Question 1

An auditor may decide to increase the risk of incorrect rejection when

Accepted Answer

A)  increased reliability from the sample is desired. 
B)  many differences are expected. 
C)  initial sample results do not support the planned level of control risk. 
D)  the cost and effort of selecting additional items is low. 
A)  increased reliability from the sample is desired. 
B)  many differences are expected. 
C)  initial sample results do not support the planned level of control risk. 
D)  the cost and effort of selecting additional items is low.

Question 2

Which of the following is not an advantage associated with monetary unit sampling (MUS)?

Accepted Answer

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

Question 3

In which of the following circumstances would the auditor most likely use variables sampling?

Accepted Answer

A)  Identifying the susceptibility of the account balance to misstatement 
B)  Evaluating the operating effectiveness of specific control procedures 
C)  Evaluating the operating design of specific control procedures 
D)  Determining whether the client's accounts receivable balance is correctly recorded 
A)  Identifying the susceptibility of the account balance to misstatement 
B)  Evaluating the operating effectiveness of specific control procedures 
C)  Evaluating the operating design of specific control procedures 
D)  Determining whether the client's accounts receivable balance is correctly recorded

Question 4

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:   Assume that Zimmerman's parameters included a tolerable misstatement of $60,000 and a risk of incorrect acceptance of 5%.(Confidence factors for a 5% risk of incorrect acceptance are shown below):   Which of the following is not true with respect to the above?

Accepted Answer

A)  The actual misstatement detected by Zimmerman is $6,500. 
B)  The projected misstatement is $7,000. 
C)  The basic allowance for sampling risk is $30,000. 
D)  If the upper limit on misstatements is $46,750, Zimmerman should accept the account balance as fairly stated. 
A)  The actual misstatement detected by Zimmerman is $6,500. 
B)  The projected misstatement is $7,000. 
C)  The basic allowance for sampling risk is $30,000. 
D)  If the upper limit on misstatements is $46,750, Zimmerman should accept the account balance as fairly stated.

Question 5

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?

Accepted Answer

A)  Basic allowance for sampling risk 
B)  Incremental allowance for sampling risk 
C)  Projected misstatement 
D)  Risk of incorrect acceptance 
A)  Basic allowance for sampling risk 
B)  Incremental allowance for sampling risk 
C)  Projected misstatement 
D)  Risk of incorrect acceptance

Question 6

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.

Accepted Answer

A)  sample estimate; accept 
B)  sample estimate; reject 
C)  tolerable misstatement; accept 
D)  tolerable misstatement; reject 
A)  sample estimate; accept 
B)  sample estimate; reject 
C)  tolerable misstatement; accept 
D)  tolerable misstatement; reject

Question 7

The total amount of misstatement identified in a sample is referred to as the

Accepted Answer

A)  projected misstatement. 
B)  tolerable misstatement. 
C)  actual misstatement. 
D)  incremental allowance for sampling risk. 
A)  projected misstatement. 
B)  tolerable misstatement. 
C)  actual misstatement. 
D)  incremental allowance for sampling risk.

Question 8

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

Accepted Answer

A)  audited value. 
B)  expected misstatement. 
C)  recorded value. 
D)  tolerable misstatement. 
A)  audited value. 
B)  expected misstatement. 
C)  recorded value. 
D)  tolerable misstatement.

Question 9

Using an incremental confidence factor of 1.58 (corresponding to the risk of incorrect acceptance of 10%),what is the incremental allowance for sampling risk?

Accepted Answer

A)  $5,000 
B)  $7,900 
C)  $8,700 
D)  $23,700 
A)  $5,000 
B)  $7,900 
C)  $8,700 
D)  $23,700

Question 10

Which of the following factors has a direct relationship with sample size in a variables sampling application?

Accepted Answer

A)  Tolerable misstatement: Yes; Expected misstatement: Yes 
B)  Tolerable misstatement: No; Expected misstatement: Yes 
C)  Tolerable misstatement: Yes; Expected misstatement: No 
D)  Tolerable misstatement: No; Expected misstatement: No 
A)  Tolerable misstatement: Yes; Expected misstatement: Yes 
B)  Tolerable misstatement: No; Expected misstatement: Yes 
C)  Tolerable misstatement: Yes; Expected misstatement: No 
D)  Tolerable misstatement: No; Expected misstatement: No

Question 11

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

Accepted Answer

A)  a misunderstanding of accounting principles. 
B)  sampling risk. 
C)  management override of an internal control policy or procedure. 
D)  risk of incorrect acceptance. 
A)  a misunderstanding of accounting principles. 
B)  sampling risk. 
C)  management override of an internal control policy or procedure. 
D)  risk of incorrect acceptance.

Question 12

Which of the following is not true with respect to the effect of the population standard deviation in a classical variables sampling application?

Accepted Answer

A)  The standard deviation can be determined based on experience from prior audits or a small sample taken during the current audit. 
B)  The standard deviation has a direct relationship with sample size. 
C)  When the standard deviation is larger, the audit team is more likely to select a representative sample. 
D)  The standard deviation represents the variability of the population being examined. 
A)  The standard deviation can be determined based on experience from prior audits or a small sample taken during the current audit. 
B)  The standard deviation has a direct relationship with sample size. 
C)  When the standard deviation is larger, the audit team is more likely to select a representative sample. 
D)  The standard deviation represents the variability of the population being examined.

