Auditing chapter 15
Which of the following is the risk that audit tests will not uncover existing exceptions in a sample? A) sampling risk B) nonsampling risk C) audit risk D) detection risk
A) sampling risk
An auditor can increase the likelihood that a sample is representative by using care in A) Designing the sampling process Designing the sample selection Yes Yes B) Designing the sampling process Designing the sample selection No No C) Designing the sampling process Designing the sample selection Yes No D) Designing the sampling process Designing the sample selection No Yes
A) Yes Yes
In systematic sample selection, the population size is divided by the number of sample items desired in order to determine the A) sampling interval. B) tolerable exception rate. C) computed upper exceptions rate. D) mean.
A) sampling interval
Which of the following is the risk that an auditor will reach an incorrect conclusion because a sample is not representative of the population? A) sampling risk B) nonsampling risk C) audit risk D) detection risk
A) sampling risk
As the auditor, you are assessing the proper sample size to use in testing controls. When using attributes sampling, which of the following is most correct? A) A 10% change in population size will have the least effect on sample size. B) A 10% change in the tolerable deviation rate will have the least effect on sample size. C) A 10% change in the expected deviation rate will have the least effect on sample size. D) A 10% change in the tolerable will have the least effect on sample size.
A) A 10% change in population size will have the least effect on sample size
Which of the following is a correct statement regarding probabilistic versus nonprobabilistic sample selection? A) Auditors may make nonstatistical evaluations when using probabilistic sample selection. B) The AICPA recommends probabilistic sample selection. C) Nonstatistical sampling can't provide results that are as effective as a statistical sample. D) There is only one type of nonprobabilistic sample selection method.
A) Auditors may make non statistical evaluations when using probabilistic sample selection
Which of the following is a correct statement regarding block sampling? A) It is acceptable to use block sampling only if a reasonable number of blocks are used. B) Block sampling uses sampling with replacement. C) Block sampling is a probabilistic sampling method. D) There is considerable cost and time involved when block sampling is used.
A) It is acceptable to use block sampling only if a reasonable number of blocks are used.
When the computed upper exception rate (CUER) is greater than the tolerable exception rate (TER), it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to justify? A) Reduce the tolerable exception rate so as to accept the sample results. B) Expand the sample size and perform more tests. C) Revise the assessed control risk upward. D) Write a letter to management which outlines the control deficiencies.
A) Reduce the tolerable exception rate so as to accept the sample results.
For which of the following audit procedures would audit sampling not be appropriate? A) Review sales transactions for large and unusual amounts. B) Examine a sample of duplicate sales invoices for credit approval. C) Compare the quantity on duplicate sales invoices with the quantity on related shipping documents. D) Audit sampling is appropriate for each of the above procedures.
A) Review sales transactions for large and unusual amounts
Which of the following statements is correct when dealing with sampling for exception rates? A) The term exception refers to both deviations from the client's control procedures and amounts that are not monetarily correct. B) When used with sampling, the term deviation is synonymous with the term exception. C) The actual population exception rate is the same as the sample exception rate. D) In using audit sampling for exception rates, the auditor is most concerned with the confidence interval.
A) The term exception refers to both deviations from the client's control procedures and amounts that are not monetarily correct
Sampling risk may be controlled by A) Adjusting the sample size Using an appropriate method of selecting sample items Yes Yes B) Adjusting the sample size Using an appropriate method of selecting sample items No No C) Adjusting the sample size Using an appropriate method of selecting sample items Yes No D) Adjusting the sample size Using an appropriate method of selecting sample items No Yes
A) Yes Yes
If the result obtained from a particular sample for control and substantive tests of transactions is critical to the formation of an audit opinion, which of the following is the most important to the auditor in concluding of the appropriateness and sufficiency of evidence gathered? A) acceptable risk of overreliance B) estimated population exception rate C) tolerable exception rate D) size of the population
A) acceptable risk of over reliance
When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use A) audit sampling. B) representative sampling. C) poor judgment. D) estimation sampling.
