Question 1

The confidence limits in variables sampling are similar to the_________ in monetary-unit sampling.

Accepted Answer

A)  point estimate 
B)  misstatement bounds 
C)  standard deviation 
D)  standard error of the mean 
A)  point estimate 
B)  misstatement bounds 
C)  standard deviation 
D)  standard error of the mean

Question 2

The most important difference among tests of controls,substantive tests of transactions,and tests of details of balances lies in what the auditor wants to measure.Explain what each type of test attempts to measure.

Accepted Answer

Tests of controls focus on testing the e

Question 3

The client's trial balance has a balance of $410,000 for merchandise inventory.As the auditor you are willing to accept a balance that is within $20,000 of either side of the recorded balance.You compute a 95% confidence interval of $395,000 to $425,000.You could therefore:

Accepted Answer

A)  reject the trial balance amount. 
B)  accept the trial balance amount. 
C)  increase the sample size to assure more precision. 
D)  use alternative audit procedures to satisfy yourself as to the correct balance. 
A)  reject the trial balance amount. 
B)  accept the trial balance amount. 
C)  increase the sample size to assure more precision. 
D)  use alternative audit procedures to satisfy yourself as to the correct balance.

Question 4

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is:

Accepted Answer

A)  the upper bound. 
B)  the tolerable risk. 
C)  the acceptable risk of incorrect acceptance. 
D)  the lower bound. 
A)  the upper bound. 
B)  the tolerable risk. 
C)  the acceptable risk of incorrect acceptance. 
D)  the lower bound.

Question 5

An increased sample size will always cause the population to be accepted.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a disadvantage of monetary unit sampling?

Accepted Answer

A)  It may be difficult to select samples from large population without computer assistance. 
B)  The total misstatement bounds resulting when misstatements are found may be too low to be useful to the auditor. 
C)  The total misstatement bounds resulting when misstatements are found may be too high to be useful to the auditor. 
D)  Each of the above is a disadvantage. 
A)  It may be difficult to select samples from large population without computer assistance. 
B)  The total misstatement bounds resulting when misstatements are found may be too low to be useful to the auditor. 
C)  The total misstatement bounds resulting when misstatements are found may be too high to be useful to the auditor. 
D)  Each of the above is a disadvantage.

Question 7

ARIA measures the auditor's desired assurance for an account balance.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following needs to be considered when the auditor generalizes from the sample to the population?

Accepted Answer

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

Question 9

If the population is not considered acceptable,one step the auditor is likely to take is to:

Accepted Answer

A)  retest all internal controls. 
B)  ask the client to adjust the account balance. 
C)  test the entire population. 
D)  decrease inherent risk. 
A)  retest all internal controls. 
B)  ask the client to adjust the account balance. 
C)  test the entire population. 
D)  decrease inherent risk.

Question 10

When using nonstatistical sampling,the larger the sample size,the greater the auditor's confidence that the point estimate is close to the true population value.

Accepted Answer

A) True 
 B)False

Question 11

Consider the steps in sampling for tests of details and for tests of controls.Explain the differences in applying sampling to these two types of tests.

Accepted Answer

The differ

Question 12

Factors considered by an auditor to determine the possibility that the true population misstatement exceeds a tolerable amount in a nonstatistical sample include all of the following except for:

Accepted Answer

A)  the extent to which items in the population have been audited 100%. 
B)  the difference between the point estimate and acceptable control risk. 
C)  whether misstatements tend to be offsetting or in only one direction. 
D)  the amounts of individual misstatements. 
A)  the extent to which items in the population have been audited 100%. 
B)  the difference between the point estimate and acceptable control risk. 
C)  whether misstatements tend to be offsetting or in only one direction. 
D)  the amounts of individual misstatements.

Question 13

Required sample size increases as the auditor's tolerable misstatement for an account balance or class of transactions decreases.

Accepted Answer

A) True 
 B)False

Question 14

Discuss each of the six possible courses of action the auditor can take when he or she has concluded that the population is misstated by more than a tolerable amount.

Accepted Answer

The six possible courses of action the a

Question 15

As the amount of misstatements expected in the population approaches tolerable misstatement,the planned sample size will:

Accepted Answer

A)  decrease. 
B)  increase. 
C)  vary based on characteristics of the population. 
D)  be unaffected. 
A)  decrease. 
B)  increase. 
C)  vary based on characteristics of the population. 
D)  be unaffected.

Question 16

Explain why monetary unit sampling,or probability proportional to size sampling,is not useful for detecting understatements.

Accepted Answer

Monetary unit sampling is a technique th

Question 17

Which of the following is a correct statement?

Accepted Answer

A)  When internal controls are effective, control risk can be reduced, and therefore the auditor will decrease the ARIA. 
B)  There is a direct relationship between ARIA and the required sample size. 
C)  A lower control risk risk requires a lower ARO in testing the controls. 
D)  ARO measures the auditor's desired assurance for an account balance. 
A)  When internal controls are effective, control risk can be reduced, and therefore the auditor will decrease the ARIA. 
B)  There is a direct relationship between ARIA and the required sample size. 
C)  A lower control risk risk requires a lower ARO in testing the controls. 
D)  ARO measures the auditor's desired assurance for an account balance.

Question 18

MUS has the statistical simplicity of attributes sampling,yet provides a statistical result expressed as a percentage.

Accepted Answer

A) True 
 B)False

Question 19

Estimated misstatement in the population and sample size are inversely related; that is,as estimated misstatement increases,sample size decreases.

Accepted Answer

A) True 
 B)False

Question 20

Explain the decision rule used in monetary unit sampling to determine whether the population is acceptable.

Accepted Answer

The results are considered acceptable if

Exam 17: Audit Sampling for Tests of Details of Balances

The confidence limits in variables sampling are similar to the_________ in monetary-unit sampling.

The most important difference among tests of controls,substantive tests of transactions,and tests of details of balances lies in what the auditor wants to measure.Explain what each type of test attempts to measure.

The client's trial balance has a balance of $410,000 for merchandise inventory.As the auditor you are willing to accept a balance that is within $20,000 of either side of the recorded balance.You compute a 95% confidence interval of $395,000 to $425,000.You could therefore:

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is:

An increased sample size will always cause the population to be accepted.

Which of the following is not a disadvantage of monetary unit sampling?

ARIA measures the auditor's desired assurance for an account balance.

Which of the following needs to be considered when the auditor generalizes from the sample to the population?

If the population is not considered acceptable,one step the auditor is likely to take is to:

When using nonstatistical sampling,the larger the sample size,the greater the auditor's confidence that the point estimate is close to the true population value.

Consider the steps in sampling for tests of details and for tests of controls.Explain the differences in applying sampling to these two types of tests.

Factors considered by an auditor to determine the possibility that the true population misstatement exceeds a tolerable amount in a nonstatistical sample include all of the following except for:

Required sample size increases as the auditor's tolerable misstatement for an account balance or class of transactions decreases.

Discuss each of the six possible courses of action the auditor can take when he or she has concluded that the population is misstated by more than a tolerable amount.

As the amount of misstatements expected in the population approaches tolerable misstatement,the planned sample size will:

Explain why monetary unit sampling,or probability proportional to size sampling,is not useful for detecting understatements.

Which of the following is a correct statement?

MUS has the statistical simplicity of attributes sampling,yet provides a statistical result expressed as a percentage.

Estimated misstatement in the population and sample size are inversely related; that is,as estimated misstatement increases,sample size decreases.

Explain the decision rule used in monetary unit sampling to determine whether the population is acceptable.

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

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

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 Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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