Exam 17: Audit Sampling for Tests of Details of Balances

There are 14 steps to audit sampling for details of balances,divided into three sections: plan the sample,select the sample and perform the audit procedures,and evaluate the results.Discuss each of the steps included in the "evaluate the results" section for nonstatistical sampling.

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Question 1

Correct Answer:

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The steps included in the "evaluate the results" section are:
1.Generalize from the sample to the population.This involves (1)projecting misstatements found in the sample to the population and (2)allowing for sampling risk.
2.Analyze the misstatements.The auditor should evaluate the nature and cause of each misstatement found in the sample.
3.Decide the acceptability of the population.If the projected misstatement (point estimate),combined with the allowance for sampling risk,is less than tolerable misstatement,the auditor will accept the population as fairly stated.

The purpose of stratified sampling is to achieve a greater confidence level (lower risk of incorrect acceptance)for a given sample size.

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(True/False)

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Question 2

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Identify each of the seven factors that influence sample size for nonstatistical tests of details of balances,and state whether each factor is directly or inversely related to sample size.

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Question 3

Correct Answer:

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Factors that influence sample size for nonstatistical tests are:
•Control risk.Control risk is directly related to sample size; as control risk increases,sample size also increases.
•Results of other substantive tests related to the same assertion.Directly related to sample size; as these risks increase,sample size also increases.
•Dollar amount of the population.Directly related to sample size,smaller account balances lead to smaller sample size and larger account balances lead to larger sample sizes.
•Tolerable misstatement for a specific account.Inversely related; as tolerable misstatement increases,sample size decreases.
•Inherent risk.Directly related; as inherent risk increases,sample size also increases.
•Expected size and frequency of misstatements.Directly related; as the size and frequency of expected misstatements increase,sample size also increases.
•Number of items in the population.Directly related,but has only a minor effect on sample size.

Calculating the sample size using monetary unit sampling depends on which of the following factors?

(Multiple Choice)

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Question 4

In monetary unit sampling,the relationship between tolerable misstatement size and required sample size is:

(Multiple Choice)

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Question 5

An important statistic to consider when using a statistical sampling audit plan is the population variability.The population variability is measured by the:

(Multiple Choice)

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Question 6

When dealing with variables sampling and sampling risk,it is important to understand that:

(Multiple Choice)

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Question 7

Sampling used for tests of details of balances provides results in terms of exception rates.

(True/False)

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Question 8

You are auditing Nelson and Company and determined that the sample results support a conclusion that the account is materially misstated,when in fact it was not misstated.This illustrates the risk of:

(Multiple Choice)

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Question 9

While performing a substantive test of details during an audit,the auditor determined that the sample results supported the conclusion that the recorded account balance was not materially misstated.It was,in fact,materially misstated.This situation illustrates the risk of:

(Multiple Choice)

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Question 10

Using statistical sampling to assist in verifying the year-end accounts payable balance,an auditor has accumulated the following data: Projecting the misstatement to the population,the auditor's estimate of year-end accounts payable balance would be:

(Multiple Choice)

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Question 11

If an auditor desires a greater level of assurance in auditing a balance,the acceptable risk of incorrect acceptance:

(Multiple Choice)

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Question 12

Accounts with zero or negative year-end balances have no chance of being included in a standard probability proportional to size (PPS)sample.

(True/False)

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Question 13

Match six of the terms (a-l)with the definitions provided below (1-6): a.Acceptable risk of incorrect acceptance b.Acceptable risk of incorrect rejection c.Difference estimation d.Misstatement bounds e.Monetary unit sampling f.Mean-per-unit estimation g.Point estimate h.Probability proportional to size sample selection i.Ratio estimation j.Statistical inferences k.Stratified sampling l.Variable sampling 1.Conclusions drawn from sample results based on knowledge of sampling distributions. 2.Sampling techniques for tests of details that use the statistical inference processes. 3.The risk that the auditor is willing to take of concluding a balance is materially misstated when it is,in fact,fairly stated. 4.A statistical sampling method that provides upper and lower misstatement bounds expressed in monetary amounts. 5.A method of variables sampling in which the auditor estimates the population misstatement by multiplying the average misstatement in the sample by the total number of population items and also calculates sampling risk. 6.The risk that the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than tolerable misstatement.

(Short Answer)

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Question 14

One of the steps involved in planning the sample for the tests of details of balances is to:

(Multiple Choice)

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Question 15

The allowance for sampling risk when no misstatements are found in the sample is:

(Multiple Choice)

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Question 16

If the auditor believes that there will be more than just a few exceptions discovered,and desires an accurate estimate of the dollar value of the exceptions,he or she will use:

(Multiple Choice)

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Question 17

If no exceptions were found in the substantive tests of transactions:

(Multiple Choice)

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Question 18

Acceptable risk of incorrect rejection is the statistical risk that the auditor has concluded that a population is materially misstated when it is not.

(True/False)

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Question 19

When using nonstatistical sampling,the auditor must subjectively consider whether the true population misstatement exceeds a tolerable amount.This is done by considering five factors.One factor is the difference between the point estimate and tolerable misstatement.State the other four factors the auditor must consider.

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Question 20

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Exam 17: Audit Sampling for Tests of Details of Balances

There are 14 steps to audit sampling for details of balances,divided into three sections: plan the sample,select the sample and perform the audit procedures,and evaluate the results.Discuss each of the steps included in the "evaluate the results" section for nonstatistical sampling.

The purpose of stratified sampling is to achieve a greater confidence level (lower risk of incorrect acceptance)for a given sample size.

Identify each of the seven factors that influence sample size for nonstatistical tests of details of balances,and state whether each factor is directly or inversely related to sample size.

Calculating the sample size using monetary unit sampling depends on which of the following factors?

In monetary unit sampling,the relationship between tolerable misstatement size and required sample size is:

An important statistic to consider when using a statistical sampling audit plan is the population variability.The population variability is measured by the:

When dealing with variables sampling and sampling risk,it is important to understand that:

Sampling used for tests of details of balances provides results in terms of exception rates.

You are auditing Nelson and Company and determined that the sample results support a conclusion that the account is materially misstated,when in fact it was not misstated.This illustrates the risk of:

While performing a substantive test of details during an audit,the auditor determined that the sample results supported the conclusion that the recorded account balance was not materially misstated.It was,in fact,materially misstated.This situation illustrates the risk of:

Using statistical sampling to assist in verifying the year-end accounts payable balance,an auditor has accumulated the following data: Projecting the misstatement to the population,the auditor's estimate of year-end accounts payable balance would be:

If an auditor desires a greater level of assurance in auditing a balance,the acceptable risk of incorrect acceptance:

Accounts with zero or negative year-end balances have no chance of being included in a standard probability proportional to size (PPS)sample.

One of the steps involved in planning the sample for the tests of details of balances is to:

The allowance for sampling risk when no misstatements are found in the sample is:

If the auditor believes that there will be more than just a few exceptions discovered,and desires an accurate estimate of the dollar value of the exceptions,he or she will use:

If no exceptions were found in the substantive tests of transactions:

Acceptable risk of incorrect rejection is the statistical risk that the auditor has concluded that a population is materially misstated when it is not.

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