A) audit sampling.
If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions, the auditor A) can conclude that the sample exception rate is 2%. B) can conclude that the population exception rate is 2%. C) can calculate the highest exception rate expected in the population. D) cannot make any conclusions about either the sample or the population.
A) can conclude that the sample exception rate is 2%
In attributes sampling, an estimate of the expected population exception rate is necessary to plan the sample size. The relationship of expected population exception rate (EPER) to sample size is A) direct (small EPER = small sample). B) inverse (small EPER = large sample). C) a variable (sometimes small, sometimes large) dependent on other factors present. D) indeterminate.
A) direct (small EPER = small sample).
If the auditor decides to assess control risk at the moderate level in a private company audit, when in previous years the auditor set control risk at the maximum level, then tests of controls for the current year would be A) increased in number. B) reduced in number. C) not performed. D) unchanged from prior planned settings.
A) increased in number
The advantage of systematic sample selection is that A) it is easy to use. B) there is limited possibility of it being biased. C) it is unnecessary to determine if the population is arranged randomly. D) it automatically selects items material to the financial statements.
A) it is easy to use
When planning the audit sample, A) one objective of the tests of controls is to test the effectiveness of the controls. B) audit sampling applies to analytical procedures. C) audit sampling generally applies to automated controls. D) the auditor must generalize from the sample to the population.
A) one objective of the tests of controls is to test the effectiveness of the controls.
An advantage of using statistical sampling techniques is that such techniques A) quantify sampling risk. B) eliminate the need for judgmental decisions. C) define the values of precision and reliability required to provide audit satisfaction. D) have been established in the courts to be superior to judgmental sampling.
A) quantify sampling risk
Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical sampling flows from its ability to A) quantify sampling risk. B) promote a more legally defensible procedural approach. C) define the precision required to provide audit satisfaction. D) establish conclusive audit evidence with decreased audit effort.
A) quantify sampling risk
A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a A) random sample. B) statistical sample. C) judgment sample. D) representative sample.
A) random sample
When choosing the appropriate acceptable risk of overreliance, the auditor needs to A) rely on his/her professional judgment. B) err on the side of conservatism. C) consult the professional standards. D) follow SEC guidelines.
A) rely on his/her professional judgement
Whenever auditors use sampling, they risk making incorrect conclusions about the population. The risk that the auditor concludes that controls are more effective than they actually are is known as the A) risk of overreliance. B) risk of underreliance. C) risk that the sample is not representative of the population. D) risk that the sample conclusions cannot be useful because of nonprobability sampling.
A) risk of over reliance
One way to evaluate sampling risk when nonstatistical sampling is used is to A) subtract the sample exception rate from the tolerable exception rate. B) add the sample exception rate and the tolerable exception rate. C) subtract the sample exception rate from the acceptable risk of overreliance. D) add the sample exception rate and the acceptable risk of overreliance.
A) subtract the sample exception rate from the tolerable exception rate.
When auditors wish to evaluate a sample statistically, an acceptable selection method is: A) systematic sample selection. B) judgmental selection. C) haphazard selection. D) block sample selection.
A) systematic sample selection
When determining tolerable exception rate (TER), A) the auditor considers the degree of reliance to be placed on the control and the significance of the control to the audit. B) if only one internal control is used to support a low control risk assessment for an objective, TER will be higher for the attribute than if multiple controls are used to support a low control risk assessment for the same objective. C) control deviations increase both the risk of material misstatements in the accounting record, and will always result in misstatements. D) a smaller sample size is needed for a low TER than for a high TER.
A) the auditor considers the degree of reliance to be placed on the control and the significance of the control to the audit.
