Auditing test 3

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An auditor is reviewing a sample of cash disbursements to ensure that the appropriate supporting documents were received prior to payment. Which type of sampling approach would the auditor use to perform this test? Collective sampling. Attributes sampling. Variables sampling. Quality sampling.

Attributes sampling.

Lincoln, CPA, selected a sample of 100 items by dividing the population of 100,000 sales invoices by 100. With a random start, she then selected every 1,000th invoice. This selection process is referred to as: unrestricted random selection. nonstatistical selection. systematic random selection. judgmental selection.

systematic random selection.

The precision interval has a ____ percent probability of including the ____. sampling risk; adjusted sample estimate. sampling risk; true population value. 1 minus sampling risk; adjusted sample estimate. 1 minus sampling risk; true population value.

1 minus sampling risk; true population value.

In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized, an auditor should consider the tolerable rate of deviation from the control activity. The auditor should also consider: 1. Likely rate of deviations .2. Allowable risk of underreliance. 1 only. 2 only. Both 1 and 2. Either 1 or 2.

1 only.

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 $2,000. $4,000. $5,000. $10,000.

$4,000.

If the audit team established a tolerable rate of deviation of 3%, an expected population deviation rate of 2%, and desired to control the risk of overreliance to 5%, what sample size would be appropriate in this situation? 390 items. 568 items. 590 items. 846 items.

846 items.

Assume that the audit team established a tolerable rate of deviation of 5%, an expected population deviation rate of 1%, and desired to control the risk of overreliance to 5%. What is the appropriate sample size in this situation? 77 items. 93 items. 132 items. 124 items.

93 items.

Which of the following would not result in the audit team's selecting a larger sample of controls for examination? A reduction in the risk of overreliance from 10 percent to 5 percent. An increase in the tolerable rate of deviation from 3 percent to 6 percent. An increase in the expected population deviation rate from 2 percent to 4 percent. All of the choices would result in a larger sample of controls.

An increase in the tolerable rate of deviation from 3 percent to 6 percent.

A limitation of systematic random selection is that this method Can result in bypassing a number of items having similar characteristics. Has a relatively low likelihood of yielding a representative sample. Cannot be used with statistical sampling plans. Results in a larger sample size than other selection methods.

Can result in bypassing a number of items having similar characteristics.

Variables sampling methods can be used to estimate Amount of Misstatement *True Account Balance Choice aYesYes Choice bYesNo Choice cNoYes Choice dNoNo Choice a Choice b Choice c Choice d

Choice a

Romo, CPA, performed nonstatistical sampling to examine the inventory balances of Jones Company. The sample included 125 of the total 1,250 items with a recorded balance of $550,000. Romo determined the expected misstatement to be $25,000 and the tolerable misstatement to be $40,000. The sample had a recorded balance of $54,000 and an audited value of $52,000. What conclusion did Romo draw regarding the account balance? Conclude that the account balance is fairly stated, since the expected misstatement is greater than the expected misstatement. Conclude that the account balance is not fairly stated, since the expected misstatement is greater than the tolerable misstatement. Conclude that the account balance is not fairly stated, since the expected misstatement is less than the expected misstatement. Conclude that the account balance is fairly stated, since the expected misstatement is less than the tolerable misstatement.

Conclude that the account balance is fairly stated, since the expected misstatement is less than the tolerable misstatement.

The likelihood that an identified precision interval contains the true (but unknown) population value is the Precision. Mean. Confidence. Sampling risk.

Confidence.

An auditor is most likely to use statistical sampling under which of the following situations? Random numbers can be associated with population items. Strictly defensible results based on mathematics are not necessary. The auditor has a very good knowledge of the population. The population is very diverse with some segments especially prone to misstatement.

Random numbers can be associated with population items.

Which of the following would be an example of an action that exposes an auditor to nonsampling risk? The audit team draws a sample of transactions from throughout the entire period under audit. The audit team uses an inappropriate type of audit procedure to evaluate sample evidence. The audit team uses professional judgment in evaluating sample results. The audit team limits the selection of sample items to larger dollar balances in an account.

The audit team uses an inappropriate type of audit procedure to evaluate sample evidence.

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

The risk of incorrect acceptance must be specified.

The maximum amount by which the account balance or class of transactions can be misstated without influencing the decisions of third-party users is the: Tolerable misstatement. Expected misstatement. Audited value. True error.

Tolerable misstatement.

Which of the following pairs of selection methods could appropriately be used in statistical sampling applications? Unrestricted random selection, block selection. Systematic random selection, haphazard selection. Block selection, haphazard selection. Unrestricted random selection, systematic random selection.

Unrestricted random selection, systematic random selection.

If the _______ is less than the _______, the audit team would conclude that the account balance is fairly stated. Projected misstatement; tolerable misstatement. Tolerable misstatement; projected misstatement. Upper limit on misstatements; tolerable misstatement. Tolerable misstatement; upper limit on misstatements.

Upper limit on misstatements; tolerable misstatement.

Which of the following does not affect the sample size in an attributes sampling application? Expected population deviation rate. Upper limit rate of deviation. Sampling risk. Tolerable rate of deviation.

Upper limit rate of deviation.

The audit team will choose to reduce the reliance on controls if the_____ is greater than the_____ Tolerable rate of deviation; upper limit rate of deviation. Tolerable rate of deviation; expected rate of deviation. Expected rate of deviation; tolerable rate of deviation. Upper limit rate of deviation; tolerable rate of deviation.

Upper limit rate of deviation; tolerable rate of deviation.

In which of the following situations would the use of classical variables sampling (as opposed to monetary unit sampling) be most appropriate? When a larger number of misstatements are anticipated. When overstatement errors (as opposed to understatement errors) are of more importance. When individual components and account balances are larger in comparison to the tolerable misstatement established by the auditor. When the auditor wishes to begin sampling during the interim period.

When a larger number of misstatements are anticipated.

A sample selection method in which a series of contiguous items are selected from the population is referred to as: block selection. haphazard selection. systematic random selection. unrestricted random selection.

block selection.

Subsequent events occur between the ____ and the ____. date of the financial statements; date of the auditors' report date of the auditors' report; audit report release date date of the financial statements; audit report release date audit report release date; beginning of subsequent year's audit

date of the financial statements; date of the auditors' report

After the auditor has defined the population to be examined, the next step would be to: define the characteristic of interest. select the sample items. determine the sample size. measure the sample items.

determine the sample size.

In the study of internal control, the auditor uses sampling to compare the ____ to the _____. error; overall materiality level sampling risk; precision deviation rate; tolerable rate of deviation precision interval; upper limit on misstatement

deviation rate; tolerable rate of deviation

As the expected misstatement is large relative to the tolerable misstatement, the audit team would most likely increase their degree of reliance on internal controls. consider the possibility of an increased level of tolerable misstatement. increase the sample size. decrease the sample size.

increase the sample size.

In a classical variables sampling application, if the _____ exceeds the maximum difference between the recorded balance and any point within the precision interval, the auditor would decide to _____ the account balance as fairly stated. sample estimate; accept sample estimate; reject tolerable misstatement; accept tolerable misstatement; reject

tolerable misstatement; accept

To whom should written representations be addressed? Auditors Board of directors Client Stockholders

Auditors

Which of the following factors is not assessed based on the acceptable level of control risk? Expected population deviation rate. Risk of overreliance. Tolerable rate of deviation. All of the choices are assessed based on the acceptable level of control risk.

Expected population deviation rate.

As the auditors' assessments of control risk and analytical procedures risk decrease, which of the following statements is true? The sample size will not be affected. The allowable risk of incorrect acceptance will increase. The sample size will increase. The allowable risk of incorrect acceptance will decrease.

The allowable risk of incorrect acceptance will increase.

Samples to test internal control procedures are intended to provide a basis for an auditor to conclude whether: the control procedures are operating effectively. the financial statements are materially misstated. the risk of incorrect acceptance is too high. overall materiality for planning purposes is at a sufficiently low level.

the control procedures are operating effectively.

If a customer's account was recorded at $45,000, the audited value was $30,000, and the sampling interval was $30,000, the projected misstatement would be: $10,000. $15,000. $20,000. $30,000.

$15,000.

Selecting the first five sales orders processed each month for examination is an example of which of the following types of selection method? Unrestricted random selection Systematic random selection Haphazard selection Block selection

Block selection

The risk that may result in the auditor issuing an unmodified opinion on financial statements that are materially misstated is the: Risk of assessing control risk too low. Risk of assessing control risk too high. Risk of incorrect acceptance. Risk of incorrect rejection.

Risk of incorrect acceptance.

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? $0. $2,800. $4,800. $14,800.

$2,800.

A client's inventory is recorded at $300,000 and is comprised of 1,000 items. Assuming the use of difference estimation, if auditors examined a sample of 200 items and found a total misstatement of $20,000 (overstatement), what is the estimated audited value for inventory? $20,000 $100,000 $200,000 $400,000

$200,000

Ranger, CPA, used nonstatistical sampling to examine the accounts receivable balances of Cowboy Inc. He audited a sample of 150 items and found an audited value of $5,000 less than the recorded balance of $25,000. The entire account balance contained 2,000 items and had a total recorded value of $350,000. Using nonstatistical methods and assuming that Ranger used the ratio of audited value to recorded value to estimate the account balance, the estimated total account balance is $345,000. $330,000. $295,000. $280,000.

$280,000.

Pujols, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Wieserbud Brewing Inc., and estimated the account balance based on the ratio of audited value to recorded balances. He audited 120 items from a sample and found an audited value of $24,600. The sample had a recorded balance of $30,000. If the entire inventory contained 2,400 items and the total recorded balance of the inventory was $480,000, the estimated account balance using nonstatistical methods is: $393,600. $474,500. $480,000. $500,000.

$393,600.

Variables sampling methods can be used to estimate Amount of Misstatement*True Account Balance Choice aYes Yes Choice bYes No Choice cNo Yes Choice dNo No Choice a Choice b Choice c Choice d

Choice a

Select the description that best illustrates sampling risk. Applying audit procedures, which are inappropriate for the audit objectives. Failing to recognize misstatements or deviations in the documents examined. Arriving at incorrect statistical conclusions due to computational errors. Choosing a sample which has proportionately more errors than the population.

Choosing a sample which has proportionately more errors than the population.

_____ sampling methods use normal distribution theory and the central limit theorem to provide a range estimate of the account balance or class of transactions or the misstatement in the account balance or class of transactions. Attributes Classical variables Nonstatistical Monetary unit (MUS)

Classical variables

Which of these persons generally does not participate in writing the management letter? Public accounting firm's consulting and tax experts. Client's accounting and production managers. Public accounting firm's audit team on the engagement. Client's outside attorneys.

Client's outside attorneys.

Which of the following substantive procedures should auditors ordinarily perform regarding subsequent events? Review the cutoff bank statements for several months after the date of the financial statements. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests. Compare the latest available interim financial statements with the financial statements being audited. Communicate material weaknesses in internal control to the client's audit committee

Compare the latest available interim financial statements with the financial statements being audited.

Which of the following steps involved with determining the upper limit on misstatements is ordinarily performed earliest? Multiply the sampling interval by the tainting percentage. Determine the audited value of the item and compare it to the recorded balance. Calculate the basic allowance for sampling risk. Calculate the incremental allowance for sampling risk.

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

Which of the following steps in attributes sampling is most closely related to identifying key controls corresponding to the relevant management assertions? Determine the sample size. Define the population. Define the deviation condition. Determine the objective of sampling.

Determine the objective of sampling

Which of the following sampling activities is not performed during the planning stage of the audit? Define the population. Determine the sample size. Determine the objective of sampling. Define the characteristic of interest.

Determine the sample size.

Jerry Tim is examining an important internal control in the audit of Langly Company. In past audits, deviations from this control have been observed at a minimal rate (less than 0.1 percent); however, because the account balance affected by this control is highly susceptible to fraud, it is important that Tim obtain a high level of assurance that deviations occur at no higher than a predetermined (low) rate. Which of the following sampling methods would Tim most likely use to evaluate this control? Sequential sampling. Discovery sampling. Attributes sampling. Statistical sampling.

Discovery sampling.

Which of the following activities is least likely to result in the audit team's exposure to sampling risk? Identifying all components of a client's accounts receivable balance. Determining the appropriate number of components of a client's accounts receivable balance for confirmation. Selecting components of a client's accounts receivable balance for confirmation. Evaluating confirmations returned from the client's customers and following up on any discrepancies noted by the customers.

Evaluating confirmations returned from the client's customers and following up on any discrepancies noted by the customers.

Which of the following conditions or set of circumstances would not ordinarily raise questions about the entity's ability to continue as a going concern: Violation of debt covenants Failure to meet forecasted earnings per share Legal proceedings that may have a significant negative impact on the entity Negative cash flow from operations for each of the last three years

Failure to meet forecasted earnings per share

In which step of a sampling plan is nonstatistical sampling different from statistical sampling? Define the characteristic of interest. Measure the sample items. Evaluate the sample results. Define the population.

Evaluate the sample results.

The sampling plan for nonstatistical sampling is the same as statistical sampling except for which of the following steps? Define the characteristic of interest. Define the population. Measure the sample items. Evaluate the sample results.

Evaluate the sample results.

Which of the following steps in the sampling process is ordinarily performed last? Determine the objective of sampling. Measure sample items. Evaluate the sample results. Define the characteristic of interest.

Evaluate the sample results.

Which of the following steps in the attributes sampling process would ordinarily be performed last? Defining the deviation condition. Defining the population of interest. Selecting sample items. Evaluating sample results.

Evaluating sample results.

For which of the following audit tests would an auditor most likely use attributes sampling? Making an independent estimate of the amount of a LIFO inventory. Examining invoices in support of the valuation of fixed asset additions. Selecting accounts receivable for confirmation of account balances. 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 attributes sampling? Inspecting purchase orders for proper approval by supervisors. Making an independent estimate of recorded payroll expense. Determining that all payables are recorded at year end. Selecting accounts receivable for confirmation of account balances.

Inspecting purchase orders for proper approval by supervisors.

Which of the following sampling risks is considered by the auditor in determining the sample size in a monetary unit sampling (MUS) application? Risk of assessing control risk too low. Risk of assessing control risk too high. Risk of incorrect acceptance. Risk of incorrect rejection.

Risk of incorrect acceptance.

Which of the following statements is not true regarding variables sampling? Two approaches to variables sampling are monetary unit sampling and classical variables sampling. Both statistical and nonstatistical approaches to variables sampling can be used under GAAS. The objective of variables sampling is to estimate either the true balance or the extent of misstatement in an account balance or class of transactions. Variables sampling is appropriate when the distribution of the population is binary in nature.

Variables sampling is appropriate when the distribution of the population is binary in nature.

Before the impact of adjusting entries proposed by auditors are included in the client's financial statements, the adjustments must be approved by the client's management. audit manager. engagement partner. engagement quality review partner.

client's management.

Alice Rathermel audited LoHo Company's inventory using sampling. She examined 120 items from an inventory compilation list and discovered net overstatement of $480. The audited 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? $480 $576,000 $10,000 $480,000

$10,000

An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team expected that 3 percent of the sample invoices lacked proper approval. From the sample of 90 invoices, 7 were found to lack credit approval. Using AICPA sample evaluation tables, the audit team determined that the ULRD was 7.8 percent. 12.8 percent. 4.5 percent. 3.3 percent.

12.8 percent.

What is the general order in which the following steps in attributes sampling are performed? 1 = Define the population 2 = Determine the objective of sampling 3 = Determine the sample size 4 = Select the sample 1, 2, 3, 4. 2, 1, 3, 4. 1, 2, 4, 3. 2, 1, 4, 3.

2, 1, 3, 4.

Which of the following components of the audit risk model is most closely associated with attributes sampling? Audit risk. Control risk. Detection risk. Inherent risk.

Control risk.

Which of the following components of the audit risk model is most closely associated with attributes sampling? Detection risk. Audit risk. Control risk. Inherent risk.

Control risk.

Which of the following components of the audit risk model is most closely associated with variables sampling? Audit risk. Risk of material misstatement. Detection risk. Analytical procedures risk.

Detection risk.

Which of the following allow the auditor to limit the exposure to sampling risk? Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: Yes Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: No Determining an appropriate sample size: No; Performing an appropriate audit procedure: Yes Determining an appropriate sample size: No; Performing an appropriate audit procedure: No

Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: No

Which of the following factors is most likely established based on the results of prior audit examinations? Expected misstatement. Population size. Risk of incorrect acceptance. Tolerable misstatement.

Expected misstatement.

If auditors are appointed on January 3, 2017, the date of the financial statements is December 31, 2017, the date of the auditors' report is February 7, 2018, and the audit report release date is March 3, 2018, what is the appropriate date of the written representations? January 3, 2017 December 31, 2017 February 7, 2018 March 3, 2018

February 7, 2018

The primary benefit of using nonstatistical sampling is that It generally results in a smaller sample size. It removes the need to consider allowance for sampling risk. It is simpler to use. All of the choices are true.

It is simpler to use.

When examining the client's internal control, what is the relationship of each of the following with sample size? Expected rate of deviation Risk of overreliance A. Direct Direct B. Direct Inverse C. Inverse Inverse D. Inverse Direct Option A Option B Option C Option D

Option B

Which of the following reporting options is available if the client refuses to provide auditors with written representations? Unmodified or qualified opinion Qualified or adverse opinion Qualified opinion or disclaimer of opinion Disclaimer of opinion or adverse opinion

Qualified opinion or disclaimer of opinion

An increase in which of the following would cause the sample size in a test of controls to decrease? Expected population deviation rate Risk of overreliance Risk of underreliance Population size

Risk of overreliance

A type of sampling application in which a relatively small initial sample is examined and decisions regarding expanding that sample are based on the results of this initial sample is known as Discovery sampling. Sequential sampling. Attributes sampling. Statistical sampling.

