Question 1

The acceptable risk of overreliance

Accepted Answer

A)  is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are. 
B)  is less of a concern to the auditors than the risk of underreliance. 
C)  represents the auditor's measure of sampling risk. 
D)  is determined by a statistical formula, and not by professional judgment. 
A)  is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are. 
B)  is less of a concern to the auditors than the risk of underreliance. 
C)  represents the auditor's measure of sampling risk. 
D)  is determined by a statistical formula, and not by professional judgment.

Question 2

Assume a client's internal controls require each sales invoice to be supporting by a shipping document prepared by an outside company, but the clerk preparing sales invoices fails to follow this procedure exactly 3 percent of the time. If the auditor selects a sample of 100 sales invoices and finds two or four sales invoices are missing a shipping document, the sample is nonrepresentative of the population.

Accepted Answer

A) True 
 B)False

Question 3

Sampling risk results from the auditor's failure to recognize exceptions in transaction data.

Accepted Answer

A) True 
 B)False

Question 4

If a particular internal control is not followed by the client exactly 6% of the time, and the auditor's tests of that control find three control violations in a sample of 50, the sample is considered to be representative.

Accepted Answer

A) True 
 B)False

Question 5

If the auditor concludes that the computer upper exception rate (CUER) is 5% at an 8% sampling risk, this means that the exception rate in the population is no greater than 5% with an 8% risk of the exception rate exceeding 5%.

Accepted Answer

A) True 
 B)False

Question 6

When audit evidence is in electronic format, the auditor can use data analytics to test the entire population, rather than testing a sample of the population.

Accepted Answer

A) True 
 B)False

Question 7

Tolerable exception rate (TER) is inversely related to sample size.

Accepted Answer

A) True 
 B)False

Question 8

A sample of all the items in a population still has sampling risk for the auditor.

Accepted Answer

A) True 
 B)False

Question 9

In attributes sampling, an estimate of the expected population exception rate is necessary to plan the sample size. The relationship of expected population exception rate (EPER) to sample size is

Accepted Answer

A)  direct (small EPER = small sample). 
B)  inverse (small EPER = large sample). 
C)  a variable (sometimes small, sometimes large) dependent on other factors present. 
D)  indeterminate. 
A)  direct (small EPER = small sample). 
B)  inverse (small EPER = large sample). 
C)  a variable (sometimes small, sometimes large) dependent on other factors present. 
D)  indeterminate.

Question 10

The most serious shortcoming of the haphazard sample selection method is

Accepted Answer

A)  it is not subject to statistical sampling methods. 
B)  it is time consuming to use. 
C)  it is costly to use. 
D)  it is difficult to remain completely unbiased in the selection. 
A)  it is not subject to statistical sampling methods. 
B)  it is time consuming to use. 
C)  it is costly to use. 
D)  it is difficult to remain completely unbiased in the selection.

Question 11

Rodgers CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%. In auditing client invoices, Rodgers should use

Accepted Answer

A)  stratified sampling. 
B)  classical sampling. 
C)  proportional sampling. 
D)  attributes sampling. 
A)  stratified sampling. 
B)  classical sampling. 
C)  proportional sampling. 
D)  attributes sampling.

Question 12

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions, the auditor

Accepted Answer

A)  can conclude that the sample exception rate is 2%. 
B)  can conclude that the population exception rate is 2%. 
C)  can calculate the highest exception rate expected in the population. 
D)  cannot make any conclusions about either the sample or the population. 
A)  can conclude that the sample exception rate is 2%. 
B)  can conclude that the population exception rate is 2%. 
C)  can calculate the highest exception rate expected in the population. 
D)  cannot make any conclusions about either the sample or the population.

Question 13

When evaluating the results of attributes sampling,

Accepted Answer

A)  the acceptable risk of overreliance (ARO) is set at high or low. 
B)  tables are used to compute the computed upper exception rate (CUER). 
C)  if the sample size is not equal to those provided for in the attributes sampling evaluation tables, the tables cannot be used. 
D)  the true exception rate is computed from various tables. 
A)  the acceptable risk of overreliance (ARO) is set at high or low. 
B)  tables are used to compute the computed upper exception rate (CUER). 
C)  if the sample size is not equal to those provided for in the attributes sampling evaluation tables, the tables cannot be used. 
D)  the true exception rate is computed from various tables.