In using audit sampling for exception rates A) the auditor wants to know the most the exception rate is likely to be. B) sampling error is the likelihood that the auditor will miss a monetary misstatement. C) the upper limit of the interval estimate is known as the sampling risk. D) the computed upper exception rate (CUER) cannot be considered in the context of specific audit objectives.
A) the auditor wants to know the most the exception rate is likely to be
Which of the following represents the best description of the tolerable exception rate? A) the highest exception rate the auditor will permit in the control being tested and still conclude it is operating effectively B) the highest exception rate the auditor expects to find in the population C) the number of exceptions found in the sample divided by the sample size D) the highest estimated exception rate in a population at a given estimated population exception rate.
A) the highest exception rate the auditor will permit in the control being tested and still conclude it is operating effectively
The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the A) tolerable exception rate. B) estimated population exception rate. C) acceptable risk of overreliance. D) sample exception rate.
A) tolerable exception rate
Which of the following is not a phase in the planning of both statistical and nonstatistical sampling? A) Plan the sample. B) Determine the probability that fraud has occurred. C) Select the sample and perform the tests. D) Evaluate the results.
B) Determine the probability that fraud has occurred
Which of the following results in a larger sample size? A) Decrease the estimated population exception rate and decrease the tolerable exception rate. B) Increase the estimated population exception rate and decrease the tolerable exception rate. C) Decrease the estimated population exception rate and increase the tolerable exception rate. D) Increase the estimated population exception rate and increase the tolerable exception rate.
B) Increase the estimated population exception rate and decrease the tolerable exception rate.
Which of the following statements is not correct regarding probabilistic and nonprobabilistic sample selection? A) In probabilistic selection, every population item has a known chance of being selected. B) It is acceptable to evaluate a nonprobabilistic sample using statistical methods. C) Probabilistic selection is required for all statistical sampling methods. D) Both probabilistic and nonprobabilistic methods are acceptable and commonly used.
B) It is acceptable to evaluate a non probabilistic sample using statistical methods.
Which of the following methods of sample selection is appropriately used when selecting a random sample? A) Auditor's judgmental selection of items Use of random number generators Generalized audit software Yes No Yes B) Auditor's judgmental selection of items Use of random number generators Generalized audit software No Yes Yes C) Auditor's judgmental selection of items Use of random number generators Generalized audit software Yes No No D) Auditor's judgmental selection of items Use of random number generators Generalized audit software No Yes No
B) No Yes Yes
Which of the following is an accurate statement regarding sampling distribution? A) A sampling distribution is a sample with characteristics the same as those of the population. B) Sampling distributions allow the auditor to make probability statements about the likely representativeness of any sample that is in the distribution. C) Each population exception rate and sample size has the same sampling distribution. D) Auditors cannot use sampling distributions to draw statistical conclusions about the unknown population being sampled.
B) Sampling distributions allow the auditor to make probability statements about the likely representativeness of any sample that is in the distribution
Which of the following is most correct when using audit sampling for exception rates? A) The auditor is concerned with the lowest rate. B) The auditor is concerned with the highest rate. C) The auditor is concerned with the average on previous audits. D) The auditor is not concerned with the exception rate for audits of nonpublic companies.
B) The auditor is concerned with the highest rate
When deciding the acceptability of the population, A) the methodology for deciding the acceptability of the population for attributes differs from determining the acceptability for nonstatistical sampling. B) before the population can be considered acceptable, the CUER determined on the basis of the actual sample results must be less than or equal to TER when both are based on the same ARO. C) when the CUER is greater than the TER, the auditor must increase the sample size. D) the CUER is compared with the TER in total, not for each attribute.
B) before the population can be considered acceptable, the CUER determined on the basis of the actual sample results must be less than or equal to TER when both are based on the same ARO.
Attributes sampling is based on the ________ distribution, in which each possible sample in the population has one of two possible values, such as yes or no. A) random B) binomial C) statistical D) nonstatistical
B) binomial
When using statistical sampling, the auditor would most likely require a smaller sample if the A) population increases. B) desired reliability decreases. C) desired precision interval narrows. D) expected exception rate increases.