Sequential sampling.

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

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

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

actual misstatement.

Mary Todd is auditing White House Furniture. In selecting a sample of purchases, she finds that a purchase order is missing. She should: select another purchase to test. have the client recreate the purchase order. consider the sample item a deviation. ask the client if the purchase was authorized.

consider the sample item a deviation.

Roll-forward work normally occurs between the ____ and the ____. beginning of the year under audit; audit report release date date of the financial statements; audit report release date beginning of the year under audit; date of the financial statements date of interim work; date of the auditors' report

date of interim work; date of the auditors' report

Tests performed by auditors that examine evidence for both control attributes and monetary misstatements are known as: standard-purpose tests. multi-function tests. dual-purpose tests. substantive tests.

dual-purpose tests.

While performing an audit of accounts receivable, Allen, CPA, found that the sample results supported the conclusion that the accounts receivable balance was materially misstated. However, the balance was, in fact, not materially misstated. This situation illustrates the risk of: incorrect rejection. incorrect acceptance. Overreliance. Underreliance.

incorrect rejection.

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to: Eliminate nonsampling risk. reduce the level of audit risk and overall materiality to a relatively low level. measure the sufficiency of the evidence gathered. minimize the failure to detect misstatements and irregularities.

measure the sufficiency of the evidence gathered.

Which of the following statements is most likely to be included in an attorney letter? "Please furnish to our auditors such explanation, if any, that you consider necessary to supplement the foregoing information." "Certain representations in this letter are described as being limited to matters that are material." "If any unasserted claims or assessments are omitted from this disclosure, please provide this information directly to our auditors." "Our work enabled us to notice some actions that could enhance the profitability of the Company."

"Please furnish to our auditors such explanation, if any, that you consider necessary to supplement the foregoing information."

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 $1,000 $833 $960 $10,000

$1,000

After the audit report release date, auditors determine that an important auditing procedure was omitted. Which of the following initial courses of action is most appropriate? Engage another public accounting firm to conduct a quality assurance review. Notify the board of directors and regulatory agencies that are currently relying on auditors' reports. Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements. Perform the omitted procedure or an alternative procedure.

Determine whether the omitted procedure is important in supporting the auditors' opinion on the entity's financial statements.

Which of the following best describes the auditors' responsibility with respect to management's estimates? Verifying the mathematical accuracy of management estimates Assessing the likelihood that actual results will be consistent with management's estimates Evaluating the reasonableness of management's estimates Identifying how the failure of the entity to achieve management's estimates will influence users' decisions

Evaluating the reasonableness of management's estimates

Which of the following audit procedures is most likely to be conducted only after year-end? Evaluation of management's adjusting journal entries to the financial statements. Accounts receivable confirmations as evidence of existence and valuation of balance sheet accounts receivable balance. Testing of property, plant, and equipment disposals to validate balance sheet PP&E account. Analysis of stockholders' equity transactions to validate balance sheet equity accounts.

Evaluation of management's adjusting journal entries to the financial statements.

In an audit of contingent liabilities, which of the following procedures would be least effective? Examining customer confirmation replies Reviewing a bank confirmation letter Examining invoices for professional services Reading the minutes of the board of directors meetings

Examining customer confirmation replies

Which of the following procedures would auditors most likely perform in obtaining evidence about subsequent events? Determine that changes in employee pay rates after year end were properly authorized. Recompute depreciation charges for plant assets sold after year end. Inquire about payroll checks that were recorded before year end but cashed after year end. Investigate changes in long-term debt occurring after year end.

Investigate changes in long-term debt occurring after year end.

Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events? Investigate changes in shareholders' equity occurring after the date of the financial statements. Recompute a sample of large-dollar transactions occurring after the date of the financial statements for arithmetic accuracy. Confirm bank accounts established after the date of the financial statements. Send confirmations to vendors with whom the client normally does business but for which no balance in accounts payable is noted.

Investigate changes in shareholders' equity occurring after the date of the financial statements.

A. Griffin audited the financial statements of Dodger Magnificat Corporation for the year ended December 31, 2017. She completed gathering sufficient appropriate evidence on January 30 and later learned of a stock split voted by the board of directors on February 5. The financial statements were changed to reflect the split, and she now needs to dual date the report on the entity's financial statements. Which of the following is the proper form? December 31, 2017, except as to Note X, which is dated January 30, 2018. January 30, 2018, except as to Note X, which is dated February 5, 2018. December 31, 2017, except as to Note X, which is dated February 5, 2018. February 5, 2018, except for the date of the auditor's report, for which the date is January 30, 2018.

January 30, 2018, except as to Note X, which is dated February 5, 2018.

Assume that Krenzel Company is subject to a class action lawsuit from its customers resulting from the failure of one of its projects. The suit was filed on November 10, 2014 and properly disclosed in Krenzel's December 31, 2014 financial statements. Krenzel's auditors completed their engagement and their report (along with Krenzel's financial statements) were released on February 5, 2015. How would a settlement of this lawsuit on January 17, 2015 be properly reflected in Krenzel's financial statements? Krenzel would adjust its disclosure of the lawsuit to reflect the effects of this settlement. Krenzel would prepare pro forma financial statements to reveal the effects of this settlement. The financial statements would not reflect the settlement of the lawsuit, since it occurred after the date of the financial statements. Krenzel would provide a separate disclosure to persons known to be relying on its financial statements to describe the effects of this settlement.

Krenzel would adjust its disclosure of the lawsuit to reflect the effects of this settlement.

Which of the following subsequent events would represent an event that provides information about conditions that arose following the date of the financial statements? Settlement of long outstanding litigation Collection of a past due accounts receivable Loss of inventory as a result of a flood An additional tax assessment on prior income

Loss of inventory as a result of a flood

Which of the following is not required by generally accepted auditing standards? Written representations. Engagement letter. Management letter. Attorney letter.

Management letter.

The scope of an audit is not restricted when an attorney letter limits the response to An evaluation of the likelihood of an unfavorable outcome of the matters disclosed by the entity. The attorney's opinion of the entity's historical experience in recent similar litigation. The probable outcome of asserted claims and pending or threatened litigation. Matters to which the attorney has given substantive attention in the form of legal representation.

Matters to which the attorney has given substantive attention in the form of legal representation.

Auditors conclude that the omission of a substantive procedure considered necessary at the time of the examination may impair their present ability to support the previously-expressed opinion. Auditors need not try to perform the omitted procedure if the risk of adverse publicity or litigation is low. some financial statement users are currently relying on the auditors' reports. the auditors' opinion was qualified because of a departure from generally accepted accounting principles. the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.

the results of other procedures that were applied at the time compensated adequately for the omitted procedure by providing sufficient appropriate evidence.

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the: date of the financial statements. date of the auditors' report. audit report release date. subsequent year's date of the financial statements.

audit report release date.

Auditors must complete various phases of an audit after the date of the financial statements. The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the date of the auditors' report. final review of the audit documentation. audit report release date. delivery of the auditors' reports to the client.

audit report release date.

An engagement quality review by a second partner of the audit documentation and financial statements is performed to ensure that the: "to-do lists" are reviewed and cleared. audit plan procedures are "signed off." tick-mark notations are cleared. audit work meets the quality standards of the firm.

audit work meets the quality standards of the firm.

Which of the following is ordinarily performed last in the audit examination? Performing tests of controls. Performing a review for subsequent events. Obtaining signed written representations. Securing a signed engagement letter from the client.

Obtaining signed written representations.

The primary source of information auditors use to obtain information about litigation, claims, and assessments is the client's attorney. court records. client's management. independent auditors.

client's management.

If an entity had litigation pending at the date of the financial statements and auditors learn of the outcome of this litigation following the date of their report (but prior to the audit report release date), this is known as a(an): omitted procedure. prior period adjustment. subsequent event. subsequently discovered fact.

subsequently discovered fact.

When evaluating the effectiveness of a client's internal controls with a tolerable rate of deviation of 5 percent, the audit team determined the upper limit rate of deviation to be 4 percent. Based on this information, which of the following decisions would the audit team most likely make? Reduce the planned degree of reliance on internal controls. Increase the extent of further audit procedures. Rely on internal controls as planned. Expand the sample to examine additional applications of the control.

Rely on internal controls as planned.

Which of the following characteristics of substantive procedures is most closely associated with the use of sampling? Extent of further audit procedures. Nature of further audit procedures. Timing of further audit procedures. All of these are closely associated with the use of sampling.

Extent of further audit procedures.

The sample size for a test of controls varies inversely with: expected population deviation rate: Yes; tolerable rate of deviation: Yes. expected population deviation rate: No; tolerable rate of deviation: No. expected population deviation rate: Yes; tolerable rate of deviation: No. expected population deviation rate: No; tolerable rate of deviation: Yes.

expected population deviation rate: No; tolerable rate of deviation: Yes.

A sample selection method in which items are selected in a nonsystematic manner is referred to as: block selection. haphazard selection. systematic random selection. unrestricted random selection.

haphazard selection.

When the auditor concludes that a control is functioning properly when, in fact, it is not, the auditor has committed the: risk of underreliance. risk of overreliance. risk of incorrect acceptance. risk of incorrect rejection.

risk of overreliance.

When the _____ exceeds the _____, the audit team is exposed to the risk of incorrect acceptance. upper limit on misstatements; tolerable misstatement tolerable misstatement; expected misstatement tolerable misstatement; upper limit on misstatements upper limit on misstatements; expected misstatement

tolerable misstatement; upper limit on misstatements

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 3% 2% Cannot be determined without knowing standard deviation. 4%

Place the following steps in the sampling process in the order in which they are performed .1 = Measure sample items 2 = Select sample items 3 = Define the population 1, 2, 3. 3, 1, 2. 2, 1, 3. 3, 2, 1.

3, 2, 1.

Williams, CPA, determined that the appropriate sample size for a test of controls related to the completeness of purchase transactions was 148 items. Using the AICPA Sample Size Tables, which of the following represent assessments that could have been made by Williams to determine this sample size? 5% risk of overreliance, 4% tolerable rate of deviation, and 1% expected population deviation rate. 5% risk of overreliance, 7% tolerable rate of deviation, and 3.25% expected population deviation rate. 10% risk of overreliance, 8% tolerable rate of deviation, and 2% expected population deviation rate. 10% risk of overreliance, 15% tolerable rate of deviation, and 1.75% expected population deviation rate.

5% risk of overreliance, 7% tolerable rate of deviation, and 3.25% expected population deviation rate.

An auditor is examining an important internal control in his audit of ABC Company. Because the account balance affected by this control is highly susceptible to fraud, she will reject the sample if even one deviation is discovered. What type of sampling plan should she use? Attributes sampling. Discovery sampling. Sequential sampling. Statistical sampling.

Discovery sampling

Which of the following does not have a direct relationship with sample size? Expected population deviation rate. Population size. Risk of overreliance. All of these have a direct relationship with sample size.

Risk of overreliance.

Under monetary unit sampling, the sampling interval is determined by dividing the _____ by the _____. sample size; population size population size; sample size tolerable misstatement; population size population size; tolerable misstatement

population size; sample size

In classical variables sampling, a measure of the variability of the population is known as the sampling average. tolerable misstatement. standard deviation. tainting percentage.

standard deviation.

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 $600. $900. $2,000. $3,000.

$2,000.

If the recorded amount of the sample item is $1,000, the audited value is $600, and the sampling interval is $5,000, the projected misstatement would be: $3,000. $2,000. $1,000. $400.

$2,000.

Jeter, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Big Apple Company and estimated the account balance based on the ratio of audited value to recorded balances. He audited 200 items from a sample and found an audited value of $36,000. The sample had a recorded balance of $40,000. If the entire inventory contained 3,000 items and the total recorded balance of the inventory was $500,000, the estimated account balance using nonstatistical estimation and projecting the error based on number of items examined is: $393,600. $474,500. $450,000. $540,000.

$450,000.

Green, CPA, performed a mean-per-unit sampling plan to examine the inventory balances of ABC Company. Green audited 120 items from a sample and found an audited value of $24,600. The sample had a recorded balance of $30,000. If the entire inventory contained 2,400 items and the total recorded balance of the inventory was $480,000, the estimated account balance using mean per unit estimation is: $393,600. $474,500. $480,000. $492,000.

$492,000.

In a classical variables sampling application, the auditor determines there is a 95 percent probability that the true (but unknown) value of an entity's accounts receivable is between $45,000 and $55,000. If the estimated population value is $50,000, the precision is $10,000. $5,000. 95 percent. 5 percent.

$5,000.

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 $2,300 $500 $300 $800

$500

A client's inventory is recorded at $600,000 and is comprised of 1,000 items. The auditors examined a sample of items with a recorded balance of $100,000 and determined an audited value of $90,000. What is the estimated audited value for inventory? $90,000 $540,000 $590,000 $666,666

$540,000

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: $500. $5,000. $6,000. $20,000.

$6,000.

Allister is auditing a client's accounts balance recorded at $500,000 using monetary unit sampling and determined a sample size of 100 items. The following two misstatements were identified as a result of the substantive tests: Recorded Balance *Audited Amount $4,000 $1,000 $2,000 $1,500 Confidence factors for a 5 percent risk of incorrect acceptance are shown below: Overstatement* ErrorsFactor 0 3.00 1 4.75 2 6.30 What is the incremental allowance for sampling risk? $3,500 $5,000 $8,500 $15,000

$8,500

The audit team is using monetary unit sampling to examine an entity's accounts receivable balance, which is recorded at $500,000. The team has determined the tolerable misstatement to be $25,000, the risk of incorrect acceptance to be 5 percent, and the expected misstatement to be 2 percent. Using the monetary unit sampling Sample Size Table, what is the appropriate sample size? 75 162 231 300

162

If systematic selection is used with a starting point of 10, a population size of 100, and a necessary sample size of 20, the first three items selected for examination would be 10, 15, 20. 10, 110, 210. 15, 20, 25. 110, 210, 310.

10, 15, 20.

Baily Cox, an audit manager, judged that the test of controls of the company's 50,000 purchase transactions should be based on a tolerable rate of deviation of 6 percent, a risk of overreliance of 5 percent, and an expected population deviation rate of 3 percent. Using AICPA sample size tables, Cox determined that the appropriate sample size in this situation would be 132. 195. 49. 78.

195.

Smith, CPA, is using attributes sampling to test Swimmer Inc.'s internal controls related to the accuracy of sales invoices. Smith defined the population as all 5,000 of Swimmer's sales invoices and determined the appropriate sample size was 200 invoices. What is Smith's sampling interval if systematic random selection is used? 20 25 50 250

To determine the appropriate sample size for an attributes sampling application, Williams, CPA, defined the population to be 25,000 sales invoices. Williams then assessed the risk of overreliance to be 10%, the tolerable rate of deviation to be 4%, and the expected population deviation rate to be 2.5%. Using the AICPA Sample Size Tables, the appropriate sample size would be: 9. 13. 353. 513.

353.

If the audit team established a tolerable rate of deviation of 5%, an expected population deviation rate of 3%, and desired to control the risk of overreliance to 5%, what sample size would be appropriate in this situation? 132 items. 195 items. 258 items. 361 items.

361 items.

Rome, CPA, is examining the internal control of Smack, Inc. Rome has established a risk of overreliance of 10%, an expected population deviation rate of 1%, and a tolerable rate of deviation of 5%.Assume that a sample of 100 items was examined and 5 deviations were noted. What is the allowance for sampling risk? Using AICPA Sample Evaluation tables. 4.1 percent. 5 percent. 5.3 percent. 10.0 percent.

4.1 percent.

4.5%.

An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team expected that 3 percent of the sample invoices lacked proper approval. From the sample of 90 invoices, 7 were found to lack credit approval. Using AICPA sample evaluation tables. Based on the above information, the audit team determined that the allowance for sampling risk was 10.0 percent. 2.2 percent. 7.8 percent. 5.0 percent.

5.0 percent.

Assume that Dylan Lee found two deviations in a sample of 90 transactions. Using AICPA sample evaluation tables, Lee determined that the ULRD at a 5 percent risk of overreliance is 2.0 percent. 2.2 percent. 5.9 percent. 6.9 percent.

6.9 percent.

Rome, CPA, is examining the internal control of Smack, Inc. Rome has established a risk of overreliance of 10%, an expected population deviation rate of 1%, and a tolerable rate of deviation of 5%. Use AICPA Sample Size tables.What is the appropriate sample size that would be examined by Rome? 46 38 77 93

Assume that the audit team established a tolerable rate of deviation of 5%, an expected population deviation rate of 1%, and desired to control the risk of overreliance to 10%. What is the appropriate sample size in this situation? 77 items. 93 items. 132 items. 124 items.

77 items.

Rome, CPA, is examining the internal control of Smack, Inc. Rome has established a risk of overreliance of 10%, an expected population deviation rate of 1%, and a tolerable rate of deviation of 5%. Assume that a sample of 100 items was examined and 5 deviations were noted. What is the upper limit rate of deviation? Use AICPA Sample Evaluation Tables. 5.0 percent. 9.1 percent. 10.0 percent. 10.3 percent.

9.1 percent.

Auditors are evaluating an account with a recorded balance of $500,000 using mean-per-unit estimation. This account is comprised of 1,000 individual components. The auditors sampled 100 items and determined a total audited value of $52,500. Using a risk of incorrect acceptance of 10 percent, the auditors determined a precision of $40,000. If the tolerable misstatement is $50,000, which of the following is not true? The estimated recorded balance of this account is $525,000. A 90 percent probability exists that the true population value falls between $460,000 and $540,000. The auditors would conclude that the account balance is fairly stated. The probability that the auditors will incorrectly accept a materially misstated account balance is 10 percent.

A 90 percent probability exists that the true population value falls between $460,000 and $540,000.

