Audit - Module G

Variables sampling methods can be used to estimate...

both the amount of misstatement and the true account balance

Which of the following would not result in a lower level of the risk of incorrect acceptance? a. An increase in the acceptable level of audit risk from 5 percent to 10 percent. b. The inability of the auditor to rely on the internal control as planned. c. An increase in the susceptibility of the account balance to misstatement. d. A reduction in the utilization of analytical procedures in the audit examination.

a. An increase in the acceptable level of audit risk from 5 percent to 10 percent.

Which of the following components of the upper limit on misstatements is determined by multiplying the sampling interval by the confidence factor for the acceptable risk of incorrect acceptance? a. basic allowance for sampling risk b. incremental allowance for sampling risk c. projected misstatement d. sampling interval

a. basic allowance for sampling risk

Which of the following factors is most likely established based on the results of prior audit examinations? a. expected misstatement b. population size c. risk of incorrect acceptance d. tolerable misstatement

a. expected misstatement

To determine the sample size for a classical variables sampling application, an audit team should consider the tolerable misstatement, risk of incorrect acceptance, risk of incorrect rejection, population size, population variability, and a. expected misstatement in the account b. overall materiality for the financial statements as a whole c. risk of assessing control risk too low d. risk of assessing control risk too high

a. expected misstatement in the account

Which of the following statements is correct about monetary unit sampling? a. the risk of incorrect acceptance must be specified b. smaller logical units have a higher probability of selection in the sample than larger units c. each logical unit in the population has an equally likely chance of being selected in the sample d. the projected misstatement cannot be calculated when one or more misstatements are discovered

a. the risk of incorrect acceptance must be specified

If the upper limit on misstatements is calculated at $17,800 and the tolerable misstatement is $15,000, what is the minimum amount of adjustment necessary for the audit team to issue an unmodified opinion on the client's financial statements? a. $0 b. $2,800 c. $4,800 d. $14,800

b. $2,800

A component of an account balance has a recorded balance of $10,000 and an audited value of $8,000. By using monetary unit sampling, if the sampling interval is $20,000, the projected misstatement would be a. $2,000 b. $4,000 c. $5,000 d. $10,000

b. $4,000

What is the auditor's normal course of action if a "logical unit" is selected twice in monetary unit sampling? a. The auditor should count the logical unit as a single selection and proceed as normal. b. The auditor should count the logical unit as two selections and proceed as normal. c. The auditor should not include the logical unit as a selection, since the dollar amount of this unit is excessively large. d. The auditor should replicate the sample using an alternative random start.

b. The auditor should count the logical unit as two selections and proceed as normal.

Which of the following would not be estimated using variables sampling? a. The balance in the client's accounts receivable. b. The extent to which an internal control procedure is not functioning as intended. c. The amount of misstatement in a client's inventory. d. All of these would be estimated using variables sampling.

b. The extent to which an internal control procedure is not functioning as intended.

Which of the following is true with respect to the risk of incorrect acceptance? a. The risk of incorrect acceptance is determined in the planning stages of the audit prior to the study of internal control. b. The risk of incorrect acceptance has an inverse relationship with sample size. c. The risk of incorrect acceptance exposes the auditor to an efficiency loss. d. The risk of incorrect acceptance may occur when the true (but unknown) account balance is fairly stated.

b. The risk of incorrect acceptance has an inverse relationship with sample size.

Which of the following would not cause the audit team to select a larger sample of items under a monetary unit sampling application? a. a reduction in the risk of incorrect acceptance from 10 percent to 5 percent b. an increase in the tolerable misstatement from $30,000 to $60,000 c. an increase in the expected misstatement from $20,000 to $40,000 d. all of these would result in selecting a larger sample

b. an increase in the tolerable misstatement from $30,000 to $60,000

Which of the following steps involved with determining the upper limit on misstatements is ordinarily performed earliest? a. multiply the sampling interval by the tainting percentage b. determine the audited value of the item and compare it to the recorded balance c. calculate the basic allowance for sampling risk d. calculate the incremental allowance for sampling risk

b. determine the audited value of the item and compare it to the recorded balance

When performing substantive procedures, auditors run the sampling risk(s) of: a. assessing control risk too high or too low b. incorrect acceptance and incorrect rejection c. assessing control risk too low only d. incorrect acceptance only

b. incorrect acceptance and incorrect rejection

One of the primary advantages of monetary unit sampling is the fact that a. it is an effective method of sampling for evidence of understatement in asset accounts b. the sample selection automatically achieves high-dollar selection and stratification c. the sample selection provides for including a representative number of small-value components d. expanding the sample for additional evidence is relatively simple

b. the sample selection automatically achieves high-dollar selection and stratification

Alice Rathermel audit LoHo Company's inventory using sampling. She examined 120 items from an inventory compilation list and discovered net overstatement of $480. The audit items had a book (recorded) value of $48,000. There were 1,200 inventory items listed, and the total recorded inventory amount was $490,000. What is the projected misstatement using mean-per-unit estimation? a. $480 b. $576,000 c. $10,000 d. $480,000

c. $10,000

Assume that an account with a recorded balance of $5,000 has an audited value of $3,000. By using monetary unit sampling, if the sampling interval is $1,500, the projected misstatement would be a. $600 b. $900 c. $2,000 d. $3,000

c. $2,000

Brown, CPA, was using monetary unit sampling to audit an inventory of $3,000,000 that was comprised of 6,000 items. A sample size of 500 was determined and a tolerable misstatement of $20,000 was established. The sampling interval would be: a. $500 b. $5,000 c. $6,000 d. $20,000

c. $6,000

How does monetary unit sampling (MUS) ensure that larger dollar components are selected for examination? a. MUS requires the auditor to identify all items having a balance greater than performance materiality prior to beginning the sample selection process. b. MUS requires the auditor to stratify the sample into larger and smaller dollar components prior to beginning the sample selection process. c. MUS defines the sampling unit as an individual dollar within an account balance or class of transactions. d. MUS selects components having larger balances in the prior audit.

c. MUS defines the sampling unit as an individual dollar within an account balance or class of transactions.