B) desired reliability decreases
Which of the following occurrences would be least likely to warrant further audit attention for the auditor? A) deviations from client's established control procedures B) deviations from client's budgeted values C) monetary misstatements in populations of transaction data D) monetary misstatements in populations of account balance details
B) deviations from the client's budgeted values
Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated? A) sample exception rate B) estimated population exception rate C) computed upper exception rate D) exception
B) estimated population exception rate
Which of the following is the exception rate that the auditor expects to find before testing? A) sample exception rate B) estimated population exception rate C) computed exception rate D) tolerable exception rate
B) estimated population exception rate
When the auditor goes through a population and selects items using nonprobabilistic selection methods, without regard to their size, source, or other distinguishing characteristics, it is called A) block sample selection. B) haphazard selection. C) systematic sample selection. D) statistical selection.
B) haphazard selection
One of the causes of nonsampling risk is A) choosing the wrong sample size. B) ineffective audit procedures. C) inadequate sample size. D) exceptions being found in the sample.
B) ineffective audit procedures
There is a(n) ________ relationship between acceptable risk of overreliance and planned sample size. A) direct B) inverse C) proportional D) exponential
B) inverse
The relationship of tolerable exception rate (TER) to sample size is A) direct (larger TER = larger sample). B) inverse (larger TER = smaller sample). C) variable (sometimes larger, sometimes smaller). D) not determinable.
B) inverse (larger TER = smaller sample).
A sample in which the characteristics of the sample are the same as those of the population is a(n) A) variables sample. B) representative sample. C) attributes sample. D) random sample.
B) representative sample.
When a population is divided into subpopulations, usually by dollar size, and larger samples are taken from the subpopulation with the larger sizes, ________ is being used. A) sampling with probability proportional to size B) stratified sampling C) block sampling D) haphazard sampling
B) stratified sampling
Which is not a method used by auditors to generate random numbers? A) electronic spreadsheets B) systematic sample generators C) random number generators D) generalized audit software
B) systematic sample generators
When planning the sample, A) auditors using attributes sampling assign a low, medium, or high acceptable risk of overreliance. B) tables are used by the auditor in statistical sampling to determine initial sample size. C) most auditors use attributes sampling for medium to small populations. D) the tolerable exception rate does not need to be specified for statistical sampling.
B) tables are used by the auditor in statistical sampling to determine initial sample size.
When evaluating the results of attributes sampling, A) the acceptable risk of overreliance (ARO) is set at high or low. B) tables are used to compute the computed upper exception rate (CUER). C) if the sample size is not equal to those provided for in the attributes sampling evaluation tables, the tables cannot be used. D) the true exception rate is computed from various tables.
B) tables are used to compute the computed upper exception rate (CUER)
Which one of the choices below is most correct regarding a cause of sampling risk? A) ineffective use of audit procedures B) testing less than the entire population C) use of extensive tests of controls D) use of random sampling
B) testing less than the entire population
Which of the following is one of the main differences between attributes sampling and nonstatistical sampling? A) the number of steps involved B) the calculation of the initial sample sizes C) determining the objectives of the audit test D) defining the population
B) the calculation of the initial sample sizes
When analyzing exceptions, the auditor should keep in mind that A) all exceptions must be reported to management. B) they should determine the breakdown in the internal controls that allowed the exceptions to occur. C) the nature of an exception and its causes have no effect on the qualitative evaluation of the system. D) exceptions do not need to be analyzed if it is too costly.
B) they should determine the breakdown in the internal controls that allowed the exceptions to occur.
Which of the following statements is most correct with respect to the evaluation of nonprobabilistic sample results? A) It is acceptable to make nonprobabilistic evaluations only when probabilistic sample selection is used. B) It is acceptable to make nonprobabilistic evaluations only if the auditor cannot quantify sampling risk. C) It is never acceptable to evaluate a nonprobabilistic sample using statistical methods. D) All of the above are correct.