Which of the following statements is not true if the precision interval for a sampling risk of 10 percent ranges from 60 to 70? The reliability is 90 percent. The precision is 5. A 90 percent probability exists that the true population value is less than 60 or more than 70. A 10 percent probability exists that the true population value is less than 60 or more than 70.

A 90 percent probability exists that the true population value is less than 60 or more than 70.

Which of the following factors would not result in a reduced sample size in monetary unit sampling? An increase in the risk of incorrect acceptance from 5 percent to 10 percent. A decrease in the expected misstatement from $5,000 to $3,000. A decrease in the tolerable misstatement from $15,000 to $10,000. A decrease in the recorded balance from $200,000 to $185,000.

A decrease in the tolerable misstatement from $15,000 to $10,000.

Which of the following deviations would probably be of most concern to auditors? A deviation resulting from an employee's unintentional error. A deviation that represents an isolated and nonrecurring mistake. A deviation that represents an employee's careless attention to duties. A deviation that has no implications with regard to the effectiveness of other controls.

A deviation that represents an employee's careless attention to duties.

Which of the following is typically not included in the inquiry letter sent to the client's attorneys? A disclaimer regarding the likelihood of settlement of pending litigation A listing of pending or threatened litigation, claims, or assessments An evaluation of the likelihood of an unfavorable outcome An estimate of the range of potential loss

A disclaimer regarding the likelihood of settlement of pending litigation

Which of the following statements are ordinarily not correct about the sample size in statistical sampling when testing controls? There is an inverse relationship between the amount of tolerable deviation rate and sample size. There is a direct relationship between the expected deviation rate and the sample size. There is an inverse relationship between the amount of acceptable risk of assessing the deviation rate too low and sample size. A larger population requires a proportionately larger sample size.

A larger population requires a proportionately larger sample size.

Which of the following statements is true regarding classical variables sampling? A very small dollar account has the same probability of being selected for examination as a very large dollar account. The determination of sample size requires auditors to consider a smaller number of factors than are considered under MUS. Classical variables sampling should be used when the auditor has greater concerns for overstatement (rather than understatement) errors. The sampling unit is defined as each individual dollar in the account under examination.

A very small dollar account has the same probability of being selected for examination as a very large dollar account.

Solo, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Hope Inc., and estimated the account balance by projecting the misstatement based on the number of items examined. In selecting her sample of 70 items, she used an expected misstatement of $40,000 and a tolerable misstatement of $65,000. The account balance consisted of 1,050 items totaling $1,200,000. The sample recorded balance was $80,000, and the audited value was $76,000. What conclusion did Solo draw regarding the account balance? Accept because the expected misstatement is less than the tolerable misstatement. Reject because the expected misstatement is greater than the expected misstatement. Accept because the expected misstatement is less than the expected misstatement. Reject because the expected misstatement is greater than the tolerable misstatement.

Accept because the expected misstatement is less than the tolerable misstatement.

If a golf professional is interested in determining whether a golf ball can be hit over 300 yards, which of the following relationships between the adjusted sample estimate of distance and the actual distance would represent sampling risk? Adjusted estimate = 295 yards, Actual = 298 yards. Adjusted estimate = 305 yards, Actual = 301 yards. Adjusted estimate = 310 yards, Actual = 295 yards. All of these are examples of sampling risk.

Adjusted estimate = 310 yards, Actual = 295 yards.

If the sample evidence does not support the planned level of control risk, the audit team could Increase the assessed level of control risk. Perform additional substantive procedures, reducing the necessary level of detection risk. Expand the sample to achieve an observed upper limit rate of deviation less than the tolerable rate of deviation. All of the choices are acceptable.

All of the choices are acceptable.

Which of the following is not true with respect to the risk of overreliance? This risk has an inverse relationship with sample size. This risk may occur when the auditor's sample indicates that the control is functioning as expected. This risk may occur when the true (but unknown) population deviation rate is greater than the tolerable rate of deviation. All of the choices are true with respect to the risk of overreliance.

All of the choices are true with respect to the risk of overreliance.

Which of the following is not considered in establishing the sample size in a monetary unit sampling application? Expected misstatement. Population size. Risk of incorrect acceptance. All of these are considered.

All of these are considered.

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

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

While performing an audit of accounts payable, Clayton, CPA, is using variables sampling to determine the audited value of the account based on selected purchase orders. Which of the following options is most likely to reduce the necessary sample size? A decrease in the level of tolerable misstatement. An increase in the expected level of misstatement. An increase in the variability of the size of accounts payable transactions. An increase in the necessary risk of incorrect acceptance.

An increase in the necessary risk of incorrect acceptance.

In a classical variables sampling application, which of the following outcomes would typically not result from stratifying a population? A decrease in the population variability. A decrease in the expected sample size. An increase in the standard deviation. A higher likelihood of selecting higher dollar items.

An increase in the standard deviation.

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

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

Summitt, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Hero Inc. Which of the following methods of sample selection are available to her? Random and systematic only. Block and haphazard only. Any method she believes will result in a representative sample. Any method where the results can be probabilistically estimated.

Any method she believes will result in a representative sample.

Why does the risk of overreliance have an inverse relationship with sample size? As the audit team expects fewer deviations from the control policy or procedure, the audit team can appropriately examine fewer items. As the audit team is less concerned with making an incorrect conclusion with respect to reliance on the client's internal control, the audit team can appropriately examine fewer items. As the level of control risk increases, the audit team is placing less reliance on internal control and can appropriately examine fewer items. As the audit team requires greater compliance with the control policy or procedure, the audit team must examine a greater number of items.

As the audit team is less concerned with making an incorrect conclusion with respect to reliance on the client's internal control, the audit team can appropriately examine fewer items.

The type of sampling most frequently used by auditors during their study of internal control is referred to as Variables sampling. Attributes sampling. Control sampling. Monetary unit sampling.

Attributes sampling.

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

Attributes.

If you were interested in estimating each of the following, in which case would you be least likely to use attributes sampling? Average age of students in a class. Proportion of females in a class. Proportion of out-of-state students in a class. Proportion of students scoring below 60 on an exam.

Average age of students in a class.

How does the auditor typically determine the appropriate level of the risk of incorrect rejection when using classical variables sampling? Based on prior assessments of audit risk, risk of material misstatement, and analytical procedures risk. Based on the recorded amount of the account balance as well as the relationship of the account balance with important financial statement subtotals. Based on the findings in prior audits or based on a small sample taken during the current year. Based on the anticipated cost of conducting additional substantive procedures.

Based on the anticipated cost of conducting additional substantive procedures.

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? Basic allowance for sampling risk. Incremental allowance for sampling risk. Projected misstatement. Sampling interval.

Basic allowance for sampling risk.

Which of the following components of the upper limit on misstatements will exist in all monetary unit sampling applications, even in those where no misstatements are found? Basic allowance for sampling risk. Computed allowance for sampling risk. Incremental allowance for sampling risk. Projected misstatement.

Basic allowance for sampling risk.

MES is auditing a client's accounts receivable balance recorded at $2 million using MUS. The following parameters have been established for this account: Tolerable misstatement = $200,000 Expected misstatement = $100,000 Risk of incorrect acceptance = 5 percent Which of the following statements would not be true with respect to the sample size in this situation? The correct sample size is 116 customer accounts. Increasing tolerable misstatement from $200,000 to $600,000 (holding all other factors constant) will increase the sample size. If MES can accept a risk of incorrect acceptance of 10 percent (holding all other factors constant), sample size will be decreased to 80 accounts. Because the size of the population is relatively large, this element does not affect sample size.

Because the size of the population is relatively large, this element does not affect sample size.

An auditor is determining the appropriate sample size for a variables sampling application. Compared to prior engagements, the auditor concludes that the population variability has increased. In addition, the partner on the engagement is requiring lower levels of the risk of incorrect acceptance than those used in previous audits. What effect will these changes have on the auditor's determination of sample size? Both of these changes will decrease sample size. The increase in population variability will increase sample size; reducing sampling risk will have no effect on sample size. The increase in population variability will increase sample size; reducing sampling risk will decrease sample size. Both of these changes will increase sample size.

Both of these changes will increase sample size.

Which of the following is not true with respect to the use of monetary unit sampling (MUS)? MUS selects individual dollars from an account balance for verification. Compared to classical variables sampling, MUS allows the auditors to more effectively control their exposure to sampling risk. MUS estimates the extent of misstatement in an account balance or class of transactions. MUS provides the auditor with a more conservative estimate of the misstatement than classical variables sampling.

Compared to classical variables sampling, MUS allows the auditors to more effectively control their exposure to sampling risk.

Chang, CPA, performed a nonstatistical sampling plan to examine the inventory balances of PHD, Inc. In selecting her sample of 35 items, she used an expected misstatement of $20,000 and a tolerable misstatement of $32,000. The account balance consisted of 525 items totaling $600,000. The sample recorded value was $40,000, and the audited value was $38,000. What conclusion did Solo draw regarding the account balance? Conclude that the account balance is fairly stated because the difference between the recorded balance and audited balance is less than the tolerable misstatement. Conclude that the account balance is not fairly stated because the difference between the recorded balance and audited balance is greater than the expected misstatement. Conclude that the account balance is fairly stated because the difference between the recorded balance and audited balance is less than the expected misstatement. Conclude that the account balance is not fairly stated because the difference between the recorded balance and audited balance is greater than the tolerable misstatement.

Conclude that the account balance is fairly stated because the difference between the recorded balance and audited balance is less than the tolerable misstatement.

Which of the following would not ordinarily be considered when using analytical procedures to verify the overall reasonableness of revenue and expense accounts? Current-year recorded (unaudited) balances Expected balances using a statistical analysis or relationships among accounts Internal budgets and reports Prior-year balances

Current-year recorded (unaudited) balances

SCA is auditing a client's accounts receivable balance recorded at $10 million using MUS. The following parameters have been established for this account: Tolerable misstatement = $500,000 Expected misstatement = $100,000 Risk of incorrect acceptance = 10 percent Which of the following statements would not be true with respect to the sample size in this situation? The correct sample size is 69 customer accounts. Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will reduce the sample size by 331 accounts. If SCA wishes to reduce its exposure to the risk of incorrect acceptance to 5 percent (holding all other factors constant), sample size will be increased by 24 accounts. Increasing expected misstatement to $200,000 (holding all other factors constant) will increase the sample size to 115 customer accounts.

Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will reduce the sample size by 331 accounts.

As part of the assessment of control risk, the auditor decided to use audit sampling. After specifying the audit objectives, what would the auditor most likely do next? Determine the sample size. Select the sample. Perform tests of control procedures. Define the deviation conditions.

Define the deviation conditions.

Assume that the audit team wishes to determine the extent to which a particular control policy was functioning as intended. Identifying applications of the control throughout the period under audit would be most closely related to which of the following steps in sampling? Determining the objective of sampling. Defining the characteristic of interest. Defining the population. Determining the sample size.

Defining the population.

In which of the following circumstances would the auditor most likely use variables sampling? Identifying the susceptibility of the account balance to misstatement. Evaluating the operating effectiveness of specific control procedures. Evaluating the operating design of specific control procedures. Determining whether the client's accounts receivable balance is correctly recorded.

Determining whether the client's accounts receivable balance is correctly recorded.

The risks of incorrect acceptance in variables sampling and of overreliance in attributes sampling both relate to Efficiency of an audit. Effectiveness of an audit. Control risk assessment decisions. Evidence about assertions in financial statements.

Effectiveness of an audit.

Which of the following parties provides a review of audit documentation for the primary purpose of ensuring that the quality of the work and reporting is consistent with the quality standards of the public accounting firm? Audit supervisor. Engagement partner. Engagement quality reviewer. Audit manager.

Engagement quality reviewer.

Choose the correct statement(s) regarding an auditor's final assessment, near the end of an audit, of significant accounting estimates made by management: Recalculating most estimates is typical at this stage. Overly conservative estimates are preferable to overly aggressive estimates. A company's accounting for compensation plans involving stock options requires little additional scrutiny if the stock is publicly traded at a known market price. Estimates are reconsidered in relation to the financial statements as a whole.

Estimates are reconsidered in relation to the financial statements as a whole.

Which of the following steps would normally be performed last in a sampling application? Identify the objective of the sampling application. Examine sample items and determine the sample estimate. Determine the appropriate sample size. Determine the level of reliability for the sampling application

Examine sample items and determine the sample estimate.

An audit team would be most likely to use attributes sampling in which of the following situations? Performing analytical procedures during the planning stages of the audit. Evaluating management's integrity during the client acceptance process. Determining the effectiveness of the audit committee in evaluating the entity's control environment. Examining purchase requisitions for proper authorization.

Examining purchase requisitions for proper authorization.

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 Expected misstatement in the account. Overall materiality for the financial statements taken as a whole. Risk of assessing control risk too low. Risk of assessing control risk too high.

Expected misstatement in the account.

Which of the following is not a correct relationship between a factor and sample size in a monetary unit sampling application? Expected misstatement; Inverse. Recorded balance of the account; Direct. Risk of incorrect acceptance; Inverse. Tolerable misstatement; Inverse.

Expected misstatement; Inverse.

Tony LaRussa, an audit manager, considered the control risk assessments listed in the left column of the following table in evaluating A. Cardinal's internal control over sales transactions. The sample sizes for the substantive procedures of the customer accounts receivable are shown to the right of each control risk. What risk of overreliance (ROO) could be assigned for tests of controls at each control risk level? Control Risk *Accounts Receivable Sample * ROO 0.20 400 ? 0.50 390 ? 0.80 350 ? 0.90 190 10% From top to bottom: 10 percent, 1 percent, 5 percent. From top to bottom: 1 percent, 5 percent, 10 percent. From top to bottom: 1 percent, 10 percent, 5 percent. From top to bottom: 5 percent, 10 percent, 1 percent.

From top to bottom: 1 percent, 5 percent, 10 percent.

The risk of underreliance is the probability that the evidence in the sample indicates: Low control risk when the actual operating effectiveness of the control does not justify a low control risk assessment. Low control risk when the actual operating effectiveness of the control justifies a low control risk assessment. High control risk when the actual operating effectiveness of the control would justify a lower control risk assessment. High control risk when the actual operating effectiveness of the control would justify a higher control risk assessment.

High control risk when the actual operating effectiveness of the control would justify a lower control risk assessment.

The procedures for statistical evaluation of tests of controls with the AICPA Sample Evaluation Tables would not include the following step: Identify the population deviation rate. Identify the sample size in the left margin. Identify the number of actual deviations for the sample size. Identify the upper limit rate of deviation given the sample size and number of deviations.

Identify the population deviation rate.

Which of the following stages of the sampling process does not necessarily differ between statistical and nonstatistical sampling? Identifying the population. Determining sample size. Evaluating sample results. All of the choices differ between statistical and nonstatistical sampling.

Identifying the population.

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? Incorrect rejection. Incorrect acceptance. Assessing control risk too low. Assessing control risk too high.

Incorrect rejection.

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

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

The audit team is planning to examine a sample of control policies and procedures. Assume that the audit team establishes a tolerable rate of deviation of 6% and, based on past audits, estimates the expected population deviation rate to be 2%. Which of the following is not true with respect to the impact of the risk of overreliance on sample size? The risk of overreliance has an inverse impact on sample size. The risk of overreliance should be assessed at higher levels if the audit team wishes to place lower levels of reliance on internal control. If the audit team assesses the risk of overreliance at 10%, the resultant sample size would be 88 items. If the audit team reduced the risk of overreliance from 10% to 5%, the resultant decrease in the sample size would be 39 items.

If the audit team reduced the risk of overreliance from 10% to 5%, the resultant decrease in the sample size would be 39 items.

Which of the following is not correct with respect to sample size? In a statistical sampling application, the determination of sample size is used to control the auditor's exposure to nonsampling risk. As the desired level of sampling risk decreases, the necessary sample size decreases. Auditors determine sample size after defining the characteristic of interest and the population of interest. As the expected misstatement (or expected rate of deviation) increases, the necessary sample size increases.

In a statistical sampling application, the determination of sample size is used to control the auditor's exposure to nonsampling risk.

An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following types of sampling risks? Incorrect rejection. Incorrect acceptance. Assessing control risk too low. Assessing control risk too high.

Incorrect acceptance.

Which of the following is not true with respect to the risk of incorrect rejection? Incorrect rejection occurs when the auditor concludes that the account balance is not fairly stated. The risk of incorrect rejection has an inverse relationship with sample size. The risk of incorrect rejection exposes the auditor to an efficiency loss. Incorrect rejection occurs when the true (but unknown) account balance is materially misstated.

Incorrect rejection occurs when the true (but unknown) account balance is materially misstated.

Which of the following would not be an example of nonsampling risk in an attributes sampling application? Failure to perform the appropriate type of test of controls procedure. Failure to notice a deviation from prescribed control procedures. Incorrectly estimating the expected population deviation rate. Incorrectly accumulating the number of deviations.

Incorrectly estimating the expected population deviation rate.

Carson, CPA, judged that his test of controls of the company's 10,000 sales transactions should be based on a risk of overreliance of 10%, a tolerable rate of deviation of 8%, and an expected population deviation rate of 3.75%. Using the AICPA Sample Size Tables, which of the following modifications would not affect Carson's sample size? Decrease in the risk of overreliance from 10% to 5%. Increase in the tolerable rate of deviation from 8% to 10%. Increase in the expected population deviation rate from 3.75% to 4%. Decrease in the tolerable rate of deviation from 8% to 7%.

Increase in the expected population deviation rate from 3.75% to 4%.

The audit team is planning to examine a sample of control policies and procedures. Assume that, based on the intended degree of reliance on internal control, the audit team wishes to control the risk of overreliance to 5%. In addition, based on prior engagements, the audit team anticipates an expected deviation rate of 2%. What would be the impact of reducing the tolerable rate of deviation from 7% to 5% on the sample size? Increase sample size by 181 items. Decrease sample size by 181 items. Increase sample size by 93 items. Decrease sample size by 93 items.

Increase sample size by 93 items.

Which of the following is not an acceptable course of action the audit team can choose when sample evidence suggests that the account balance is materially misstated? Increase the tolerable misstatement and examine additional items. Increase the sample size and examine additional items. Recommend adjustment of the client's account balance. All of these are acceptable courses of action.

Increase the tolerable misstatement and examine additional items.

If an audit team calculated an ULRD of 5 percent when the tolerable rate of deviation was 4 percent, both at the same risk of overreliance, control risk should be Assessed at the level associated with the 4 percent tolerable rate of deviation. Assessed at the maximum level (100 percent) because the company's performance failed the test. Increased and substantive procedures should be adjusted accordingly. Decreased and substantive procedures should be adjusted accordingly.

Increased and substantive procedures should be adjusted accordingly.

Which of the following components of the upper limit on misstatements is based on the possibility that the sampling interval contains a greater degree of misstatement than the item examined by the auditor? Basic allowance for sampling risk. Incremental allowance for sampling risk. Projected misstatement. Risk of incorrect acceptance.

Incremental allowance for sampling risk.

Which of the following statements is not true with respect to nonstatistical sampling? It cannot be used in an audit conducted in accordance with generally accepted auditing standards. It considers a number of factors in determining the appropriate sample size. It requires the use of judgment on the part of the individual performing the sampling application. When using it, an individual makes some estimate of the characteristic of interest.

It cannot be used in an audit conducted in accordance with generally accepted auditing standards.

Which of the following is an advantage of nonstatistical sampling? It ensures that samples are randomly selected. It is typically less complex than statistical sampling. It measures the audit team's exposure to sampling risk. It is required by generally accepted auditing standards.

It is typically less complex than statistical sampling.

Samantha, CPA, decided to stratify the population in her statistical sampling plan. Which of the following is the most likely reason she used this approach? It eliminates the need for random selection. The population is relatively homogenous in terms of the dollar amount of components or transactions. It reduces her expected sample size. It eliminates the need for calculating the projected misstatement in the account being examined.

It reduces her expected sample size.

Which of the following is not true with respect to the risk of incorrect acceptance? It results in an efficiency loss to the auditor. It occurs when the auditor's sample indicates that the account balance is fairly stated. It occurs when the true misstatement in the account balance exceeds tolerable misstatement. The auditor can measure the exposure to this risk when using statistical sampling applications.

It results in an efficiency loss to the auditor.

The Orange Corporation was audited for the year ended December 31. The audit was completed on January 25; prior to the release of the report, auditors learned of a two-for-one stock split on February 1. If dual dating is used, what are the proper dates for the auditors' reports? December 31 and January 25 January 25 and February 1 January 25 and February 15 February 1 and February 15

January 25 and February 1

In which of the following situations would the auditor be more likely to use monetary unit sampling as opposed to classical variables sampling? Larger expected misstatement: Yes; Concern with overstatements: Yes Larger expected misstatement: Yes; Concern with overstatements: No Larger expected misstatement: No; Concern with overstatements: Yes Larger expected misstatement: No; Concern with overstatements: No

Larger expected misstatement: No; Concern with overstatements: Yes

Which of the following is not true with regard to the relationship among control risk, the risk of overreliance, and the tolerable rate of deviation? Lower levels of control risk result in a higher level of the risk of overreliance. Lower levels of the risk of overreliance result in a lower tolerable rate of deviation. Lower levels of control risk result in a lower tolerable rate of deviation. All of these are true.

Lower levels of control risk result in a higher level of the risk of overreliance.

A number of factors influence the sample size for a variables sampling application. All other factors held constant, which of the following would lead to a larger sample size? A lower assessed level of risk of material misstatement. Increased use of analytical procedures to obtain evidence about particular assertions. Lower frequency and magnitude of misstatements. Lower levels of tolerable misstatement.

Lower levels of tolerable misstatement.

Which of the following represents a major difference in the use of monetary unit sampling (MUS) and classical variables sampling? MUS is more effective in controlling the auditors' exposure to sampling risk than classical variables sampling. MUS considers both the expected misstatement and tolerable misstatement in the determination of sample size, while classical variables sampling only considers the expected misstatement. MUS defines the sampling unit as a dollar of an account balance while classical variables sampling defines the sampling unit as a component of an account balance. MUS is a nonstatistical sampling method while classical variables sampling is a statistical sampling method.

MUS defines the sampling unit as a dollar of an account balance while classical variables sampling defines the sampling unit as a component of an account balance.

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

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)? MUS methods typically include transactions or components reflecting relatively large dollar amounts. MUS methods are more effective in identifying overstatement errors. MUS methods provide a conservative (higher) estimate of misstatement in the account balance or class of transactions. MUS methods typically result in relatively small sample sizes.

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

Which of the following is an advantage of monetary unit sampling (MUS)? MUS provides a conservative (higher) estimate of misstatement in the account balance or class of transactions. MUS typically includes transactions or components reflecting relatively large dollar amounts. MUS does not require the auditor to estimate the amount of misstatement in the account balance or class of transactions. MUS is effective in identifying misstatements in accounts where understatement is a primary concern (such as liabilities).

MUS typically includes transactions or components reflecting relatively large dollar amounts.

Which of the following would typically result in nonsampling risk? Selecting a nonrepresentative sample. Making a mistake in recording sample results. Intentionally omitting several items in the population from examination. None of these result in nonsampling risk

Making a mistake in recording sample results.

Which of the following is not a subject that appears in written representations in the audit of both public and nonpublic entities? Information concerning fraud involving management. Management's responsibility for the fair presentation of the financial statements. Availability of all financial records and related data. Management's assessment of the effectiveness of its internal control over financial reporting.

Management's assessment of the effectiveness of its internal control over financial reporting.

Nonsampling risk normally occurs during which step of the sampling process? Defining the population. Selecting sample items. Measuring sample items. Evaluating sample results.

Measuring sample items.

Which of the following items would appear in written representations in the audit of a public entity but not a nonpublic entity? Statements related to management's responsibility for the entity's financial statements Statements related to management's responsibility for designing internal control to prevent and detect fraud An indication that all subsequent events have been disclosed to the auditors Management's opinion as to the effectiveness of its internal control over financial reporting

Management's opinion as to the effectiveness of its internal control over financial reporting

Hall accepted an engagement to audit the year 1 financial statements of XYZ Company. XYZ completed the preparation of the year 1 financial statements on February 13, year 2, and its auditors began the fieldwork on February 17, year 2. Hall completed gathering sufficient appropriate evidence on March 24, year 2; Hall's report and XYZ's financial statements were released on March 28, year 2. The written representations normally would be dated March 24, year 2. February 13, year 2. March 28, year 2. February 17, year 2.

March 24, year 2.

Which of the following most closely represents an unrestricted random selection procedure? Identifying a starting point within the population and bypassing a fixed number of items. Matching items in the population to a series of randomly selected numbers. Randomly selecting invoices to customers whose last names start with "W". Randomly picking items from an accounts receivable file.

Matching items in the population to a series of randomly selected numbers.

What is an auditor's evaluation of a statistical sample for attributes when a test of 100 documents results in 4 deviations if the tolerable rate of deviation is 5%, the expected population deviation rate is 3%, and the allowance for sampling risk is 2%? Accept the sample results as support for planned reliance on the control because the tolerable rate of deviation less than allowance for sampling risk equals the expected population deviation rate. Modify planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation. Modify planned reliance on the control because the tolerable rate of deviation plus the allowance for sampling risk exceeds the expected population deviation rate. Accept the sample results as support for planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

Modify planned reliance on the control because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

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%? Modify the planned assessed level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate. 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. 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. Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.

Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.

A method of variables sampling that defines the population as the number of dollars in an account balance or class of transactions is referred to as: Attributes sampling. Classical variables sampling. Mean-per-unit sampling. Monetary unit sampling.

Monetary unit sampling.

Which of the following selection methods selects individual dollars within an account balance or class of transactions for examination? Attribute sampling. Classical variables sampling. Monetary unit sampling. Nonstatistical variables sampling.

Monetary unit sampling.

Which of the following types of variables sampling plans has a tendency to select higher-dollar items for examination? Difference estimation. Mean-per-unit estimation. Monetary unit sampling. Ratio estimation.

Monetary unit sampling.

If an audit team examined 100 transactions and found one deviation from an important control procedure, the audit conclusion could be that control risk can be assessed at the associated control risk level when More information about decision criteria is available. The tolerable rate of deviation is 3 percent. The tolerable rate of deviation is 2 percent. The tolerable rate of deviation is 4 percent.

More information about decision criteria is available.

Which of the following events occurring after the audit report release date most likely would cause auditors to make further inquiries about the previously-issued financial statements? An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern. A contingency is resolved that had been disclosed in the audited financial statements. New information is discovered concerning undisclosed lease transactions during the period under audit. A subsidiary is sold that accounts for 25% of the entity's consolidated net income.

New information is discovered concerning undisclosed lease transactions during the period under audit.

Harriott, CPA is conducting an audit of Calashni Co. and receives a letter from Calashni Co.'s attorney stating the following regarding the company's only pending lawsuit: OutcomeProbabilityGain or LossWinMost likelyGain of $500,000LosePossibleLoss of $500,000LoseRemoteLoss of $1,500,000 Harriott notes there is no entry in the accounting records regarding the effects of the pending litigation. As a result, what type and amount of adjusting journal entry should Harriott propose? A loss contingency of $500,000. None. A gain contingency of $500,000. A loss contingency of $1,500,000.

None.

Which of the following statements about audit sampling risks is correct? Nonsampling risk arises from the possibility that, when a substantive test is related to a sample of items, conclusions might be different than if the auditor had tested each item in the population. Nonsampling risk can arise because an auditor failed to recognize misstatements. Sampling risk is derived from the uncertainty in applying audit procedures to specific risks. Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective.

Nonsampling risk can arise because an auditor failed to recognize misstatements.

Mistakes made in evaluating sample items that were appropriately selected from the population are an example of: Evidence risk. Evaluation risk. Nonsampling risk. Sampling risk.

Nonsampling risk.

Which of the following statements best describes nonstatistical sampling? Nonstatistical sampling does not allow the auditor to measure the exposure to sampling risk. Nonstatistical sampling only selects very large dollar items for examination. Nonstatistical sampling should be used only in situations in which the auditor anticipates issuing a qualified or adverse opinion on the client's financial statements. Nonstatistical sampling should be used when the auditor selects a substantive audit approach.

Nonstatistical sampling does not allow the auditor to measure the exposure to sampling risk.

Which of the following statements is correct regarding nonstatistical sampling? Nonstatistical sampling must use random selection techniques. The sample size when using nonstatistical sampling methods is generally not comparable to that determined using statistical sampling methods. Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk. When using nonstatistical sampling, the audit team is not required to select a sample that is representative of the population.

Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk.

For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit? Obtaining evidence about assertions related to account balances or classes of transactions Evaluating the adequacy of evidence gathered in response to unexpected account balances Identifying unusual or unexpected account balances or relationships among account balances that were not previously identified during the audit Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances

Obtaining evidence about assertions related to account balances or classes of transactions

Which of the following statements is true regarding attributes sampling? Once the population reaches a certain size, population size has a limited impact on sample size. Auditors should use attributes sampling to evaluate controls, regardless of the degree of reliance being placed upon the controls. When determining the appropriate sample size, the audit team will specifically control its exposure to both the risk of overreliance and the risk of underreliance. Tests of controls should only be applied to transactions occurring at the end of the year under audit because the audit team wants to reach a conclusion about control risk at year end.

Once the population reaches a certain size, population size has a limited impact on sample size.

Which of the following actions can be used to control the audit team's exposure to sampling risk? Determining an appropriate sample size*Performing appropriate types of audit Procedures A.Yes No B.Yes Yes C.No Yes D.No No Option A Option B Option C Option D

Option A

Which of the following is considered to be an advantage of monetary unit sampling compared to classical variables sampling? Selection of larger components * Ability to identify understatements A. Yes No B. No No C. No Ye D. Yes Yes Option A Option B Option C Option D

Option A

When examining the client's internal control, what is the relationship of each of the following with sample size? Expected rate of deviation * Risk of overreliance A.Direct Direct B.Direct Inverse C.Inverse Inverse D.Inverse Direct Option A Option B Option C Option D

Option B

Which of the following factors has a direct relationship with sample size in an attributes sampling application? Tolerable Rate of Deviation Expected* Population Deviation Rate a.Yes Yes b.No Yes c.Yes No d.No No Option A Option B Option C Option D

Option B

Which of the following components of the upper limit on misstatements is affected by misstatements detected during the audit examination? Basic allowance for sampling risk * Incremental allowance for sampling risk A. Yes No B. No No C. No Yes D. Yes Yes Option A Option B Option C Option D

Option C

Which of the following sampling risks does the audit team control in an attributes sampling application (ROO = risk of overreliance, ROU = risk of underreliance)? ROO * ROU a.YesYes b.NoYes c.YesNo d.NoNo Option A Option B Option C Option D

Option C

With respect to the use of attributes sampling, in which of the following steps would nonstatistical sampling and statistical sampling differ? Defining the population * Evaluating sample results A. Yes Yes B. Yes No C. No Yes D. No No Option A Option B Option C Option D

Option C

Documentation is required during which of the following stages of the sampling process? Measuring Sample Items*Evaluating Sample Results A.Yes No B.No No C.No Yes D.Yes Yes Option A Option B Option C Option D

Option D

Which of the following sample selection techniques can be used with statistical sampling applications? Block selection Haphazard A.YesNo B.YesYes C.NoYes D.NoNo Option A Option B Option C Option D

Option D

Which of the following is appropriately used for statistical sampling applications? Unrestricted Random Selection * Block Selection a. Yes Yes b. Yes No c. No Yes d. No No Option a Option b Option c Option d

Option b

In an audit sampling application, an auditor Performs procedures on less than 100 percent of the items in a balance and formulates a conclusion about the entire balance. Performs procedures on less than 100 percent of the items in a class of transactions to become familiar with the client's accounting system. Performs procedures on all items in a balance and makes a conclusion about the entire balance. Performs analytical procedures on the client's unaudited financial statements when planning the audit.

Performs procedures on less than 100 percent of the items in a balance and formulates a conclusion about the entire balance.

Which of the following statements is true regarding performance materiality in a monetary unit sampling application? Performance materiality replaces the overall level of financial statement materiality. Expected misstatement is the application of performance materiality to a particular sampling procedure. Performance materiality addresses the risk that the aggregate of individually material misstatements may not cause the financial statements to be materially misstated. Performance materiality provides auditors with a conservative measure that considers the presence of undetected misstatements.

Performance materiality provides auditors with a conservative measure that considers the presence of undetected misstatements.

Which of the following procedures is not used in auditors' examination of litigation, claims, and assessments? Obtaining a description and evaluation of litigation, claims, and assessments from management Examining documentary evidence regarding litigation, claims, and assessments Reading minutes of meetings of stockholders, directors, and appropriate committees Performing analytical procedures

Performing analytical procedures

Which of the following substantive procedures would not ordinarily be used by auditors in evaluating the potential existence of subsequent events? Reviewing the latest interim financial statements Performing cut-off testing near year end Inquiring of officers and other client executives Obtaining written representations

Performing cut-off testing near year end

Which of the following would not be a situation in which the auditor would apply attributes sampling? Examining sales invoices for evidence that client personnel verified the mathematical accuracy of the invoices. Performing price tests for items listed on the client's year-end inventory. Ensuring that sales invoices are supported by a valid shipping document. The auditor would apply attributes sampling in all of the above situations.

Performing price tests for items listed on the client's year-end inventory.

Which of the following major stages of the audit is most closely related to variables sampling? Determining preliminary levels of performance materiality. Performing tests of controls procedures. Performing substantive procedures. Searching for the possible occurrence of subsequent events.

Performing substantive procedures.

Which of the following major stages of the audit is most closely related to attributes sampling? Performing substantive procedures. Performing tests of controls. Determining preliminary levels of materiality. Searching for the possible occurrence of subsequent events.

Performing tests of controls.

Which of the following is not a method that auditors use to control their exposure to sampling risk during the examination? Ensuring that all items have an equal opportunity to be selected. Evaluating sample results using a mathematical basis. Performing the appropriate audit procedure. Determining an appropriate sample size.

Performing the appropriate audit procedure.

The distance from the sample estimate that has a certain likelihood (equal to reliability) of including the true population value is known as the Precision interval. Precision. Confidence. Mean.

Precision.

The numeric distance from the estimated population value in which the true (but unknown) population value may lie with a given probability. Confidence. Precision. Reliability. Sample error.

Precision.

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

Provide an objective basis for quantitatively evaluating sampling risk.

Which of the following set of conditions would provide the auditor with the smallest sample size under monetary unit sampling (RIA = risk of incorrect acceptance, EM = expected misstatement, TM = tolerable misstatement, PS = population size)? RIA = 5 percent, EM = $7,500, TM = $15,000, PS = $150,000. RIA = 5 percent, EM = $5,000, TM = $10,000, PS = $200,000. RIA = 5 percent, EM = $2,000, TM = $10,000, PS = $100,000. RIA = 5 percent, EM = $7,500, TM = $15,000, PS = $300,000.

RIA = 5 percent, EM = $2,000, TM = $10,000, PS = $100,000.

Which of the following procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events? Confirming a sample of material accounts receivable established after year-end Comparing the financial statements being reported on with those of the prior period Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements Inquiring as to whether any unusual adjustments were made just before year-end

Reading minutes of meetings of owners, management, or those charged with governance held after the date of the financial statements

Auditors consider statistical sampling to be characterized by the following: Carefully biased sample selection and mathematical evaluation of the results. Representative sample selection and nonmathematical evaluation of the results. Carefully biased sample selection and nonmathematical evaluation of the results. Representative sample selection and mathematical evaluation of the results.

Representative sample selection and mathematical evaluation of the results.

Which of the following normally occurs earliest in the audit examination? Discovery of an omitted audit procedure. Dual dating the auditor's report on the entity's financial statements for subsequent events that exist at the date of the financial statements. Preparation of the management letter. Review of audit documentation.

Review of audit documentation.

What is an auditor's primary method to corroborate information on litigation, claims, and assessments? Reviewing the response from the client's lawyer to a letter of audit inquiry. Reviewing the written representation letter obtained from management. Verifying attorney-client privilege through interviews. Examining legal invoices sent by the client's attorney.

Reviewing the response from the client's lawyer to a letter of audit inquiry.

Holding other factors constant in a classical variables sampling application, an increase in which of these factors will cause sample size to increase? Risk of incorrect rejection: Yes; Risk of incorrect acceptance: No Risk of incorrect rejection: No; Risk of incorrect acceptance: Yes Risk of incorrect rejection: Yes; Risk of incorrect acceptance: Yes Risk of incorrect rejection: No; Risk of incorrect acceptance: No

Risk of incorrect rejection: No; Risk of incorrect acceptance: No

Which of the following risks expose the auditor to effectiveness losses? Risk of underreliance, risk of incorrect acceptance. Risk of overreliance, risk of incorrect rejection. Risk of underreliance, risk of incorrect rejection. Risk of overreliance, risk of incorrect acceptance.

Risk of overreliance, risk of incorrect acceptance.

Which of the following sampling risks is associated with the use of variables sampling? Risk of underreliance: Yes; Risk of incorrect rejection: Yes Risk of underreliance: Yes; Risk of incorrect rejection: No Risk of underreliance: No; Risk of incorrect rejection: Yes Risk of underreliance: No; Risk of incorrect rejection: No

Risk of underreliance: No; Risk of incorrect rejection: Yes

Which of the following sampling risks is associated with the use of attributes sampling? Risk of underreliance: Yes; Risk of incorrect rejection: Yes Risk of underreliance: Yes; Risk of incorrect rejection: No Risk of underreliance: No; Risk of incorrect rejection: Yes Risk of underreliance: No; Risk of incorrect rejection: No

Risk of underreliance: Yes; Risk of incorrect rejection: No

The audit team decided to reduce planned reliance on internal controls based on the results of attributes sampling. However, the actual rate of deviation in the population is lower than the tolerable rate of deviation. Which type of risk and loss is the audit team exposed to? Risk of overreliance; efficiency loss. Risk of underreliance; effectiveness loss. Risk of overreliance; effectiveness loss. Risk of underreliance; efficiency loss.

Risk of underreliance; efficiency loss.

Which of the following is not ordinarily associated with the time period following the audit report release date? Subsequently discovered facts. Omitted audit procedures. Roll-forward work. Management letters.

Roll-forward work.

An important control for sales on account is that all sales invoices are mathematically verified by the client. Which of the following would be the most appropriate population from which to select sample items? Entries in the general journal. Entries in the sales journal. Sales invoices. Shipping documents.

Sales invoices.

Which of the following best describes the method of determining the ULRD? Tolerable rate of deviation + Allowance for sampling risk. Risk of underreliance + Allowance for sampling risk. Sample rate of deviation + Allowance for sampling risk. Expected population deviation rate + Allowance for sampling risk.

Sample rate of deviation + Allowance for sampling risk.

Which of the following factors does not impact the sample size in an attributes sampling application? Expected population deviation rate. Risk of overreliance. Sample rate of deviation. Tolerable rate of deviation.

Sample rate of deviation.

Which of the following is not a judgment or estimate auditors must make when performing attributes sampling? Tolerable rate of deviation. Expected population deviation rate. Sample rate of deviation. Risk of overreliance.

Sample rate of deviation.

Which of the following situations is true with respect to sampling? Sampling results in a tradeoff of efficiency for greater effectiveness. Sampling is most useful when the need for exact information is very important. A well-designed sample can appropriately limit the exposure to nonsampling risk. Sampling is more appropriate when the number of items comprising the population is relatively large.

Sampling is more appropriate when the number of items comprising the population is relatively large.

Which of the following statements is true with regard to sampling? Sampling can only be used in situations in which the population is relatively homogenous in nature. Sampling is typically more efficient than examining the entire population. Sampling is typically more effective than examining the entire population. Sampling should be used when the need for more precise information is important.

Sampling is typically more efficient than examining the entire population.

Which of the following characteristics is appropriately related to the process of sampling? Sampling precisely identifies a characteristic of the population. Sampling requires various judgments on the part of the individual. Sampling normally is more effective than examining the population. Sampling is not significantly influenced by how the population is defined.

Sampling requires various judgments on the part of the individual.

Which of the following is the most effective method of identifying potential earnings management attempts? Analytical procedures Detailed substantive procedures Inquiry of client management and key financial personnel Scanning accounts for unusual items

Scanning accounts for unusual items

Which of these substantive procedures is not used to obtain evidence about contingencies? Scanning expense accounts for credit entries. Reading the minutes of the board of directors' meetings. Obtaining a letter from the client's attorney. Examining terms of sale in sales contracts.

Scanning expense accounts for credit entries.

Which of the following appropriately describes the effect of sample size on sampling risk? Selecting a smaller sample decreases sampling risk. Selecting a larger sample increases sampling risk. Selecting a smaller sample increases sampling risk. The size of a sample is unrelated to sampling risk.

Selecting a smaller sample increases sampling risk.

Which of the following practices is not used to control sampling risk? Selecting all items in the population for examination. Determining the sample size using mathematical methods. Ensuring that all items have an equal opportunity to be selected. Evaluating sample results using mathematical methods.

Selecting all items in the population for examination.

Which of the following would be the most likely situation in which an auditor would use variables sampling? Comparing the recorded balance in accounts receivable to expected balances or prior-years' balances. Selecting customer balances in accounts receivable for confirmation . Evaluating sales invoices for evidence of authorization by client personnel. Mathematically evaluating the client's provision for the allowance for doubtful accounts.

Selecting customer balances in accounts receivable for confirmation

Which of the following would not result in exposure to nonsampling risk? Measuring the characteristic of interest in an inappropriate manner. Selecting items that are not representative of the population of interest. Making an unintentional mistake in measuring the characteristic of interest. All of the choices would result in exposure to nonsampling risk.

Selecting items that are not representative of the population of interest.

In which of the following circumstances would the audit team most likely use attributes sampling? Selecting customer accounts receivable for confirmation. Selecting inventory items for verification of physical quantities. Selecting additions to property, plant, and equipment during the year. Selecting purchase orders for indication of proper authorization.

Selecting purchase orders for indication of proper authorization.

Which of the following is true with respect to the use of sequential sampling when used with attributes sampling? Sequential sampling is normally used when expected deviations occur at a relatively low rate in the population. Sequential sampling is normally used when the audit team wishes to place greater reliance on internal control. Sequential sampling may provide a more efficient sample size than the use of traditional attributes sampling. Sequential sampling will always provide auditors with the smallest final sample size for a given set of sampling parameters.

Sequential sampling may provide a more efficient sample size than the use of traditional attributes sampling.

Subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements? Storm damage of $1 million to the entity's buildings on March 1. Settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statements. Sale of an issue of new stock for $500,000 on January 30. Settlement of a damage lawsuit for a customer's injury sustained February 15 for $10,000.

Settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statements.

When determining sample size under monetary unit sampling, an audit team does not need to make a judgment or estimate of Audit risk. Tolerable misstatement. Expected misstatement. Standard deviation.

Standard deviation.

Which of the following is considered in determining the sample size in a classical variables sampling application but not in a monetary unit sampling application? Standard deviation: Yes; Risk of incorrect acceptance: Yes Standard deviation: Yes; Risk of incorrect acceptance: No Standard deviation: No; Risk of incorrect acceptance: Yes Standard deviation: No; Risk of incorrect acceptance: No

Standard deviation: Yes; Risk of incorrect acceptance: No

Which of the following is not an advantage of statistical sampling? Statistical sampling provides auditors with a sufficient sample size that controls exposure to sampling risk. Statistical sampling uses selection methods that expose all items in the population to selection. Statistical sampling evaluates the sample evidence in such a manner that controls exposure to sampling risk. Statistical sampling deploys audit procedures that allow auditors to more effectively evaluate evidence.

Statistical sampling deploys audit procedures that allow auditors to more effectively evaluate evidence.

Which of the following is not true with respect to the use of statistical and nonstatistical sampling? Statistical sampling allows the auditor to quantitatively measure the sufficiency of evidence gathered. Statistical sampling does not require auditors to utilize extensive judgment during the sampling process. Statistical sampling allows the auditor to make quantitative statements with respect to the results of the sampling procedures. Both statistical and nonstatistical sampling are permissible under generally accepted auditing standards.

Statistical sampling does not require auditors to utilize extensive judgment during the sampling process.

In which of the following types of sampling applications is the auditor exposed to sampling risk? Statistical sampling: Yes; Nonstatistical sampling: Yes Statistical sampling: Yes; Nonstatistical sampling: No Statistical sampling: No; Nonstatistical sampling: Yes Statistical sampling: No; Nonstatistical sampling: No

Statistical sampling: Yes; Nonstatistical sampling: Yes

Nonsampling risk can occur in which of the following types of sampling plans: Statistical sampling: Yes; Nonstatistical sampling: Yes Statistical sampling: Yes; Nonstatistical sampling: No Statistical sampling: No; Nonstatistical sampling: Yes Statistical sampling: No; Nonstatistical sampling: No

Statistical sampling: Yes; Nonstatistical sampling: Yes

Which of the following types of sampling applications can appropriately be used under generally accepted auditing standards? Statistical sampling: Yes; Nonstatistical sampling: Yes Statistical sampling: Yes; Nonstatistical sampling: No Statistical sampling: No; Nonstatistical sampling: Yes Statistical sampling: No; Nonstatistical sampling: No

Statistical sampling: Yes; Nonstatistical sampling: Yes

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? Increase the sample size to reduce the effect of the unusually large disbursements. Continue to draw new samples until all unusually large disbursements appear in the sample. Set the tolerable deviation rate at a lower level than originally planned. Stratify the cash disbursements population so that the unusually large disbursements are selected.

Stratify the cash disbursements population so that the unusually large disbursements are selected.

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? Set the tolerable misstatement at a lower level than originally planned. Stratify the cash disbursements population so that the unusually large disbursements are selected. Increase the sample size to reduce the effect of the unusually large disbursements. Continue to draw new samples until all the unusually large disbursements appear in the sample.

Stratify the cash disbursements population so that the unusually large disbursements are selected.

What is one of the primary benefits of stratifying a population? Stratifying the population allows different types of audit procedures to be performed on larger and smaller transactions or components. Stratifying the population allows the auditor to have a higher likelihood of reaching a favorable conclusion with respect to the client's financial statements. Stratifying the population allows the auditor to reduce the necessary sample size. Stratifying the population reduces the auditor's exposure to nonsampling risk.

Stratifying the population allows the auditor to reduce the necessary sample size.

Which of the following events or activities may occur following the audit report release date? Interim testing Roll-forward work Subsequent events Subsequently discovered facts

Subsequently discovered facts

An auditor determines that, due to accounting errors, both a company's expenses and revenues are materially understated, each by approximately the same amount. What is the auditor's most likely course of action in response to these findings? Document these findings but take no further action because net income will still be correct. Suggest adjusting entries to correct the understated expenses only. Suggest adjusting entries to correct both the understated expenses and understated revenues. Report the possible fraud scheme to the audit committee.

Suggest adjusting entries to correct both the understated expenses and understated revenues.

The projected misstatement is determined by multiplying the sampling interval by the Risk of incorrect acceptance. Incremental confidence factor. Confidence factor. Tainting percentage.

Tainting percentage.

Which of the following is found by dividing the amount of misstatement noted in a logical unit by the recorded amount of that logical unit? Sample size. Sampling interval. Projected misstatement. Tainting percentage.

Tainting percentage.

Which component of the expanded audit risk model is most closely associated with the risk of incorrect acceptance? Analytical procedures risk. Risk of material misstatement. Nonsampling risk. Test of details risk.

Test of details risk.

Auditors have a responsibility related to management's disclosure of new information related to subsequent events until The date of the auditor's report. The date of the financial statements. The following year's date of the financial statements. The audit report release date.

The audit report release date.

Which of the following statements is correct regarding an audit team's documentation requirements for attributes sampling? The audit team's conclusions do not need to be documented unless they decide to rely on internal control at planned levels. The audit team should document information regarding the number of deviations and sample deviation rate, but not the allowance for sampling risk. The audit team's documentation should include information about the control environment, including an assessment of management's integrity. The audit team's documentation should include information regarding all steps of the sampling process and implications of the conclusions reached on internal control reliance and substantive procedures.

The audit team's documentation should include information regarding all steps of the sampling process and implications of the conclusions reached on internal control reliance and substantive procedures.

Which of the following statements is true when selecting a sample of invoices from a population to perform tests of controls? The audit team should select a few more items than needed to replace any cases in which an invoice is missing or destroyed. If the audit team wishes to use statistical sampling, either block or haphazard selection is appropriate. Computerized audit techniques can be used to define the population but not to select sample items. The audit team's goal in selecting a sample is to increase the likelihood that it is representative of the population.

The audit team's goal in selecting a sample is to increase the likelihood that it is representative of the population.

In a variables sampling application, which of the following would not ordinarily be documented by the audit team? A description of the substantive procedures performed on each item selected. Information on how the audit team verified the completeness of the identified population. The method and parameters used to determine sample size. The audit team's rationale for the use of monetary unit sampling as opposed to other sampling techniques.

The audit team's rationale for the use of monetary unit sampling as opposed to other sampling techniques.

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

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

Why does the risk of incorrect rejection result in an efficiency loss to the auditor? Additional time is necessary to propose adjustments to the client's account balances. The auditor typically expands the sample to examine additional components or transactions of the account balance. More detailed audit procedures are performed on sample items already examined by the auditor. The auditor typically extends the study of internal control to attempt to obtain a reduction in the level of risk of material misstatement.

The auditor typically expands the sample to examine additional components or transactions of the account balance.

Which of the following is the most likely outcome when the upper limit rate of deviation is less than the tolerable rate of deviation? The auditor would be exposed to the risk of overreliance. The auditor would decide to reduce the planned degree of reliance on internal control. The auditor would increase the extent of further audit procedures. The auditor would be exposed to a potential efficiency loss.

The auditor would be exposed to the risk of overreliance.

Which of the following is the least likely outcome when the upper limit on misstatement exceeds the tolerable misstatement? The auditor would be exposed to the risk of incorrect rejection. The auditor would be exposed to an efficiency loss. The auditor would consider expanding the sample to evaluate additional transactions or components of the account balance. The auditor would conclude that the account balance is fairly stated.

The auditor would conclude that the account balance is fairly stated.

Which of the following is the least likely outcome when the upper limit on misstatements exceeds the tolerable misstatement? The auditor would be exposed to the risk of incorrect rejection. The auditor would be exposed to an efficiency loss. The auditor would consider expanding the sample to evaluate additional transactions or components of the account balance. The auditor would conclude that the account balance is fairly stated.

The auditor would conclude that the account balance is fairly stated.

If the tolerable rate of deviation is 6 percent, the acceptable risk of overreliance is 5 percent, and the upper limit rate of deviation is 4.8 percent, which of the following statements is not true? The probability that the population deviation rate is greater than 4.8 percent is 5 percent. The probability that the population deviation rate is less than or equal to 4.8 percent is 95 percent. The auditor would initially conclude that the internal control is not functioning as intended. The auditor has limited the exposure to the risk of overreliance to 5 percent.

The auditor would initially conclude that the internal control is not functioning as intended.

Communicating which of the following to the audit committee is not typically required of an auditor? Any disagreements with management. Any significant reclassifying journal entries proposed as adjustments by the auditor. The auditor's judgment of management integrity. The process used by management to make accounting estimates.

The auditor's judgment of management integrity.

Management's written representations should be in the form of a letter addressed to: The audit committee of the board of directors. The stockholders of the entity. The auditor. The board of directors.

The auditor.

Auditors are evaluating an account with a recorded balance of $700,000 using classical variables sampling. Based on an allowable risk of incorrect acceptance of 10 percent, the auditors have determined the following: Estimated account balance = $640,000 Precision = $20,000 Tolerable misstatement = $50,000 Which of the following best describes the auditors' decision and rationale for that decision? The auditors would accept the account balance as fairly stated, since the sample estimate falls outside of the precision interval. The auditors would conclude that the account balance is not fairly stated, since the sample estimate falls outside of the precision interval. The auditors would accept the account balance as fairly stated, since the difference between the upper bound of the precision interval and recorded balance is less than the tolerable misstatement. The auditors would conclude that the account balance is not fairly stated, since the difference between the lower bound of the precision interval and recorded balance exceeds the tolerable misstatement.

The auditors would accept the account balance as fairly stated, since the difference between the upper bound of the precision interval and recorded balance is less than the tolerable misstatement.

Auditors are evaluating an account with a recorded balance of $600,000 using classical variables sampling. Based on an allowable risk of incorrect acceptance of 5 percent, the auditors have determined the following: Estimated account balance = $680,000 Precision = $20,000 Tolerable misstatement = $50,000 Which of the following best describes the auditors' decision and rationale for that decision? The auditors would accept the account balance as fairly stated, since the sample estimate falls outside of the precision interval. The auditors would conclude that the account balance is not fairly stated, since the sample estimate falls outside of the precision interval. The auditors would accept the account balance as fairly stated, since the difference between the lower bound of the precision interval and recorded balance exceeds the tolerable misstatement. The auditors would conclude that the account balance is not fairly stated, since the difference between the lower bound of the precision interval and recorded balance exceeds the tolerable misstatement.

The auditors would conclude that the account balance is not fairly stated, since the difference between the lower bound of the precision interval and recorded balance exceeds the tolerable misstatement.

What is the primary drawback with respect to the use of sampling? Individuals may fail to obtain a true understanding of the question they are examining. The time spent in planning and selecting the sample may exceed the time savings from examining only a subset of the items. The conclusion reached by examining a sample of items may differ from the conclusion that would be reached if the entire population were examined. Sampling cannot be used to examine account balances that are material to the financial statements.

The conclusion reached by examining a sample of items may differ from the conclusion that would be reached if the entire population were examined.

The auditing standards regarding subsequently discovered facts refers to knowledge obtained after The date of the auditor's report. The date of the financial statements. The date interim audit work was complete. The date the fieldwork began.

The date of the auditor's report.

Law, CPA, is using nonstatistical sampling in his examination of Jye Company's accounts receivable. The recorded balance of Jye's accounts receivable was $750,000. Law selected a sample of customer accounts for examination, which were recorded at $50,000. Based on the responses received from accounts receivable confirmations, Law determined an audited value of $45,000 for the accounts receivable.If tolerable misstatement is $60,000, which of the following statements is not true? The actual misstatement identified by Law is $5,000. The estimated account balance would be $825,000. Law would conclude that the account balance is not fairly stated, since the expected misstatement is greater than the tolerable misstatement. Law is not able to provide a quantitative conclusion as to the exposure to the risk of incorrect acceptance.

The estimated account balance would be $825,000.

The interpretation of the ULRD in an attributes sampling application is The estimated rate of deviation in the population with probability equal to the risk of overreliance that the actual rate of deviation is lower. The estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher. The estimated rate of deviation in the population with certainty that the actual rate of deviation is lower. The estimated rate of deviation in the population with certainty that the actual rate of deviation is higher.

The estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher.

Which of the following statements is correct concerning statistical sampling in tests of controls? As the population increases, the sample size should increase proportionally. The expected population deviation rate can either be based on prior audits or a small sample of controls examined in the current year. There is an inverse relationship between the expected population deviation rate and sample size. In determining the tolerable rate of deviation, an auditor considers the desired level of detection risk.

The expected population deviation rate can either be based on prior audits or a small sample of controls examined in the current year.

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

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

Which of the following statements is not true with respect to written representations? The failure of management to furnish them is a significant scope limitation, resulting in either an adverse opinion or a disclaimer of opinion. Auditors use them to corroborate information received during the audit from the client and its employees. They should address management's responsibility for designing internal control to prevent and detect fraud. They are dated the same date as the auditor's reports.

The failure of management to furnish them is a significant scope limitation, resulting in either an adverse opinion or a disclaimer of opinion.

In which of the following situations would the use of sampling be most appropriate? The need for precise information is less important. The number of items comprising the population is smaller. The likelihood of selecting a representative sample is relatively low. The use of sampling would be appropriate in all of these situations.

The need for precise information is less important.

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 The incorrect rejection decision impairs the efficiency of the audit. The audit team will do additional work and discover the misstatement of the incorrect decision. The incorrect acceptance decision impairs the effectiveness of the audit. Sufficient appropriate audit evidence will not have been obtained.

The incorrect acceptance decision impairs the effectiveness of the audit.

Which of the following is least likely to be an indicator of potential impairment of a long-lived asset? The operating segment which utilizes the asset has a projected loss. The independently-verified fair value of similar assets approximates the asset's book value. The operating segment which utilizes the asset has experienced recent impairment of goodwill. Competitive pressures threaten to render the asset obsolete.

The independently-verified fair value of similar assets approximates the asset's book value.

In which of the following circumstances should sampling be used? The individual is not concerned with an extremely precise estimate of the attribute being examined. It is easy to define and identify the entire population. The population is comprised of a small number of items. An individual is interested in examining all occurrences of a single type in the population.

The individual is not concerned with an extremely precise estimate of the attribute being examined.

Which of the following is not a criterion for using a selection method with statistical sampling? The method provides a reasonable likelihood of selecting a representative sample. The method allows the probability of selecting sample items to be determined. The method specifically identifies each item in the population with a number. The method allows the selection process to be replicated.

The method specifically identifies each item in the population with a number.

In which of the following scenarios would the use of sampling be most appropriate? The costs associated with an incorrect decision are extremely high. The decision to be made is relatively critical. The population consists of a relatively small number of items. The need for precise information about the population is not important.

The need for precise information about the population is not important.

In a sampling application to determine the average age of employees in management positions, the sample estimate was 50 years, reliability was 80 percent, and precision was 10 years. Which of the following would most likely result from an increase in the desired level of reliability to 90 percent? The sample estimate would increase to 55 years. The precision interval would be 40 to 60 years. The precision interval would be 35 to 65 years. The precision interval would have a lower probability of including the true (unknown) population average.

The precision interval would be 35 to 65 years.

In audit sampling applications, sampling risk is The probability that an audit team's conclusion based on a sample might be different from the conclusion based on an audit of the entire population. A characteristic of statistical sampling applications but not of nonstatistical applications. The probability that accounting misstatements will arise in transactions and enter the accounting system. The probability that the audit team will fail to recognize erroneous accounting in the client's documentation.

The probability that an audit team's conclusion based on a sample might be different from the conclusion based on an audit of the entire population.

Zimmerman is auditing a client's accounts balance recorded at $1 million using monetary unit sampling. After assessing the appropriate parameters, Zimmerman determined an appropriate sample size of 100 items. The following two misstatements were identified as a result of the substantive tests: Recorded Balance* Audited Value $20,000 $16,000 $5,000 $2,500 Assume that Zimmerman's parameters included a tolerable misstatement of $60,000 and a risk of incorrect acceptance of 5 percent. (Confidence factors for a 5 percent risk of incorrect acceptance are shown below): Overstatement Errors *Factor 0 3.00 1 4.75 2 6.30 Which of the following is not true with respect to the above? The actual misstatement detected by Zimmerman is $6,500. The projected misstatement is $7,000. The basic allowance for sampling risk is $30,000. If the upper limit on misstatements is $46,750, Zimmerman should accept the account balance as fairly stated.

The projected misstatement is $7,000.

The audit team is planning to examine a sample of control policies and procedures. Assume that, based on the intended degree of reliance on internal control, the audit team wishes to control the risk of overreliance to 5% and, based on past audits, estimates the expected population deviation rate to be 2%. Initially, the audit team was planning for a moderate degree of reliance on internal control and established a tolerable rate of deviation of 7%; however, it is considering increasing its reliance on internal control and reducing the tolerable rate of deviation to 4%. Which of the following is not true with respect to the impact of the reduction in the tolerable rate of deviation on sample size? The reduction in the tolerable rate of deviation would result in a smaller sample size. The audit team would likely not seek a reduction in the tolerable rate of deviation unless it could obtain a reduction in its substantive testing. The resultant sample size assuming the reduction in the tolerable rate of deviation would be 294 items. The reduction in the tolerable rate of deviation would result in the audit team examining an additional 206 items.

The reduction in the tolerable rate of deviation would result in a smaller sample size.

The audit team is planning to examine a sample of control policies and procedures. Assume that, based on the intended degree of reliance on internal control, the audit team wishes to control the risk of overreliance to 5% and establishes a tolerable deviation rate of 8%. Based on past audits, the audit team would normally estimate the expected population deviation rate at 2%; however, because of improvements in the client's internal control, they now feel that a rate of 1.25% is appropriate. Which of the following is not true with respect to the impact of the reduction in the expected population deviation rate on sample size? The reduction in the expected population deviation rate would result in a smaller sample size. The audit team would likely need to have a reasonable justification for establishing a lower expected population deviation rate. The resultant sample size assuming the reduction in the expected population deviation rate would be 77 items. The reduction in the expected population deviation rate would result in the audit team examining 19 fewer items.

The resultant sample size assuming the reduction in the expected population deviation rate would be 77 items.

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

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

Which of the following does not represent a difference in the use of monetary unit sampling (MUS) and classical variables sampling? Classical variables sampling incorporates the acceptable risk of incorrect rejection in determining the sample size while MUS does not. The need to formally stratify the sample is more important in classical variables sampling than MUS. MUS is more likely to be used in the examination of accounts likely to contain overstatement errors than classical variables sampling. The risk of incorrect acceptance is of primary concern to the auditor in MUS, but not classical variables sampling.

The risk of incorrect acceptance is of primary concern to the auditor in MUS, but not classical variables sampling.

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

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

Why is the audit team more concerned with controlling the exposure to the risk of overreliance than with the risk of underreliance? Only the risk of overreliance results in an incorrect audit decision. The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels. The risk of underreliance can be controlled by performing tests of controls during the interim period. The risk of underreliance is not related to the audit team's study and evaluation of internal control.

The risk of overreliance can ultimately result in the audit team's failing to reduce audit risk to acceptable levels.

Why is the auditor more concerned with the risk of overreliance rather than the risk of underreliance? The risk of underreliance is not a type of sampling risk. The risk of overreliance exposes the auditor to an efficiency loss. The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures. The risk of overreliance cannot be measured by the auditor during the sampling process.

The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures.

Why is the auditor more concerned with the risk of overreliance than the risk of underreliance? The risk of underreliance is not a type of sampling risk. The risk of overreliance exposes the auditor to an efficiency loss. The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures. The risk of overreliance cannot be controlled by the auditor during the sampling process.

The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures.

Which of the following is an example of sampling risk, if an individual is attempting to determine whether the average income in a given neighborhood exceeds $100,000? The sample results indicate that the average income is $98,000 when it is $90,000. The sample results indicate that the average income is $99,000 when it is $110,000. The sample results indicate that the average income is $110,000 when it is $115,000. All of the choices are examples of sampling risk.

The sample results indicate that the average income is $99,000 when it is $110,000.

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

The sample selection automatically achieves high-dollar selection and stratification.

Which of the following characteristics most likely would be an advantage of using probability-proportional-to-size (PPS) sampling rather than classical variables sampling? The selection of negative balances requires no special design considerations. The sampling process can begin before the complete population is available. It is particularly effective for detecting understatements. The sample size can generally be lower even if many errors are expected.

The sampling process can begin before the complete population is available.

In order for the auditor to decide to perform tests of controls, which of the following relationships should exist? The sampling risk should be less than 5%. The tolerable rate of deviation should exceed the expected population deviation rate. The expected population deviation rate should exceed the risk of overreliance. The expected population deviation rate should exceed the tolerable rate of deviation.

The tolerable rate of deviation should exceed the expected population deviation rate.

An auditor using variables sampling to perform substantive procedures concludes that the account balance is misstated. This conclusion is the result of which of the following? The actual rate of deviation is greater than the tolerable rate of deviation. The upper limit on misstatement is less than the tolerable misstatement. The upper limit rate of deviation is less than the tolerable rate of deviation. The upper limit on misstatement is greater than the tolerable misstatement.

The upper limit on misstatement is greater than the tolerable misstatement.

Which of the following does not represent a difference between the use of various approaches to classical variables sampling? The use of mean-per-unit estimation typically results in a larger standard deviation than the use of either difference estimation or ratio estimation. The use of difference and ratio estimation normally provides smaller sample sizes than the use of mean-per-unit estimation. The use of difference and ratio estimation require the auditor to expect a certain number of differences to exist in the population while the use of mean-per-unit estimation does not. The use of mean-per-unit estimation requires a reliable measure of recorded balance while the use of difference and ratio estimation do not.

The use of mean-per-unit estimation requires a reliable measure of recorded balance while the use of difference and ratio estimation do not.

Which of the following is not true with respect to the use of nonstatistical sampling? The use of nonstatistical sampling generally results in a smaller sample size. The use of nonstatistical sampling is permissible under generally accepted auditing standards. Auditors may use block and haphazard selection methods when using nonstatistical sampling. The use of nonstatistical sampling does not permit the auditor to control exposure to the risk of overreliance.

The use of nonstatistical sampling generally results in a smaller sample size.

Which of the following statements is not true if the actual misstatement is $1,000, the upper limit on misstatements is $10,000 and the tolerable misstatement is $12,000? There is a (1 minus the risk of incorrect acceptance) probability that the true misstatement in the account balance exceeds $10,000. The allowance for sampling risk is $9,000. There is a (1 minus the risk of incorrect acceptance) probability that the true misstatement in the account balance is less than $10,000. The account balance appears to be fairly recorded.

There is a (1 minus the risk of incorrect acceptance) probability that the true misstatement in the account balance exceeds $10,000.

In a sampling application to determine the average weight of students enrolled in a fitness class, if the sample estimate is 120 pounds, the precision is 10 pounds, and the reliability is 90 percent, which of the following statements is true? There is 90 percent likelihood that the average weight of a student in the class is less than 110 pounds or more than 130 pounds. There is 10 percent likelihood that the average weight of a student in the class is more than 130 pounds. There is a 90 percent likelihood that the average weight of a student in the class is between 110 and 130 pounds. There is 10 percent likelihood that the average weight of a student in the class is less than 110 pounds.

There is a 90 percent likelihood that the average weight of a student in the class is between 110 and 130 pounds.

Which of the following statements is correct concerning statistical sampling in tests of controls? Deviations from control procedures at a given rate usually result in misstatements at a higher rate. As the population size doubles, the sample size should also double. The qualitative aspects of deviations are not considered by the auditor. There is an inverse relationship between the sample size and the tolerable rate of deviation.

There is an inverse relationship between the sample size and the tolerable rate of deviation.

Why should auditors be particularly concerned with "miscellaneous," "other," and "clearing" accounts classified as revenues or expenses? These accounts are likely to relate to going-concern matters. These accounts are often more difficult to audit using normal substantive procedures. These accounts may represent attempts of earnings management. These accounts are likely to require the assistance of a specialist.

These accounts may represent attempts of earnings management.

If an audit team performing a monetary unit sampling application selects a sample using a systematic random selection method, which of the following is true with respect to accounts with a balance greater than the sampling interval? They have a 100 percent probability of being selected. They have no probability of being selected. They have a greater than 50 percent probability of being selected. They have a less than 50 percent probability of being selected.

They have a 100 percent probability of being selected.

Which of the following is not true with respect to the risk of incorrect acceptance? This risk provides the auditor with an efficiency loss. This risk results in the auditor making an incorrect conclusion about the client's account balance or class of transactions. This risk occurs when the sample results suggest that the account balance is fairly stated. This risk is controlled by the auditor in determining sample size under monetary unit sampling (MUS).

This risk provides the auditor with an efficiency loss.

Why is appropriately defining the population so important in a sampling application? To permit the appropriate number of sample items to be selected. To ensure that the appropriate audit procedures can be applied to sample items. To enhance the likelihood of obtaining a representative sample and meet the objective of the sampling application. To reduce the likelihood of failing to identify material misstatements in an account balance or class of transactions.

To enhance the likelihood of obtaining a representative sample and meet the objective of the sampling application.

Which of the following is not a purpose of the review of audit documentation by a supervisor during fieldwork? To ensure that all appropriate steps in the audit plan were performed To ensure that referencing among audit documentation is clear To ensure that the explanations included in the audit documentation are understandable To ensure that the overall scope of the audit was appropriate

To ensure that the overall scope of the audit was appropriate

Why is defining the population so important in a sampling application? To permit the auditor to select the appropriate type of substantive procedure. To ensure that the results appropriately represent the entire population. To reduce sampling risk to the appropriate level. To allow the auditor to appropriately measure sample items.

To ensure that the results appropriately represent the entire population.

What is the primary purpose of obtaining written representations? To provide auditors with substantive evidence of important assertions To impress upon management its primary responsibility for the financial statements To allow auditors to communicate important internal control deficiencies to management To allow auditors to communicate important suggestions for improvement to management

To impress upon management its primary responsibility for the financial statements

Which of the following best describes the role of analytical procedures near the end of the audit engagement? To identify possible deficiencies in the client's internal control over financial reporting. To gather evidence to support one or more assertion(s) related to the account balance or class of transactions. To identify accounts that appear to be misstated with the intention of planning the nature, timing, and extent of other substantive procedures. To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.

To provide an overall review of the financial information and assessment of the adequacy of evidence gathered during the audit engagement.

Which of the following is the audit team's primary objective in selecting an attributes sampling selection method? To provide a high probability of selecting at least one item containing a deviation. To select a sample that is representative of the population from which it is drawn. To select controls applied to larger dollar transactions for examination. To select controls applied to transactions that are more likely to contain deviations.

To select a sample that is representative of the population from which it is drawn.

When evaluating the results of an MUS application, the audit team should compare the upper limit on misstatements to the Expected misstatement. Incremental allowance for sampling risk. Projected misstatement. Tolerable misstatement.

Tolerable misstatement.

Which of the following components is not used in determining the upper limit on misstatements? Basic allowance for sampling risk. Incremental allowance for sampling risk. Projected misstatement. Tolerable misstatement.

Tolerable misstatement.

Which of the following factors that affect sample size can be determined by considering the recorded account balance of the account or class of transactions as well as the relationship between the recorded account balance or class of transactions with important financial statement subtotals? Expected misstatement. Population size. Risk of incorrect acceptance. Tolerable misstatement.

Tolerable misstatement.

