Question 1

Confidence level is inversely related to sample size.

Accepted Answer

A) True 
 B)False

Question 2

An auditor established a $60,000 tolerable misstatement for an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population of 1,000 items that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that

Accepted Answer

A)  There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. 
B)  There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. 
C)  The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. 
D)  The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.
Net overstatement is $3,500. Using difference projection, the mean misstatement per sampling unit is $70 ($3,500/50) and the projected misstatement is $70,000 ($70 x 1,000). The projected misstatement is larger than the tolerable (even before considering sampling risk). 
A)  There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. 
B)  There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. 
C)  The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. 
D)  The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.
Net overstatement is $3,500. Using difference projection, the mean misstatement per sampling unit is $70 ($3,500/50) and the projected misstatement is $70,000 ($70 x 1,000). The projected misstatement is larger than the tolerable (even before considering sampling risk).

Question 3

In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected misstatement of this sample was

Accepted Answer

A)  $3,000. 
B)  $4,000. 
C)  $6,000. 
D)  $8,000.
The misstatement amount is 60% with a taint of .60 of the book value of the selected item. The taint is applied to the sampling interval to determine the projected misstatement for the account. The projected misstatement would be $6,000 ($10,000 x .60). 
A)  $3,000. 
B)  $4,000. 
C)  $6,000. 
D)  $8,000.
The misstatement amount is 60% with a taint of .60 of the book value of the selected item. The taint is applied to the sampling interval to determine the projected misstatement for the account. The projected misstatement would be $6,000 ($10,000 x .60).

Question 4

You have been placed in charge of determining the sample size for an audit of accounts receivable. Your superior would like a confidence level of 99%. How does this affect your determination of sample size? What can you infer about the level of risk of incorrect acceptance that your superior is willing to accept?

Accepted Answer

A lot of work will be required to achiev

Question 5

An auditor is preparing to sample an entity's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is

Accepted Answer

A)  Attribute sampling. 
B)  Ratio-estimation sampling. 
C)  Monetary-unit sampling. 
D)  Mean-per-unit sampling. 
A)  Attribute sampling. 
B)  Ratio-estimation sampling. 
C)  Monetary-unit sampling. 
D)  Mean-per-unit sampling.

Question 6

An accounts receivable account balance is $500,000 and the auditor determines a sample size of 30 would provide adequate assurance. The auditor plans to use a monetary-unit sampling plan with systematic sample selection. The auditor notices that there are six customer accounts of at least $15,000 and would like the systematic selection technique to select all items that are at least $15,000, even if that means the sample size is slightly larger than 30. To achieve the auditor's objectives, the sampling interval should be

Accepted Answer

A)  6. 
B)  20. 
C)  16,666. 
D)  15,000.
Typically the threshold would be $16,666 ($500,000/30), but in order to guarantee the selection of all items greater than $15,000, the sampling interval needs to be no greater than $15,000. While a sampling interval of $6 or $20 would also guarantee that all items greater than $15,000 are selected, such small intervals would be inefficient and result in a sample size much greater than 30. 
A)  6. 
B)  20. 
C)  16,666. 
D)  15,000.
Typically the threshold would be $16,666 ($500,000/30), but in order to guarantee the selection of all items greater than $15,000, the sampling interval needs to be no greater than $15,000. While a sampling interval of $6 or $20 would also guarantee that all items greater than $15,000 are selected, such small intervals would be inefficient and result in a sample size much greater than 30.

Question 7

The assurance factor for nonstatistical sampling is based on

Accepted Answer

A)  The number of items in the account. 
B)  Auditor judgment. 
C)  The risk of misstatement in the account and the level of desired assurance. 
D)  Variability in the population and the risk of misstatement in the account. 
A)  The number of items in the account. 
B)  Auditor judgment. 
C)  The risk of misstatement in the account and the level of desired assurance. 
D)  Variability in the population and the risk of misstatement in the account.

Question 8

In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if

Accepted Answer

A)  Monetary-unit sampling (MUS) is used. 
B)  The population contains both very high and very low recorded amounts. 
C)  The auditor's estimated tolerable misstatement is extremely small. 
D)  The standard deviation of recorded amounts is relatively small. 
A)  Monetary-unit sampling (MUS) is used. 
B)  The population contains both very high and very low recorded amounts. 
C)  The auditor's estimated tolerable misstatement is extremely small. 
D)  The standard deviation of recorded amounts is relatively small.

Question 9

In monetary-unit sampling, population size is

Accepted Answer

A)  The dollar balance in an account. 
B)  The number of items in an account. 
C)  Unrelated to sample size. 
D)  Included in the denominator of the formula to determine sample size. 
A)  The dollar balance in an account. 
B)  The number of items in an account. 
C)  Unrelated to sample size. 
D)  Included in the denominator of the formula to determine sample size.

Question 10

Describe two advantages and two disadvantages of monetary-unit sampling (MUS).

Accepted Answer

Should include two advantages and disadv

Question 11

What is one advantage and one disadvantage of classical variables sampling?

