Question 1

There are three phases in both statistical and nonstatistical sampling. The first phase is to

Accepted Answer

A)  generate random numbers for the sample. 
B)  evaluate the results. 
C)  plan the sample. 
D)  select the sample. 
A)  generate random numbers for the sample. 
B)  evaluate the results. 
C)  plan the sample. 
D)  select the sample.

Question 2

You are determining the significance of the following: you set a 5% risk of assessing control risk too low and your computation of the upper deviation risk is 7%. What could you conclude?

Accepted Answer

A)  There is a 95% chance the deviation rate in the population is less than 5%. 
B)  There is a 5% chance the deviation rate in the population is less than 7%. 
C)  There is a 95% chance the deviation rate in the population exceeds 95%. 
D)  There is a 5% chance the deviation rate in the population exceeds 7%. 
A)  There is a 95% chance the deviation rate in the population is less than 5%. 
B)  There is a 5% chance the deviation rate in the population is less than 7%. 
C)  There is a 95% chance the deviation rate in the population exceeds 95%. 
D)  There is a 5% chance the deviation rate in the population exceeds 7%.

Question 3

When determining tolerable exception rate (TER),

Accepted Answer

A)  the auditor considers the degree of reliance to be placed on the control and the significance of the control to the audit. 
B)  if only one internal control is used to support a low control risk assessment for an objective, TER will be higher for the attribute than if multiple controls are used to support a low control risk assessment for the same objective. 
C)  control deviations increase both the risk of material misstatements in the accounting record, and will always result in misstatements. 
D)  a smaller sample size is needed for a low TER than for a high TER. 
A)  the auditor considers the degree of reliance to be placed on the control and the significance of the control to the audit. 
B)  if only one internal control is used to support a low control risk assessment for an objective, TER will be higher for the attribute than if multiple controls are used to support a low control risk assessment for the same objective. 
C)  control deviations increase both the risk of material misstatements in the accounting record, and will always result in misstatements. 
D)  a smaller sample size is needed for a low TER than for a high TER.

Question 4

What is the key advantage and disadvantage associated with systematic sample selection?
 How must auditors address this disadvantage?

Accepted Answer

The key advantage is its ease of use. In

Question 5

The use of haphazard sample selection is encouraged under professional auditing standards.

Accepted Answer

A) True 
 B)False

Question 6

Deviation rate and tolerable deviation are used instead of exception rate when referring to tests of controls.

Accepted Answer

A) True 
 B)False

Question 7

It is virtually impossible to reduce sampling risk to zero.

Accepted Answer

A) True 
 B)False

Question 8

In performing a review of a client's cash disbursements, an auditor uses systematic sample selection with a random start. The primary disadvantage of this technique is population items

Accepted Answer

A)  may occur twice in the sample. 
B)  must be reordered in a systematic pattern before the sample can be drawn. 
C)  may occur in a systematic pattern, thus negating the randomness of the sample. 
D)  must be replaced in the population after sampling to permit valid statistical inference. 
A)  may occur twice in the sample. 
B)  must be reordered in a systematic pattern before the sample can be drawn. 
C)  may occur in a systematic pattern, thus negating the randomness of the sample. 
D)  must be replaced in the population after sampling to permit valid statistical inference.

Question 9

Statistical sampling differs from nonstatistical sampling in that, by applying mathematical rules, the auditor can measure sampling risk in planning the sample; however, mathematical rules cannot then be applied in evaluating the sample results.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the choices below is most correct regarding a cause of sampling risk?

Accepted Answer

A)  ineffective use of audit procedures 
B)  testing less than the entire population 
C)  use of extensive tests of controls 
D)  use of random sampling 
A)  ineffective use of audit procedures 
B)  testing less than the entire population 
C)  use of extensive tests of controls 
D)  use of random sampling

Question 11

Directed sample selection, block sample selection, and haphazard sample selection are three types of probabilistic sample selection methods.

Accepted Answer

A) True 
 B)False

Question 12

The acceptable risk of overreliance

Accepted Answer

A)  is normally assessed at a high level when auditing an accelerated filer public company. 
B)  and the extent of tests of controls depend on assessed control risk for accelerated filer public companies. 
C)  and the control risk will be assessed as low for audits where there is extensive reliance on internal controls. 
D)  does not impact the effectiveness of the audit. 
A)  is normally assessed at a high level when auditing an accelerated filer public company. 
B)  and the extent of tests of controls depend on assessed control risk for accelerated filer public companies. 
C)  and the control risk will be assessed as low for audits where there is extensive reliance on internal controls. 
D)  does not impact the effectiveness of the audit.

Question 13

If the result obtained from a particular sample for control and substantive tests of transactions is critical to the formation of an audit opinion, which of the following is the most important to the auditor in concluding of the appropriateness and sufficiency of evidence gathered?