C) It is never acceptable to evaluate a non probabilistic sample using statistical methods
Which of the following statements regarding block sampling is least likely to be true? A) Block sampling is the selection of several items in sequence. B) It is acceptable to use block sampling for tests of transactions only if a reasonable number of blocks is used. C) Only one block should be selected to increase the probability of a representative sample. D) Once the first item in the block is selected, the remainder of the block is chosen.
C) Only one block should be selected to increase the probability of a representative sample
Which of the following statements is most correct with concerning the quantification of sampling risk? A) Sampling risk cannot be quantified. B) Sampling risk can be quantified only when nonprobabilistic selection techniques are used to select the sample. C) Sampling risk can be quantified only when probabilistic selection techniques are used to select the sample. D) None of the above is correct.
C) Sampling risk can be quantified only when probabilistic selection techniques are used to select the sample
The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the A) finite correction factor. B) tolerable exception rate. C) acceptable risk of overreliance. D) estimated population exception rate.
C) acceptable risk of over reliance
The acceptable risk of overreliance A) is normally assessed at a high level when auditing an accelerated filer public company. B) and the extent of tests of controls depends on assessed control risk for accelerated filer public companies. C) and the control risk will be assessed as low for audits where there is extensive reliance on internal controls. D) does not impact the effectiveness of the audit.
C) and the control risk will be assessed as low for audits where there is extensive reliance on internal controls.
To determine if a sample is truly representative of the population, an auditor would be required to A) conduct multiple samples of the same population. B) never use sampling because of the expense involved. C) audit the entire population. D) use systematic sample selection.
C) audit the entire population
The upper limit of the probable population exception rate is the A) upper exception rate. B) estimated population exception rate. C) computed upper exception rate. D) the tolerable exception rate.
C) computed upper exception rate.
Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program? A) Review sales transactions for large and unreasonable amounts. B) Observe whether the duties of the accounts receivable clerk are separate from handling cash. C) Examine a sample of duplicate sales invoices for credit approval by the credit manager. D) Review the aged schedule of accounts receivable to determine if receivables from officers are included.
C) examine a sample of duplicate sales invoices for credit approval by the credit manager
In performing a review of a client's cash disbursements, an auditor uses systematic sample selection with a random start. The primary disadvantage of this technique is population items A) may occur twice in the sample. B) must be reordered in a systematic pattern before the sample can be drawn. C) may occur in a systematic pattern, thus negating the randomness of the sample. D) must be replaced in the population after sampling to permit valid statistical inference.
C) may occur in a systematic pattern, thus negating the randomness of the sample
There are three phases in both statistical and nonstatistical sampling. The first phase is to A) generate random numbers for the sample. B) evaluate the results. C) plan the sample. D) select the sample.
C) plan the sample
When planning the audit sample, the ________ is (are) those items about which the auditor wishes to generalize. A) attributes B) sampling unit C) population D) sample
C) population
Auditors often use the ________ to determine the estimated population exception rate. A) current year's audit results B) tolerable exception rate C) preceding year's audit results D) estimated computed by management
C) preceding year's audit results
The acceptable risk of overreliance A) is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are. B) is less of a concern to the auditors than the risk of underreliance. C) represents the auditor's measure of sampling risk. D) is determined by a statistical formula, and not by professional judgment.
C) represents the auditor's measure of sampling risk.
The process which requires the calculation of an interval and then selects the items based on the size of the interval is A) statistical sampling. B) random sample selection. C) systematic sample selection. D) computerized sample selection.
C) systematic sample selection
The sample exception rate equals A) the number of exceptions in the population divided by the sample size. B) the number of items in the population multiplied by the number of exceptions in the sample. C) the number of exceptions in the sample divided by the sample size. D) the number of exceptions in the population divided by the population size.