Accepted Answer

Should include one advantage and disadva

Question 12

The size of the upper limit on misstatement is largely dependent on the sample size, which is inversely related to the desired confidence level.

Accepted Answer

A) True 
 B)False

Question 13

The formula for nonstatistical sampling for tests of account balances provided by the AICPA

Accepted Answer

A)  Must be used for nonstatistical sampling. 
B)  Includes a provision for the risk of incorrect acceptance. 
C)  Is affected by the nature of other substantive procedures used to test the account balance. 
D)  Is largely based on the variation of items in the account. 
A)  Must be used for nonstatistical sampling. 
B)  Includes a provision for the risk of incorrect acceptance. 
C)  Is affected by the nature of other substantive procedures used to test the account balance. 
D)  Is largely based on the variation of items in the account.

Question 14

Monetary-unit sampling is commonly used by auditors to test controls.

Accepted Answer

A) True 
 B)False

Question 15

Expected misstatement is directly related to sample size.

Accepted Answer

A) True 
 B)False

Question 16

Monetary-unit sampling is based on attribute sampling concepts.

Accepted Answer

A) True 
 B)False

Question 17

In a monetary-unit sampling plan, the upper misstatement limit is $11,200 and the risk of incorrect acceptance is 5%. This means that

Accepted Answer

A)  Tolerable misstatement is $11,200. 
B)  There is a 95% chance that the actual misstatement in the account is $11,200 or more. 
C)  There is a 95% chance that the actual misstatement in the account is $11,200. 
D)  There is a 95% chance that the actual misstatement in the account is $11,200 or less. 
A)  Tolerable misstatement is $11,200. 
B)  There is a 95% chance that the actual misstatement in the account is $11,200 or more. 
C)  There is a 95% chance that the actual misstatement in the account is $11,200. 
D)  There is a 95% chance that the actual misstatement in the account is $11,200 or less.

Question 18

You are auditing accounts receivable for a small company and have found the following results:

Accepted Answer

@#IMG-DLM& Use ratio

Question 19

Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable?

Accepted Answer

A)  Combining negative and positive dollar misstatements in the appraisal of a sample. 
B)  Using a sampling technique in which the same account balance could be selected more than once. 
C)  Selecting a random starting point and then sampling every nth dollar. 
D)  Defining the sampling unit in the population as an individual dollar and not as an individual account balance. 
A)  Combining negative and positive dollar misstatements in the appraisal of a sample. 
B)  Using a sampling technique in which the same account balance could be selected more than once. 
C)  Selecting a random starting point and then sampling every nth dollar. 
D)  Defining the sampling unit in the population as an individual dollar and not as an individual account balance.

Question 20

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?

Accepted Answer

A)  Set the tolerable deviation rate at a lower level than originally planned. 
B)  Identify the large and unusual disbursements as individually significant and test 100 percent. 
C)  Increase the sample size to reduce the effect of the unusually large disbursements. 
D)  Continue to draw new samples until all the unusually large disbursements appear in the sample. 
A)  Set the tolerable deviation rate at a lower level than originally planned. 
B)  Identify the large and unusual disbursements as individually significant and test 100 percent. 
C)  Increase the sample size to reduce the effect of the unusually large disbursements. 
D)  Continue to draw new samples until all the unusually large disbursements appear in the sample.

Confidence level is inversely related to sample size.

In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected misstatement of this sample was

An auditor is preparing to sample an entity's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is

The assurance factor for nonstatistical sampling is based on

In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if

In monetary-unit sampling, population size is

Describe two advantages and two disadvantages of monetary-unit sampling (MUS).

What is one advantage and one disadvantage of classical variables sampling?

The size of the upper limit on misstatement is largely dependent on the sample size, which is inversely related to the desired confidence level.

The formula for nonstatistical sampling for tests of account balances provided by the AICPA

Monetary-unit sampling is commonly used by auditors to test controls.

Expected misstatement is directly related to sample size.

Monetary-unit sampling is based on attribute sampling concepts.

In a monetary-unit sampling plan, the upper misstatement limit is $11,200 and the risk of incorrect acceptance is 5%. This means that

You are auditing accounts receivable for a small company and have found the following results:

Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable?

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 9: Audit Sampling: An Application to Substantive Tests of Account Balances

Confidence level is inversely related to sample size.

In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected misstatement of this sample was

An auditor is preparing to sample an entity's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is

The assurance factor for nonstatistical sampling is based on

In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if

In monetary-unit sampling, population size is

Describe two advantages and two disadvantages of monetary-unit sampling (MUS).

What is one advantage and one disadvantage of classical variables sampling?

The size of the upper limit on misstatement is largely dependent on the sample size, which is inversely related to the desired confidence level.

The formula for nonstatistical sampling for tests of account balances provided by the AICPA

Monetary-unit sampling is commonly used by auditors to test controls.

Expected misstatement is directly related to sample size.

Monetary-unit sampling is based on attribute sampling concepts.

In a monetary-unit sampling plan, the upper misstatement limit is $11,200 and the risk of incorrect acceptance is 5%. This means that

You are auditing accounts receivable for a small company and have found the following results:

Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable?

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters