Module F Auditing 2
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 assessing control risk too low (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. The auditor then determined the upper limit deviation rate to be 8%. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the: A.) Tolerable deviation rate (7%) was less than the upper limit deviation rate (8%). B.) Expected deviation rate (7%) was more than the percentage of errors in the sample (3.5%) C.) Expected deviation rate (2.5%) was less than the tolerable deviation rate D.) Upper limit deviation rate (8%) was more than the percentage of errors in the sample (3.5%).
A
The likelihood of assessing control risk too high is the risk that the sample selected to test controls: A.) Does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment B.) Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes. C.) Contains proportionally fewer monetary errors or deviations from prescribed control procedures than exist in the balance or class as a whole D.) Does not support the tolerable error for some or all of management's assertions
A
In order for the auditor to decide to perform tests of controls, which of the following relationships should exist? A.) The sampling risk should be less than 5 percent B.) The tolerable deviation rate should exceed the expected deviation rate C.) The expected deviation rate should exceed the risk of assessing control risk too low D.) The expected deviation rate should exceed the tolerable deviation rate
B
Which of the following statements is correct concerning statistical sampling in tests of controls? A.) As the population increases, the sample size should increase proportionally B.) The expected deviation rate can either be based on prior audits or a small sample of controls examined in the current year C.) There is an inverse relationship between the expected deviation rate and sample size D.) In determining the tolerable deviation rate, an auditor considers detection risk and the sample size
B
The risk of assessing control risk too high is the probability that the evidence in the sample indicates: A.) Low control risk when the actual operating effectiveness of the control does not justify a low control risk assessment B.) Low control risk when the actual operating effectiveness of the control justifies a low control risk assessment C.) High control risk when the actual operating effectiveness of the control would justify a lower control risk assessment D.) High control risk when the actual operating effectiveness of the control would justify a higher control risk assessment
C
Which of the following would not be an example of nonsampling risk in an attribute sampling application? A.) Failure to perform the appropriate type of test of controls procedure B.) Failure to notice a deviation from prescribed control procedures C.) Incorrectly estimating the expected deviation rate D.) Incorrectly accumulating the number of deviations
C
An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when: A.) Sample rate of deviation plus the allowance for sampling risk equals the tolerable deviation rate B.) Sample rate of deviation is less than the expected rate of deviation used in planning the sample C.) Tolerable rate less than the allowance for sampling risk exceed the sample rate of deviation D.) Sample rate of deviation plus the allowance for sampling risk exceed the tolerable deviation rate
D
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? A.) Determine the sample size B.) Select the sample C.) Perform tests of control procedures D.) Define the deviation conditions
D
In planning a statistical sample for a test of controls, an auditor increased the expected deviation rate from the rates observed in prior audits because of results of prior tests of controls and the overall control environment. The auditor most likely would then increase the planned: A.) Tolerable deviation rate B.) Allowance for sampling risk C.) Risk of assessing control risk too low D.) Sample Size
D
What is the general order in which the following steps in the attribute sampling are performed? 1 = Define the population, 2 = Determine the objective of sampling, 3 = Determine the sample size, 4 = Select the sample. A.) 1, 2, 3, 4 B.) 2, 1, 3, 4 C.) 1, 2, 4, 3 D.) 2, 1, 4, 3
D