Question 14

Attributes sampling is based on the ________ distribution, in which each possible sample in the population has one of two possible values, such as yes or no.

Accepted Answer

A)  random 
B)  binomial 
C)  statistical 
D)  nonstatistical 
A)  random 
B)  binomial 
C)  statistical 
D)  nonstatistical

Question 15

Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program?

Accepted Answer

A)  Review sales transactions for large and unreasonable amounts. 
B)  Observe whether the duties of the accounts receivable clerk are separate from handling cash. 
C)  Examine a sample of duplicate sales invoices for credit approval by the credit manager. 
D)  Review the aged schedule of accounts receivable to determine if receivables from officers are included. 
A)  Review sales transactions for large and unreasonable amounts. 
B)  Observe whether the duties of the accounts receivable clerk are separate from handling cash. 
C)  Examine a sample of duplicate sales invoices for credit approval by the credit manager. 
D)  Review the aged schedule of accounts receivable to determine if receivables from officers are included.

Question 16

Nonprobabilistic sampling methods are not based on mathematical probabilities, and therefore the representativeness of the sample may be difficult to determine.

Accepted Answer

A) True 
 B)False

Question 17

Discuss two causes of nonsampling risk. Also discuss ways the auditor can control nonsampling risk.

Accepted Answer

The two causes of nonsampling risk are (

Question 18

Which of the following is not a phase in the planning of both statistical and nonstatistical sampling?

Accepted Answer

A)  Plan the sample. 
B)  Determine the probability that fraud has occurred. 
C)  Select the sample and perform the tests. 
D)  Evaluate the results. 
A)  Plan the sample. 
B)  Determine the probability that fraud has occurred. 
C)  Select the sample and perform the tests. 
D)  Evaluate the results.

Question 19

When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use

Accepted Answer

A)  audit sampling. 
B)  representative sampling. 
C)  poor judgment. 
D)  estimation sampling. 
A)  audit sampling. 
B)  representative sampling. 
C)  poor judgment. 
D)  estimation sampling.

Question 20

The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the

Accepted Answer

A)  finite correction factor. 
B)  tolerable exception rate. 
C)  acceptable risk of overreliance. 
D)  estimated population exception rate. 
A)  finite correction factor. 
B)  tolerable exception rate. 
C)  acceptable risk of overreliance. 
D)  estimated population exception rate.

Exam 15: Audit Sampling for Tests of Controls and Substantive Tests of Transactions

The acceptable risk of overreliance

Sampling risk results from the auditor's failure to recognize exceptions in transaction data.

If a particular internal control is not followed by the client exactly 6% of the time, and the auditor's tests of that control find three control violations in a sample of 50, the sample is considered to be representative.

If the auditor concludes that the computer upper exception rate (CUER) is 5% at an 8% sampling risk, this means that the exception rate in the population is no greater than 5% with an 8% risk of the exception rate exceeding 5%.

When audit evidence is in electronic format, the auditor can use data analytics to test the entire population, rather than testing a sample of the population.

Tolerable exception rate (TER) is inversely related to sample size.

A sample of all the items in a population still has sampling risk for the auditor.

In attributes sampling, an estimate of the expected population exception rate is necessary to plan the sample size. The relationship of expected population exception rate (EPER) to sample size is

The most serious shortcoming of the haphazard sample selection method is

Rodgers CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%. In auditing client invoices, Rodgers should use

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions, the auditor

When evaluating the results of attributes sampling,

Attributes sampling is based on the ________ distribution, in which each possible sample in the population has one of two possible values, such as yes or no.

Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program?

Nonprobabilistic sampling methods are not based on mathematical probabilities, and therefore the representativeness of the sample may be difficult to determine.

Discuss two causes of nonsampling risk. Also discuss ways the auditor can control nonsampling risk.

Which of the following is not a phase in the planning of both statistical and nonstatistical sampling?

When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to use

The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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