Question 13

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 value of $40,000.If the entire inventory contained 3,000 items and the total recorded value of the inventory was $500,000,the estimated account balance using nonstatistical estimation and projecting the error based on number of items examined is

Accepted Answer

A)  $393,600. 
B)  $474,500. 
C)  $450,000. 
D)  $540,000. 
A)  $393,600. 
B)  $474,500. 
C)  $450,000. 
D)  $540,000.

Question 14

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

Accepted Answer

A)  haphazard selection. 
B)  block selection. 
C)  systematic selection. 
D)  random selection. 
A)  haphazard selection. 
B)  block selection. 
C)  systematic selection. 
D)  random selection.

Question 15

Which of the following is not true with respect to the risk of incorrect acceptance?

Accepted Answer

A)  This risk provides the auditor with an efficiency loss. 
B)  This risk results in the auditor making an incorrect conclusion about the client's account balance or class of transactions. 
C)  This risk occurs when the sample results suggest that the account balance is fairly stated. 
D)  This risk is controlled by the auditor in determining sample size under monetary unit sampling (MUS). 
A)  This risk provides the auditor with an efficiency loss. 
B)  This risk results in the auditor making an incorrect conclusion about the client's account balance or class of transactions. 
C)  This risk occurs when the sample results suggest that the account balance is fairly stated. 
D)  This risk is controlled by the auditor in determining sample size under monetary unit sampling (MUS).

Question 16

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?

Accepted Answer

A)  $90,000 
B)  $540,000 
C)  $590,000 
D)  $666,666 
A)  $90,000 
B)  $540,000 
C)  $590,000 
D)  $666,666

Question 17

What is the auditor's normal course of action if a "logical unit" is selected twice in monetary unit sampling?

Accepted Answer

A)  The auditor should count the logical unit as a single selection and proceed as normal. 
B)  The auditor should count the logical unit as two selections and proceed as normal. 
C)  The auditor should not include the logical unit as a selection, since the dollar amount of this unit is excessively large. 
D)  The auditor should replicate the sample using an alternative random start. 
A)  The auditor should count the logical unit as a single selection and proceed as normal. 
B)  The auditor should count the logical unit as two selections and proceed as normal. 
C)  The auditor should not include the logical unit as a selection, since the dollar amount of this unit is excessively large. 
D)  The auditor should replicate the sample using an alternative random start.

Question 18

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?

Accepted Answer

A)  75 
B)  162 
C)  231 
D)  300 
A)  75 
B)  162 
C)  231 
D)  300

Question 19

Which of the following components of the upper limit on misstatements is affected by misstatements detected during the audit examination?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 20

Indicate whether each of the following factors is considered in determining sample size in monetary unit sampling (M),classical variables sampling (C),both (B),or neither (N).
____ 1.Population size.
____ 2.Standard deviation.
____ 3.Risk of incorrect acceptance.
____ 4.Expected misstatement.
____ 5.Tolerable misstatement.
____ 6.Risk of incorrect rejection.
____ 7.Tainting percentage.

Accepted Answer

1.B; 2.C;

An auditor may decide to increase the risk of incorrect rejection when

Which of the following is not an advantage associated with monetary unit sampling (MUS)?

In which of the following circumstances would the auditor most likely use variables sampling?

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?

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.

The total amount of misstatement identified in a sample is referred to as the

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

Using an incremental confidence factor of 1.58 (corresponding to the risk of incorrect acceptance of 10%),what is the incremental allowance for sampling risk?

Which of the following factors has a direct relationship with sample size in a variables sampling application?

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

Which of the following is not true with respect to the effect of the population standard deviation in a classical variables sampling application?

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

Which of the following is not true with respect to the risk of incorrect acceptance?

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?

What is the auditor's normal course of action if a "logical unit" is selected twice in monetary unit sampling?

Which of the following components of the upper limit on misstatements is affected by misstatements detected during the audit examination?

Auditing and Assurance Services

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Revenue and Collection Cycle

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Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

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Exam 19: Variables Sampling

An auditor may decide to increase the risk of incorrect rejection when

Which of the following is not an advantage associated with monetary unit sampling (MUS)?

In which of the following circumstances would the auditor most likely use variables sampling?

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?

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.

The total amount of misstatement identified in a sample is referred to as the

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

Using an incremental confidence factor of 1.58 (corresponding to the risk of incorrect acceptance of 10%),what is the incremental allowance for sampling risk?

Which of the following factors has a direct relationship with sample size in a variables sampling application?

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

Which of the following is not true with respect to the effect of the population standard deviation in a classical variables sampling application?

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

Which of the following is not true with respect to the risk of incorrect acceptance?

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?

What is the auditor's normal course of action if a "logical unit" is selected twice in monetary unit sampling?

Which of the following components of the upper limit on misstatements is affected by misstatements detected during the audit examination?

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Auditing and Information Technology

Filters

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.