Accepted Answer

A)  acceptable risk of overreliance 
B)  estimated population exception rate 
C)  tolerable exception rate 
D)  size of the population 
A)  acceptable risk of overreliance 
B)  estimated population exception rate 
C)  tolerable exception rate 
D)  size of the population

Question 14

The only way to know with certainty whether a sample is representative is to subsequently audit the entire population.

Accepted Answer

A) True 
 B)False

Question 15

When the computed upper exception rate (CUER) is greater than the tolerable exception rate (TER), it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to justify?

Accepted Answer

A)  Reduce the tolerable exception rate so as to accept the sample results. 
B)  Expand the sample size and perform more tests. 
C)  Revise the assessed control risk upward. 
D)  Write a letter to management which outlines the control deficiencies. 
A)  Reduce the tolerable exception rate so as to accept the sample results. 
B)  Expand the sample size and perform more tests. 
C)  Revise the assessed control risk upward. 
D)  Write a letter to management which outlines the control deficiencies.

Question 16

Which of the following occurrences would be least likely to warrant further audit attention for the auditor?

Accepted Answer

A)  deviations from client's established control procedures 
B)  deviations from client's budgeted values 
C)  monetary misstatements in populations of transaction data 
D)  monetary misstatements in populations of account balance details 
A)  deviations from client's established control procedures 
B)  deviations from client's budgeted values 
C)  monetary misstatements in populations of transaction data 
D)  monetary misstatements in populations of account balance details

Question 17

Audit sampling can be applied for reviewing sales transactions for large and/or unusual amounts, and also for observing whether the duties and responsibilities of the receivables clerk are separate from the handling of cash (a test of control).

Accepted Answer

A) True 
 B)False

Question 18

A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a

Accepted Answer

A)  random sample. 
B)  statistical sample. 
C)  judgment sample. 
D)  representative sample. 
A)  random sample. 
B)  statistical sample. 
C)  judgment sample. 
D)  representative sample.

Question 19

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the

Accepted Answer

A)  tolerable exception rate. 
B)  estimated population exception rate. 
C)  acceptable risk of overreliance. 
D)  sample exception rate. 
A)  tolerable exception rate. 
B)  estimated population exception rate. 
C)  acceptable risk of overreliance. 
D)  sample exception rate.

Question 20

For which of the following audit procedures would audit sampling not be appropriate?

Accepted Answer

A)  Review sales transactions for large and unusual amounts. 
B)  Examine a sample of duplicate sales invoices for credit approval. 
C)  Compare the quantity on duplicate sales invoices with the quantity on related shipping documents. 
D)  Audit sampling is appropriate for each of the above procedures. 
A)  Review sales transactions for large and unusual amounts. 
B)  Examine a sample of duplicate sales invoices for credit approval. 
C)  Compare the quantity on duplicate sales invoices with the quantity on related shipping documents. 
D)  Audit sampling is appropriate for each of the above procedures.

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

There are three phases in both statistical and nonstatistical sampling. The first phase is to

You are determining the significance of the following: you set a 5% risk of assessing control risk too low and your computation of the upper deviation risk is 7%. What could you conclude?

When determining tolerable exception rate (TER),

What is the key advantage and disadvantage associated with systematic sample selection? How must auditors address this disadvantage?

The use of haphazard sample selection is encouraged under professional auditing standards.

Deviation rate and tolerable deviation are used instead of exception rate when referring to tests of controls.

It is virtually impossible to reduce sampling risk to zero.

In performing a review of a client's cash disbursements, an auditor uses systematic sample selection with a random start. The primary disadvantage of this technique is population items

Statistical sampling differs from nonstatistical sampling in that, by applying mathematical rules, the auditor can measure sampling risk in planning the sample; however, mathematical rules cannot then be applied in evaluating the sample results.

Which one of the choices below is most correct regarding a cause of sampling risk?

Directed sample selection, block sample selection, and haphazard sample selection are three types of probabilistic sample selection methods.

The acceptable risk of overreliance

If the result obtained from a particular sample for control and substantive tests of transactions is critical to the formation of an audit opinion, which of the following is the most important to the auditor in concluding of the appropriateness and sufficiency of evidence gathered?

The only way to know with certainty whether a sample is representative is to subsequently audit the entire population.

When the computed upper exception rate (CUER) is greater than the tolerable exception rate (TER), it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to justify?

Which of the following occurrences would be least likely to warrant further audit attention for the auditor?

Audit sampling can be applied for reviewing sales transactions for large and/or unusual amounts, and also for observing whether the duties and responsibilities of the receivables clerk are separate from the handling of cash (a test of control).

A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the

For which of the following audit procedures would audit sampling not be appropriate?

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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