision and instruction of the audit team.

Which of the following statistical sampling methods is most commonly used to test control procedures? a. Variable sampling. b. Ratio estimation sampling. c. Attributes sampling. d. Dollar unit sampling.

c. Attributes sampling.

For which of the following audit procedures would sampling be most appropriate? a. Inquiry. b. Observation. c. Confirmation. d. Analytics.

c. Confirmation.

Which one of the following is a decision the auditor makes when using attributes sampling? a. The sampling unit. b. Period covered by testing. c. Completeness of the population. d. All of the above are auditor decisions.

d. All of the above are auditor decisions.

When evaluating the MUS sample results, the auditor calculates the total estimated misstatement in the account balance based on the sampling process using which of the following components? a. Basic precision. b. Projected misstatement for items in lower-stratum. c. Incremental Allowance for Sampling Error. d. All of the above.

d. All of the above.

Which one of the following is a proper course of action for the auditor when the total estimated misstatement exceeds the tolerable misstatement? a. The auditor can ask the client to correct the known misstatements. b. The auditor will analyze the detected misstatements for some common problems. c. The auditor can expand the sample. d. All of the above.

d. All of the above.

Which of the following is not one of the processes involved in data mining? a. Data capture and cleaning. b. Deploying models. c. Data exploration. d. Data architecture.

d. Data architecture.

Which of the following is not an item the auditor needs to determine in designing sampling for substantive testing? a. The audit objective. b. The method of selecting a sample. c. Expected misstatement conditions. d. Expected deviation rate.

d. Expected deviation rate.

Which of the following applications are incorporated into statistical sampling? a. Binomial and confidence intervals. b. Random and haphazard selection. c. Hypergeometric distribution with audit risk. d. Probability and statistical inference with audit judgment.

d. Probability and statistical inference with audit judgment.

When an auditor uses MUS and analyzes misstatements in the lower stratum, which of the following will be multiplied by the sampling interval to calculate the projected misstatement for each misstated item? a. Audit value. b. Tolerable misstatement. c. Sampling interval. d. Tainting percentage.

d. Tainting percentage.

Which of the following tasks is not performed by data analytics tools? a. Footing a file. b. Obtaining file statistics. c. Checking for gaps in processing sequences. d. Preparing custom reports. e. All of the above tasks can be performed using data analytics tools.

e. All of the above tasks can be performed using data analytics tools.