Which of the following is not an advantage associated with monetary unit sampling (MUS)? a. MUS methods typically include transactions or components reflecting relatively large dollar amounts. b. MUS methods are more effective in identifying overstatement errors. c. MUS methods provide a conservative (higher) estimate of misstatement in the account balance or class of transactions. d. MUS methods typically result in relatively small sample sizes.

c. MUS methods provide a conservative (higher) estimate of misstatement in the account balance or class of transactions.

The total amount of misstatement identified in a sample is referred to as the: a. projected misstatement b. tolerable misstatement c. actual misstatement d. incremental allowance for sampling risk

c. actual misstatement

Which of the following statements is not true with respect to the calculation of the upper limit on misstatements? a. the tainting percentage is determined based on the difference between the recorded balance and the audited value b. a separate incremental allowance for sampling risk is calculated for each misstatement discovered by the auditor c. if no misstatements are detected, the basic allowance for sampling risk equals zero d. the projected misstatement is determined by multiplying the sampling interval by the tainting percentage

c. if no misstatements are detected, the basic allowance for sampling risk equals zero

Which of the following types of variables sampling plans have a tendency to select higher-dollar items for examination? a. different estimation b. mean-per-unit estimation c. monetary unit sampling d. ratio estimation

c. monetary unit sampling

Which of the following major stages of the audit is most closely related to variables sampling? a. determining preliminary levels of performance materiality b. performing tests of controls procedures c. performing substantive procedures d. searching for the possible occurrence of subsequent events

c. performing substantive procedures

When making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of incorrect acceptance to be more serious than the risk of incorrect rejection because a. the incorrect rejection decision impairs the efficiency of the audit b. the audit team will do additional work and discover the misstatement of the incorrect decision c. the incorrect acceptance decision impairs the effectiveness of the audit d. sufficient appropriate audit evidence will not have been obtained

c. the incorrect acceptance decision impairs the effectiveness of the audit

If the ___ is less than the ___, the audit team would conclude that the account balance is fairly stated. a. projected misstatement; tolerable misstatement b. tolerable misstatement; projected misstatement c. upper limit on misstatements; tolerable misstatement d. tolerable misstatement; upper limit on misstatements

c. upper limit on misstatements; tolerable misstatement

Why is the auditor more concerned with controlling the exposure to the risk of incorrect acceptance than with the risk of incorrect rejection? a. Only the risk of incorrect acceptance results in an incorrect decision by the auditor. b. The risk of incorrect rejection is not related to the auditor's substantive procedures. c. The risk of incorrect rejection can be controlled by performing substantive procedures during the interim period. d. The risk of incorrect acceptance may ultimately result in the auditor incorrectly issuing an unmodified opinion on the client's financial statements.

d. The risk of incorrect acceptance may ultimately result in the auditor incorrectly issuing an unmodified opinion on the client's financial statements.

In a classical variables sampling application, the sample size will be smaller when the: a. risk of incorrect acceptance is lower b. risk of incorrect rejection is lower c. tolerable misstatement is lower d. population variability is lower

d. population variability is lower

When determining sample size under monetary unit sampling, an audit team does not need to make a judgment or estimate of a. audit risk b. tolerable misstatement c. expected misstatement d. standard deviation

d. standard deviation

Which of the following courses of action would an audit team most likely follow in planning a sample of cash disbursements if the audit team is aware of several unusually large cash disbursements? a. increase the sample size to reduce the effect of the unusually large disbursements b. continue to draw new samples until all unusually large disbursements appear in the sample c. set the tolerable deviation rate at a lower level than originally planned d. stratify the cash disbursements population so that the unusually large disbursements are selected

d. stratify the cash disbursements population so that the unusually large disbursements are selected

The projected misstatement is determined by multiplying the sampling interval by the a. risk of incorrect acceptance b. incremental confidence factor c. confidence factor d. tainting percentage

d. tainting percentage

The unique feature of monetary unit sampling is that a. sampling units are not chosen at random b. a dollar unit selected in a sample is not replaced before the sample selection is completed c. auditors need not worry about the risk of incorrect acceptance decision d. the population is defined as the number of monetary units in an account balance or class of transactions

d. the population is defined as the number of monetary units in an account balance or class of transactions

When evaluating the results of an MUS application, the audit team should compare the upper limit on misstatements to the a. expected misstatement b. incremental allowance for sampling risk c. projected misstatement d. tolerable misstatement

d. tolerable misstatement

Which of the following components is not used in determining the upper limit on misstatements? a. basic allowance for sampling risk b. incremental allowance for sampling risk c. projected misstatement d. tolerable misstatement

d. tolerable misstatement

The sampling method used to examine a population when the auditor wants to estimate a continuous amount (or value) of the population is: a. attributes sampling b. balance sampling c. discovery sampling d. variables sampling

d. variables sampling