Which of the following expresses the relationship between changes in the factors and changes in sample size in variables sampling? Tolerable misstatement: Direct; Expected misstatement: Inverse; Risk of incorrect rejection: Direct Tolerable misstatement: Inverse; Expected misstatement: Direct; Risk of incorrect rejection: Inverse Tolerable misstatement: Inverse; Expected misstatement: Inverse; Risk of incorrect rejection: Inverse Tolerable misstatement: Inverse; Expected misstatement: Inverse; Risk of incorrect rejection: Direct

Tolerable misstatement: Inverse; Expected misstatement: Direct; Risk of incorrect rejection: Inverse

Which of the following has a direct relationship with sample size in a variables sampling application? Tolerable misstatement: Yes; Expected error: Yes Tolerable misstatement: Yes; Expected error: No Tolerable misstatement: No; Expected error: Yes Tolerable misstatement: No; Expected error: No

Tolerable misstatement: No; Expected error: Yes

Which of the following factors has a direct relationship with sample size in a variables sampling application? Tolerable misstatement: Yes; Expected misstatement: Yes Tolerable misstatement: No; Expected misstatement: Yes Tolerable misstatement: Yes; Expected misstatement: No Tolerable misstatement: No; Expected misstatement: No

Tolerable misstatement: No; Expected misstatement: Yes

When using sampling in the study of internal control, the audit team would compare the upper limit rate of deviation to the Expected rate of deviation. Sample rate of deviation. Tolerable rate of deviation. Statistical rate of deviation.

Tolerable rate of deviation.

Which of the following factors used to determine sample size is normally based on the extent to which the audit team expects to rely on the internal control being examined? Expected population deviation rate. Sample rate of deviation. Tolerable rate of deviation. Allowance for sampling risk.

Tolerable rate of deviation.

Which of the following statements is true about haphazard selection? Under haphazard selection, bias in selecting items (either conscious or unconscious) often exists. Haphazard selection can be described in sufficient detail to allow sample selection to be replicated by others. Under haphazard selection, the items are selected in an unstructured and careless manner. Haphazard selection allows individuals to measure the probability of selecting sample items.

Under haphazard selection, bias in selecting items (either conscious or unconscious) often exists.

Jensen, CPA determines during an audit of Clunker Co. that there may be substantial doubt as to the company's ability to continue as a going concern. Accordingly, Jensen conducts a thorough assessment of management plans for overcoming the adverse conditions which currently threaten the going concern assumption, and decides the plans will likely succeed. Assuming management has properly disclosed the going concern issues and information about the plans for mitigation and if there are no other issues with the audit, what type of opinion and report would Jensen be required to issue? Unqualified with no additional paragraph. Unqualified with an emphasis-of-matter paragraph. Qualified with no additional paragraph. Qualified with an emphasis-of-matter paragraph.

Unqualified with no additional paragraph.

Selecting a sample using a series of random numbers to identify sample items is referred to as Systematic random selection. Unrestricted random selection. Block selection. Haphazard selection.

Unrestricted random selection.

Which of the following selection methods is characterized by identifying a series of random numbers and "matching" those numbers to items within the population? Block selection. Haphazard selection. Systematic selection. Unrestricted random selection.

Unrestricted random selection.

When considering the results of an attributes sampling application, the auditor compares which of the following two measures? Upper limit rate of deviation; sample rate of deviation. Tolerable rate of deviation; sample rate of deviation. Expected rate of deviation; upper limit rate of deviation. Upper limit rate of deviation; tolerable rate of deviation.

Upper limit rate of deviation; tolerable rate of deviation.

Using AICPA sample evaluation tables, determine the conclusion from a statistical sample of internal controls when a sample of 125 documents indicates five deviations if the tolerable rate of deviation is 5 percent, the expected population deviation rate is 2 percent, and the allowance for sampling risk is 3 percent. Accept the evidence as support for assessing a low control risk because the tolerable rate of deviation less the allowance for sampling risk is less than the expected population deviation rate. Use the evidence to assess a higher control risk than planned because tolerable rate of deviation plus the allowance for sampling risk exceeds the expected population deviation rate. Accept the evidence as support for assessing a low control risk because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation. Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

Use the evidence to assess a higher control risk than planned because the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

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

When evaluation very large populations, the population size has little or no effect on the sample size.

Which of the following is not true with respect to the effect of the population standard deviation in a classical variables sampling application? The standard deviation can be determined based on experience from prior audits or a small sample taken during the current audit. The standard deviation has a direct relationship with sample size. When the standard deviation is larger, the audit team is more likely to select a representative sample. The standard deviation represents the variability of the population being examined.

When the standard deviation is larger, the audit team is more likely to select a representative sample.

When testing internal controls, which of the following statements is not true with respect to the use of nonstatistical sampling? Nonstatistical sampling is permitted in the audits of both public and nonpublic entities. Nonstatistical sampling does not require the use of random selection techniques. When using nonstatistical sampling, auditors are required to quantify the parameters used to determine sample size. Auditors are required to use professional judgment in evaluating the sample results in a nonstatistical sampling application.

When using nonstatistical sampling, auditors are required to quantify the parameters used to determine sample size.

A form of communication used by auditors to ensure that all significant matters have been disclosed to auditors during the engagement is a(n): Written representations. Acceptance letter. Engagement letter. Confirmation letter.

Written representations.

When evaluating results of testing a sample using attribute sampling, the auditor considers the sample's final error rate to be equal to Errors in the sample / total elements in the sample. (Errors in the sample + missing elements in the sample) / total elements in the sample. [(Errors in the sample + missing elements in the sample) / total elements in the sample] + allowance for sampling risk ([(Errors in the sample + missing elements in the sample) / total elements in the sample] + allowance for sampling risk) × proportion of sample to population

[(Errors in the sample + missing elements in the sample) / total elements in the sample] + allowance for sampling risk

The upper limit rate of deviation in attributes sampling is: the actual deviation rate in the population. always less than the tolerable rate of deviation. always greater than the tolerable rate of deviation. a statistical calculation that considers sampling risk.

a statistical calculation that considers sampling risk.

In the study of internal control, the auditor uses sampling to compare the ______________ to the ______________. adjusted estimate of misstatement; overall materiality. sampling risk; precision. adjusted estimate of the deviation rate; tolerable rate of deviation. precision interval; upper limit on misstatement.

adjusted estimate of the deviation rate; tolerable rate of deviation.

The upper limit on misstatement is: an adjustment of the sample estimate of misstatement to reflect the desired level of sampling risk. an adjustment of the sample deviation rate to reflect the desired level of sampling risk. the maximum rate of deviation that could exist before auditors would reduce the reliance on an internal control. the maximum misstatement that could exist before auditors would conclude that the account balance is not fairly stated.

an adjustment of the sample estimate of misstatement to reflect the desired level of sampling risk.

The upper limit on misstatements is: an adjustment of the sample estimate of misstatement to reflect the desired level of sampling risk. an adjustment of the sample deviation rate to reflect the desired level of sampling risk. the maximum rate of deviation that could exist before auditors would reduce the reliance on an internal control. the maximum misstatement that could exist before auditors would conclude that the account balance is not fairly stated.

an adjustment of the sample estimate of misstatement to reflect the desired level of sampling risk.

The primary objective of analytical procedures used near the end of an audit is to obtain evidence from details tested to corroborate management assertions. obtain evidence on the validity of the assessment of control risk. assist auditors in evaluating the overall financial statement presentation. identify areas that represent specific risks relevant to the audit.

assist auditors in evaluating the overall financial statement presentation.

The amount at which an item would be recorded assuming no mistakes in judgment or incorrect applications of generally accepted accounting principles were made is the: audited value. expected misstatement. Recorded balance. tolerable misstatement.

audited value.

Interim testing normally occurs between the ____ and the ____. beginning of the year under audit; audit report release date date of the financial statements; audit report release date beginning of the year under audit; date of the financial statements end of the year under audit; date of the auditors' report

beginning of the year under audit; date of the financial statements

Williams, CPA, is using attributes sampling to test controls related to the completeness of purchasing transactions. Williams decided to select all purchase orders from September for testing. This is an example of random selection. block selection. haphazard selection. monthly selection.

block selection.

Analytical procedures performed near the end of an audit generally include considering unusual or unexpected account balances that were not previously identified. performing tests of transactions to corroborate management's financial statement assertions. gathering evidence concerning account balances that have not changed from the prior year. retesting control activities that appeared to be ineffective during the assessment of control risk.

considering unusual or unexpected account balances that were not previously identified.

The ultimate purpose of control risk assessment is to: estimate the overall risk of failing to detect material misstatements. decide the nature, timing, and extent of further audit procedures. determine the risk of incorrect acceptance. determine the probability that errors entered the accounts.

decide the nature, timing, and extent of further audit procedures.

On the basis of attributes sampling, an auditor decided to increase the assessed level of control risk from the level originally planned. To achieve an overall audit risk level that is substantially the same as the original planned level of audit risk, the auditor would: increase inherent risk. increase overall materiality levels. decrease substantive procedures. decrease detection risk.

decrease detection risk.

All other factors being equal, as the risk of incorrect acceptance and tolerable misstatement increase, the sample size will: not be affected. increase. decrease. cannot determine from the information given.

decrease.

The risk of underreliance is the risk that the sample selected to test controls: does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment. contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes. contains proportionally fewer monetary errors or deviations from prescribed control procedures than exist in the balance or class as a whole. does not support the tolerable misstatement for some or all of management's assertions.

does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment.

The risk of incorrect acceptance relates to the: effectiveness of the audit. efficiency of the audit. preliminary estimate of materiality. allowable risk of tolerable misstatement.

effectiveness of the audit.

As a result of tests of controls, an auditor assessed control risk too low and decreased the effectiveness of her substantive procedures. This assessment occurred because the true deviation rate in the population was: less than the risk of overreliance, based on the auditor's sample. less than the deviation rate in the auditor's sample. greater than the risk of overreliance, based on the auditor's sample. greater than the deviation rate in the auditor's sample.

greater than the deviation rate in the auditor's sample.

Cruz, CPA, decided to use nonstatistical sampling to examine the accounts payable balances of Maverick Inc. Based on his professional judgment, Cruz judgmentally selected sample invoices from a file, but did so without any intentional bias. The selection method used by Cruz was haphazard selection. block selection. systematic selection. random selection.

haphazard selection.

An auditor is testing control procedures that are evidenced on an entity's vouchers by matching random numbers with voucher numbers. If a random number matches the number of a voided voucher, that voucher ordinarily should be replaced by another voucher in the random sample if the voucher: constitutes a deviation. has been properly voided. cannot be located. represents an immaterial dollar amount.

has been properly voided.

Based on the results of attributes sampling, the audit team assessed control risk too low and did not modify the nature, timing, and extent of its further audit procedures to reduce detection risk. This situation would most likely result in a(n) higher level of audit risk than planned. lower level of inherent risk. greater efficiency loss. lower effectiveness loss.

higher level of audit risk than planned.

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

incorrect acceptance and incorrect rejection.

If the upper limit rate of deviation exceeds the tolerable rate of deviation, the auditor would most likely: accept the account balance as fairly stated. reject the account balance as fairly stated. increase the planned effectiveness of substantive procedures. not increase the planned effectiveness of substantive procedures.

increase the planned effectiveness of substantive procedures.

The purpose of tests of controls is to determine that: internal control policies and procedures are functioning as prescribed. the extent of further audit procedures can be reduced. errors and irregularities are prevented or detected in a timely manner. the auditor has an understanding of internal control.

internal control policies and procedures are functioning as prescribed.

Jones, CPA, used a classical variables sampling application to examine the inventory balance of XYZ Company. The recorded balance of the inventory was $240,000, and Jones determined a tolerable misstatement of $12,000. Jones' sampling procedures resulted in a precision interval of $224,000 to $236,000. As a result, Jones should conclude that the inventory balance is fairly stated. inventory balance is materially misstated. tolerable misstatement should be increased. risk of incorrect acceptance is below the desired level.

inventory balance is materially misstated.

When an auditor increases the assessed level of control risk because certain control procedures were determined to be ineffective, the auditor would most likely increase the: extent of tests of controls. level of detection risk. level of inherent risk.

level of inherent risk.

Incorrect rejection occurs when the auditor concludes that the account balance is _____ when in fact it is _____. material; immaterial immaterial; material fairly stated; misstated misstated; fairly stated

misstated; fairly stated

As a result of tests of controls, an auditor assessed control risk too low and decreased substantive procedures. This assessment occurred because the true deviation rate in the population was: more than the risk of overreliance based on the auditor's sample. more than the deviation rate in the auditor's sample. less than the risk of overreliance based on the auditor's sample. less than the deviation rate in the auditor's sample.

more than the deviation rate in the auditor's sample.

While selecting a sample of sales invoices for a test of internal controls, the auditor was unable to locate one invoice and classified this invoice as non-deviation. This is an example of sampling risk. incorrect acceptance. nonsampling risk. deviation risk.

nonsampling risk

An important method used by auditors to learn of material contingencies is examining documents in the client's possession concerning contingencies. inquiring and discussing them with management. obtaining responses to an attorney letter. confirming accounts receivable with the client's customers

obtaining responses to an attorney letter.

An entity's income statements were misstated due to the recording of journal entries that involved debits and credits to an unusual combination of expense and revenue accounts. Auditors most likely could have detected this irregularity by tracing a sample of journal entries to the general ledger. evaluating the effectiveness of the internal control policies and procedures. investigating the reconciliations between controlling accounts and subsidiary records. performing analytical procedures designed to disclose differences from expectations.

performing analytical procedures designed to disclose differences from expectations.

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

population variability is lower.

The set of items about which a conclusion is made in a sampling application is referred to as a(n) sampling unit. sample. population unit. population.

population.

In sampling, an individual makes a statement about a _____ of interest by examining a _____ (or subset) of items. sample; population. sampling unit; population. population; sample. population; sampling unit.

population; sample.

Near the end of an audit, the application of analytical procedures is recommended by auditing standards. not mentioned by auditing standards. not useful, since detailed substantive procedures have already been performed. required by auditing standards.

required by auditing standards.

When the auditor concludes that the account balance is not materially misstated when, in fact, it is materially misstated, the auditor has committed the: risk of underreliance. risk of overreliance. risk of incorrect acceptance. risk of incorrect rejection.

risk of incorrect acceptance.

The auditor tested a sample of recorded sales invoices for evidence of credit approval. Based on the results of the sample, the auditor concluded that there was a satisfactory rate of approvals. Unknown to the auditor, credit approvals in the population were not satisfactory. This would be an example of: risk of overreliance. risk of underreliance. risk of incorrect acceptance. risk of incorrect rejection

risk of overreliance.

When performing attributes sampling, the appropriate AICPA Sample Size Table is initially selected based on the auditors' assessment of the risk of overreliance. risk of underreliance. tolerable rate of deviation. expected population deviation rate.

risk of overreliance.

An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the: sample rate of deviation plus the allowance for sampling risk equals the tolerable rate of deviation. sample rate of deviation is less than the expected rate of deviation used in planning the sample. tolerable rate less the allowance for sampling risk exceeds the sample rate of deviation. sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate of deviation.

After examining sample items and classifying items as deviations, the auditor can divide the number of deviations by the sample size and calculate the: expected population deviation rate. risk of underreliance. sample rate of deviation. tolerable rate of deviation.

sample rate of deviation.

The AICPA has developed sample size tables for attributes sampling that specifically incorporate all of the following factors except for the: expected population deviation rate. risk of overreliance. tolerable rate of deviation. sample rate of deviation.

sample rate of deviation.

In planning a statistical sample for a test of controls, an auditor increased the expected population deviation rate from the rates observed in prior audits because of the results of prior tests of controls and the overall control environment. The auditor most likely would then increase the planned: tolerable rate of deviation. allowance for sampling risk. risk of overreliance. sample size.

sample size.

The amount by which a projected misstatement in an account balance or class of transactions differs from an actual misstatement as a result of the sample not being representative of the population would typically arise from: a misunderstanding of accounting principles. sampling risk. management override of an internal control policy or procedure. risk of incorrect acceptance.

sampling risk.

The probability that an auditor's conclusion based on a sample might be different from the conclusion based on the entire population identifies the concept of: confidence levels. nonsampling risk. nonstatistical sampling. sampling risk.

sampling risk.

Management letters are not a means of reporting recommendations to the client. assisting the client in improving its operations. satisfying professional requirements to communicate matters related to the client's internal control. developing rapport with the client.

satisfying professional requirements to communicate matters related to the client's internal control.

A sampling plan in which an initial sample is selected and the audit team either draws a final conclusion or selects additional items before drawing a final conclusion is called attributes sampling. discovery sampling. sequential sampling. statistical sampling.

sequential sampling.

If the auditor were interested in ensuring that all sales have been recorded, the population would be defined as: entries in the cash receipts journal. entries in the general journal. remittance advices. shipping documents.

shipping documents.

All of the following are advantages of statistical sampling except: statistical sampling eliminates the auditors' exposure to nonsampling risk. statistical sampling allows the probability of selecting sample items to be determined. statistical sampling allows the sample selection process to be replicated. statistical sampling increases the likelihood of selecting a representative sample.

statistical sampling eliminates the auditors' exposure to nonsampling risk.

The process of subdividing a population into more homogeneous subgroups is known as: classification. identification. sampling. stratification.

stratification.

The method of sample selection in which a random starting point is selected and a fixed number of items are bypassed prior to the next item being selected is referred to as: block selection. haphazard selection. systematic random selection. unrestricted random selection.

systematic random selection.

Small and Tall, CPAs, completed the December 31, 2017 audit of Big Company on February 10, 2018. After the audit report release date, an outstanding lawsuit against Big Company was settled for materially more than recorded in the December 31, 2017 financial statements. The amount recorded in the financial statements represented the best estimate of management and the company's attorneys at the time the audit was completed. Based on this new information, Small and Tall, CPAs should determine whether persons are currently relying on the auditors' reports. advise the client to make appropriate changes in the financial statements and reissue them. notify each member of the board of directors of Big Company. take no action since the event took place after the audit report release date.

take no action since the event took place after the audit report release date.