C) the number of exceptions in the sample divided by the sample size
Which of the following must be set prior to testing a sample? A) sample exception rate B) achieved upper precision limit C) computed exception rate D) tolerable exception rate
D) tolerable exception rate
A danger in setting the acceptable risk of overreliance too low is A) The risk that the auditor is willing to take of accepting a control as ineffective when it is effective The risk that the auditor is willing to take of accepting a control as effective when it is ineffective Yes Yes B) The risk that the auditor is willing to take of accepting a control as ineffective when it is effective The risk that the auditor is willing to take of accepting a control as effective when it is ineffective No No C) The risk that the auditor is willing to take of accepting a control as ineffective when it is effective The risk that the auditor is willing to take of accepting a control as effective when it is ineffective Yes No D) The risk that the auditor is willing to take of accepting a control as ineffective when it is effective The risk that the auditor is willing to take of accepting a control as effective when it is ineffective No Yes
D) No, Yes
A principal advantage of statistical methods of attributes sampling over nonstatistical methods is that they provide a quantifiable basis for establishing the A) risk of assessing control risk too low. B) tolerable exception rate. C) expected population exception rate. D) sample size.
D) Sample size
Which of the following statements is most correct? A) A sample of all items of a population will eliminate sampling risk, but increase nonsampling risk. B) The use of an appropriate sample selection technique ensures a representative sample. C) The auditor's failure to recognize an exception is a significant cause of sampling risk. D) The use of inappropriate audit procedures is a significant cause of nonsampling risk.
D) The use of inappropriate audit procedures is a significant cause of non sampling risk
The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the A) acceptable exception rate. B) estimated population exception rate. C) sample exception rate. D) tolerable exception rate.
D) tolerable exception rate.
When defining the population, A) it may be necessary to define separate populations for different audit procedures. B) the auditor may generalize only about the population that has been sampled. C) auditors can define the population to include any items they want. D) all of the above
D) all of the above
Which of the following is an accurate statement regarding sampling? A) A 95 percent confidence level provides a 5 percent sampling risk. B) The auditor can perform the audit tests only after the sample items are selected. C) The purpose of planning the sample is to make sure that the audit tests are performed in a manner that provides the desired sampling risk and minimizes the likelihood of nonsampling errors. D) All of the above are accurate statements.
D) all of the above are accurate statements.
Rodgers CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%. In auditing client invoices Rodgers should use A) stratified sampling. B) classical sampling. C) proportional sampling. D) attributes sampling.
D) attributes sampling
Simple random sampling A) is used when there is a need to emphasize one or more types of population items. B) requires both input and output parameters to be set when using a random number generator. C) is generally used with replacement sampling. D) is a probabilistic sampling method.
D) is a probabilistic sampling method.
The most serious shortcoming of the haphazard sample selection method is A) it is not subject to statistical sampling methods. B) it is time consuming to use. C) it is costly to use. D) it is difficult to remain completely unbiased in the selection.
D) it is difficult to remain completely unbiased in the selection
Which of the following would have the least impact in determining sample size? A) acceptable risk of overreliance B) risk of assessing control risk too low C) tolerable exception rate D) population size
D) population size
In using sampling distribution for attributes, which one of the following must be known to evaluate the sample results? A) estimated dollar value of the population B) standard exception of the values in the population C) actual exception rate of the attribute in the population D) sample size
D) sample size
You are determining the significance of the following: you set a 5% risk of assessing control risk too low and your computation of the upper deviation risk is 7%. What could you conclude? A) There is a 95% chance the deviation rate is the population is less than 5%. B) There is a 5% chance the deviation rate in the population is less than 7%. C) There is a 95% chance the deviation rate in the population exceeds 95%. D) There is a 5% chance the deviation rate in the population exceeds 7%.
D) there is a 5% chance the deviation rate in the population exceeds 7%