To statistically evaluate an attributes sampling application, the auditor would not need to know: the acceptable risk of overreliance. the actual deviations in the sample. the actual population size. the upper limit rate of deviation.

the actual population size.

An auditor may decide to increase the risk of incorrect rejection when: increased reliability from the sample is desired. many differences are expected. initial sample results do not support the planned level of control risk. the cost and effort of selecting additional items is low.

the cost and effort of selecting additional items is low.

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that: the deviation rates of both the auditor's sample and the population exceed the tolerable rate of deviation. the deviation rates of both the auditor's sample and the population are less than the tolerable rate of deviation. the deviation rate in the auditor's sample is less than the tolerable rate of deviation, but the deviation rate in the population exceeds the tolerable rate of deviation. the deviation rate in the auditor's sample exceeds the tolerable rate of deviation, but the deviation rate in the population is less than the tolerable rate of deviation.

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

An erroneous decision to assess control risk at excessively high levels can have an adverse effect on: the efficiency of an audit engagement. the effectiveness of an audit engagement. the validity of an audit. the type of report the auditor decides to render.

the efficiency of an audit engagement.

Auditors use attributes sampling in assessing the effectiveness of a client's internal controls to determine: the extent to which internal controls are operating as intended to prevent or detect misstatements. the degree of inherent risk associated with various account balances or classes of transactions. the degree of risk present in the client's business environment. the accuracy of the client's account balances or classes of transactions.

the extent to which internal controls are operating as intended to prevent or detect misstatements.

A partner of the accounting firm who has not been involved in the audit performs an engagement quality review of documentation. This review usually focuses on the fair presentation of the financial statements in conformity with GAAP. irregularities involving the client's management and its employees. the materiality of the adjusting entries proposed by the audit staff. the communication of internal control deficiencies to the client's audit committee (or those charged with governance).

the fair presentation of the financial statements in conformity with GAAP.

If an auditor calculated an upper limit rate of deviation of 5% when the tolerable rate of deviation was 4%, the auditor would conclude that: the population deviation rate is low enough to rely on internal control as planned. the population deviation rate may be higher than that necessary to rely on internal control as planned. the control risk can be assessed at planned levels. the control risk should be assessed at lower levels.

the population deviation rate may be higher than that necessary to rely on internal control as planned.

All of the following are correct regarding variables sampling, except: variables sampling is used to examine a population when auditors want to estimate the amount (or value) of some characteristic of that population. the risk of incorrect rejection is of more concern to auditors than the risk of incorrect acceptance. auditors can use either statistical or nonstatistical sampling approaches to variables sampling. to determine if an account balance is fairly stated, auditors compare the adjusted sample estimate of the misstatement to the tolerable misstatement.

the risk of incorrect rejection is of more concern to auditors than the risk of incorrect acceptance.

If an auditor tested 50 transactions and found two deviations from an important control activity, the auditor could conclude that: the tolerable rate is 4%. the critical rate of occurrence is 4%. the sample rate of deviation is 4%. the expected population deviation rate is 4%.

the sample rate of deviation is 4%.

When selecting a sample of items to perform a test of controls, all of the following should be true of a representative sample, except the transactions have been processed by the entity throughout the year. the transactions should be limited to those processed in a specific geographic area. the transactions have been processed by different individuals. the transactions represent both large and small dollar amounts.

the transactions should be limited to those processed in a specific geographic area.

A disadvantage of using a systematic random selection procedure is that: this type of procedure does not permit the auditor to measure the exposure to sampling risk. this type of procedure does not make all items available for selection. this type of procedure requires that the population be arranged in a random order. this type of procedure provides the auditor with a higher level of exposure to nonsampling risk compared to other selection procedures.

this type of procedure requires that the population be arranged in a random order.

Judgments about the frequency of control deviations that identify a particular control risk level are related to: sample rate of deviation. tolerable rate of deviation. upper limit rate of deviation. expected population deviation rate.

tolerable rate of deviation

An auditor wanted to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide a 1% risk of overreliance (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the upper limit rate of deviation to be 8%.In evaluating this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the: tolerable rate of deviation (7%) was less than the upper limit rate of deviation (8%). expected population deviation rate (7%) was more than the percentage of errors in the sample (3.5%). expected population deviation rate (2.5%) was less than the tolerable rate of deviation. upper limit rate of deviation (8%) was more than the percentage of errors in the sample (3.5%).

tolerable rate of deviation (7%) was less than the upper limit rate of deviation (8%).

The maximum rate of deviation that may exist in the operation of a control policy or procedure before the auditors would reduce reliance on internal control is referred to as: acceptable rate of deviation. control risk. tolerable rate of deviation. upper limit rate of deviation.

tolerable rate of deviation.

If the _____ exceeds the _____, the audit team would decide to rely on internal control as planned and maintain control risk at planned levels. tolerable rate of deviation; expected population deviation rate. expected population deviation rate; tolerable rate of deviation. tolerable rate of deviation; ULRD. ULRD; tolerable rate of deviation.

tolerable rate of deviation; ULRD.

When conducting variables sampling, auditors typically examine transactions of components of the account balance or class of transactions. the balances in an account balance or class of transactions from one or more prior years. the separation of duties among client personnel for transactions related to the account balance or class of transactions. minutes from meetings of the client's board of directors.

transactions of components of the account balance or class of transactions.

In performing variables sampling, the auditor will conclude that the account balance is not materially misstated if the ____ is less than or equal to ____. upper limit on misstatement; tolerable misstatement. expected error; tolerable misstatement. tolerable misstatement; upper limit on misstatement. tolerable misstatement; expected error.

upper limit on misstatement; tolerable misstatement.

The auditor's sample would indicate that the client's account balance is fairly stated when the _____ is less than the _____. upper limit on misstatements; tolerable misstatement actual misstatement; tolerable misstatement tolerable misstatement; upper limit on misstatements tolerable misstatement; actual misstatement

upper limit on misstatements; tolerable misstatement

In performing attributes sampling, the auditor will conclude that the control is functioning as intended if the ______ is less than or equal to ______. expected population deviation rate; tolerable rate of deviation upper limit rate of deviation; tolerable rate of deviation tolerable rate of deviation; expected population deviation rate tolerable rate of deviation; upper limit rate of deviation

upper limit rate of deviation; tolerable rate of deviation

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

variables sampling.

The type of sampling most frequently used by the auditors during their substantive procedures is referred to as: account balance sampling. attributes sampling. item sampling. variables sampling.

variables sampling.

Which of the following would be most likely to cause an auditor to have substantial doubt regarding a company's ability to continue as a going concern? A current ratio of 1.3 and a quick ratio of 0.8. Negative cash flow from investing activities. Management's refusal to sign a management representation letter. Failure to obtain positive confirmation of several large receivables.

A current ratio of 1.3 and a quick ratio of 0.8.

Ambrose is auditing the financial statements of Mays (dated December 31, 2017). The date of the auditor's report is February 17, 2018, and the audit report release date is February 20, 2018. For which of the following matters would Ambrose have the least responsibility? A customer's deteriorating financial condition that was identified on February 19, 2018. The obsolescence of inventory held on December 31, 2017, that was identified on January 20, 2018. A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2018. A merger that was announced by Mays and known by Ambrose on February 12, 2018.

A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2018.

If the date of an entity's financial statements is December 31, the date of the auditor's report is February 20, and the audit report release date is February 22, which of the following is considered a subsequent event? A significant acquisition that was announced on February 1 and will be finalized on October 1. A court settlement on March 3 related to a case that was pending on December 31. Losses from the devaluation of a foreign currency that became finalized on February 21. The entity's announcement of a major restructuring plan on December 30 that will be implemented during the upcoming year.

A significant acquisition that was announced on February 1 and will be finalized on October 1.

Which of the following forms of communication ordinarily do not take place following completion of the audit examination? Internal control deficiency communications. Communications with individuals charged with governance. Management letter. Attorney letter.

Attorney letter.

Which of the following forms of communication serves as a critical part of auditors' examination of litigation, claims, and assessments? Written representations. Attorney letter. Engagement letter. Management letter.

Attorney letter.

Which of the following best describes auditors' responsibilities with respect to evaluating the going-concern status of the entity? Auditors are required to specifically gather evidence with respect to going-concern status and separately report on the entity's ability to continue as a going concern. Auditors are required to specifically gather evidence with respect to going-concern status and modify their report on the financial statements if substantial doubts exist. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and separately report on the entity's ability to continue as a going concern. Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

Auditors are required to consider evidence obtained during the audit that may provide information with respect to going-concern status and modify their report on the financial statements if substantial doubts exist.

Which of the following statements is not true with respect to the auditors' evaluation of going-concern uncertainties? Auditors are required to document the conditions or events that suggested going-concern uncertainties. Auditors are required to evaluate the ability of an entity to continue in existence for up to one year beyond the date of the financial statements being audited. Auditors are required to gather specific evidence to assess going-concern uncertainties. If management's plans to mitigate going-concern uncertainties reduces the risk to a low level, auditors are not required to revise their opinion on the entity's financial statements.

Auditors are required to gather specific evidence to assess going-concern uncertainties.

Navarre, CPA has just issued his report on Big Blue's financial statements. Following the audit report release date, he learned of an event that occurred after the date of the auditors' report. What is Navarre's most appropriate response? Because the event occurred after the date of the auditors' report, Navarre has no responsibility for the event. Inform users who are currently known to be relying on the financial statements of the nature of the event. Perform the appropriate substantive procedures related to the event and dual date the audit report. Withdraw his report on Big Blue's financial statements and reissue the report following his substantive procedures.

Because the event occurred after the date of the auditors' report, Navarre has no responsibility for the event.

Assume that Rory is auditing the financial statements of Augusta, Inc. Rory completes his fieldwork on February 25 and his report (along with Augusta's financial statements) is issued on March 1. On March 3, a hurricane destroys a warehouse that contains a significant amount of uninsured inventory. Which of the following best describes Rory's responsibility with respect to the effects of this hurricane on Augusta's financial statements? Because the inventory was included in the financial statements audited by Rory, he is required to perform additional procedures and reissue his report on the revised financial statements. Because the hurricane occurred after the date of Rory's report, he has no responsibility to perform additional procedures or reissue his report. Because the hurricane occurred prior to the next fiscal quarter, Rory is required to perform additional procedures and reissue his report on the revised financial statements. Because the hurricane occurred after the release of the financial statements and Rory's report, he has no responsibility to perform additional procedures or reissue his report.

Because the hurricane occurred after the release of the financial statements and Rory's report, he has no responsibility to perform additional procedures or reissue his report.

The primary reason auditors request responses to attorney letters is to provide auditors A description and evaluation of litigation, claims, and assessments that existed at the date of the financial statements. The probable outcome of asserted claims and pending or threatened litigation. Corroboration of the information furnished by management about litigation, claims, and assessments. The attorney's opinions of the client's historical experiences in recent similar litigation.

Corroboration of the information furnished by management about litigation, claims, and assessments.

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? Accounts receivable Interest expense Accounts payable Travel and entertainment expense

Interest expense

Which party should request a letter regarding litigation, claims, and assessments from the client's attorney? Attorney Auditors Client Securities and Exchange Commission or other regulatory body

Client

What course of action should auditors take if, after evaluating management's plan to mitigate the effect of factors that suggest going-concern uncertainties, they believe that substantial doubt about going concern does not exist? Modify their report on the financial statements to describe management's plan to mitigate going-concern uncertainties, the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist. Prepare a separate report that describes management's plan to mitigate going-concern uncertainties, the procedures performed by the auditors, and indicate that substantial doubt about going concern does not exist. Require financial statement disclosure of management's plan to mitigate going-concern uncertainties with no modification to the auditors' report on the financial statements or no separate report on going concern. Conclude that substantial doubt about going concern does not exist and not require financial statement disclosure or modification of the auditors' report.

Conclude that substantial doubt about going concern does not exist and not require financial statement disclosure or modification of the auditors' report.

Which of the following would ordinarily not be performed in the auditors' examination of litigation, claims, and assessments? Read minutes of meetings of stockholders, directors, and appropriate committees. Confirm litigation, claims, and assessments with parties bringing suit or action against the client. Inquire of client management with respect to litigation, claims, and assessment. Examine documentary evidence maintained by the client with respect to litigation, claims, and assessments.

Confirm litigation, claims, and assessments with parties bringing suit or action against the client.

Which of the following auditing procedures most likely would assist auditors in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? Inspecting title documents to verify whether any assets are pledged as collateral Confirming with third parties the details of arrangements to maintain financial support Reconciling the client's cash balance with the cut-off bank statement and the bank confirmation Comparing the entity's depreciation and asset capitalization policies to other entities in the industry

Confirming with third parties the details of arrangements to maintain financial support

A letter from the client's attorney: Is obtained by the client on behalf of the auditor . Is the primary source of evidence an auditor obtains about litigation, claims, and assessments. Is always required if the auditor is to express an opinion. Corroborates other evidence already obtained through the client.

Corroborates other evidence already obtained through the client.

Following the audit report release date, auditors became aware of facts existing at the report date that would have affected the reports had auditors then been aware of such facts. What is the most appropriate initial course of action that auditors should take? Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information. Request that management disclose the newly-discovered information by issuing revised financial statements. Issue revised pro forma financial statements taking into consideration the newly discovered information. Give public notice that auditors are no longer associated with financial statements.

Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.

For which of the following audit tests would an auditor most likely use variables sampling? Inspecting purchase orders for proper approval by supervisors. Confirming proof of cancellation for a sample of payment vouchers associated with cash disbursements. Determining that all payables are recorded at year end. Confirming that monthly reconciliations of key balance sheet accounts were conducted.

Determining that all payables are recorded at year end.

Which of the following is an audit procedure that auditors most likely would perform concerning litigation, claims, and assessments? Request the client's attorney to evaluate whether the client's pending litigation claims, and assessments indicate a going concern problem. Examine the legal documents in the client's attorney's possession concerning litigation, claims, and assessments to which the attorney has devoted substantive attention. Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments. Confirm directly with the client's attorney that all litigation, claims, and assessments have been recorded or disclosed in the financial statements.

Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.

An auditor discovers several immaterial errors that the auditor determines do not, individually or in the aggregate, cause the financial statements to be materially misstated. The auditor proposes adjusting entries to the client, who refuses to correct the errors. Which of the following best summarizes the steps the auditor should take? Document the errors and the conclusion that the financial statements are free from material misstatement. Withdraw from the engagement because the client's refusal to correct the errors is a scope limitation. Issue a qualified, "except for" opinion on the financial statements because the client refuses to correct the errors. Correct the errors on the client's behalf, and then issue the audit report.

Document the errors and the conclusion that the financial statements are free from material misstatement.

Identify the correct statement regarding analytical procedures used in a review conducted at the conclusion of an audit. The ultimate purpose of analytical procedures used in a review conducted at the conclusion of the audit is to uncover fraud schemes that may have been missed previously during the audit. Typically, a junior member of the engagement team will perform the analytical procedures applied at the conclusion of the audit because less precision is required. If review analytical procedures suggest the presence of misstated account balances, the auditor may have to perform additional substantive tests of details to satisfactorily complete the audit. Analytical procedures used in the review near the conclusion of the audit are not required.

If review analytical procedures suggest the presence of misstated account balances, the auditor may have to perform additional substantive tests of details to satisfactorily complete the audit.

A major objective of written representations is to Provide management an opportunity to make assertions about the quantity and valuation of the physical inventory. Provide a substitute source of audit evidence for substantive procedures that auditors would otherwise perform. Shift responsibility for financial statements from the management to auditors. Impress on management its ultimate responsibility for the financial statements and disclosures.

Impress on management its ultimate responsibility for the financial statements and disclosures.

An auditor established a $100,000 tolerable misstatement for an asset with an account balance of $7,500,000. The auditor selected a sample of every fiftieth item from the population that represented the asset account balance and discovered overstatements of $2,200 and understatements of $300. Under these circumstances, the auditor most likely would conclude that There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. The asset account is fairly stated because the tolerable misstatement is less than the net of projected actual overstatements and understatements.

The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.

Why is it the client's decision to record adjustments to the financial statements? Having auditors adjust the financial statements would impair independence with respect to the client. The financial statements are the responsibility of the client's management. Auditors often do not have sufficient client-specific expertise to record adjustments to the financial statements. The client will ultimately suffer any losses related to misstated financial statements.

The financial statements are the responsibility of the client's management.

Long and Short, CPAs, were auditing Island Corporation for the year ended December 31, 2017. On January 11, 2018, a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in their warehouse on January 8, 2018. As a result, a material accounts receivable from the customer was determined to be uncollectible. Long and Short, CPAs, would expect the client to record the loss on uncollectible accounts as a routine transaction in the year 2018. treat the loss as a subsequent event and provide a footnote about the loss in the 2017 financial statements. treat the loss as a subsequent event and adjust the 2017 financial statements to record the loss on uncollectible accounts. file a lawsuit against the customer in hopes of collecting some of the money owed to the client.

treat the loss as a subsequent event and provide a footnote about the loss in the 2017 financial statements.

On March 15, 2018, Kent, CPA, issued an unqualified opinion on a client's audited financial statements for the year ended December 31, 2017. On May 4, 2018, Kent's internal inspection program disclosed that engagement personnel failed to observe the client's physical inventory. Omission of this procedure impairs Kent's present ability to support the unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first advise management to disclose to the stockholders that Kent's unqualified opinion should not be relied on. undertake to apply alternative procedures that would provide a satisfactory basis for the opinion. reissue the auditors' reports and add an explanatory paragraph describing the departure from generally accepted auditing standards. compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level.

undertake to apply alternative procedures that would provide a satisfactory basis for the opinion.

Auditing test 3

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