Question 1

In classical variables sampling,a measure of the variability of the population is known as the

Accepted Answer

A) Sampling average. 
B) Tolerable misstatement. 
C) Standard deviation. 
D) Tainting percentage. 
A) Sampling average. 
B) Tolerable misstatement. 
C) Standard deviation. 
D) Tainting percentage.

Question 2

Ranger,CPA used nonstatistical sampling to examine the accounts receivable balances of Cowboy,Inc.He audited a sample of 150 items and found an audited value of $5,000 less than the recorded balance of $25,000.The entire account balance contained 2,000 items and had a total recorded value of $350,000.Using nonstatistical methods and assuming that Ranger used the ratio of audited value to recorded value to estimate the account balance,the estimated total account balance is

Accepted Answer

A) $345,000 
B) $330,000 
C) $295,000 
D) $280,000 
A) $345,000 
B) $330,000 
C) $295,000 
D) $280,000

Question 3

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 4

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 5

Below are some situations in which it would be preferable to use either monetary unit sampling or classical variables sampling.Using the letters M (for monetary unit sampling)or C (for classical variables sampling).
1___.Several sampling units in the population have a zero or negative balance.
2___.The auditor would like to examine a smaller number of items.
3___.The account balance is susceptible to understatement error.
4___.The account balance includes a few logical units with very large dollar balances.
5___.The auditor is able to form a reasonable estimate of the variability of the population.
6___.The auditor would like to ensure that the sampling method provides a conservative (higher)estimate of misstatement in the account balance.
7___.The account balance is susceptible to overstatement error.

Accepted Answer

1.C; 2.M;

Question 6

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

Accepted Answer

A) Incorrect rejection occurs when the auditor concludes that the account balance is not fairly stated. 
B) The risk of incorrect rejection has an inverse relationship with sample size. 
C) The risk of incorrect rejection exposes the auditor to an efficiency loss. 
D) Incorrect rejection occurs when the true (but unknown)account balance is materially misstated. 
A) Incorrect rejection occurs when the auditor concludes that the account balance is not fairly stated. 
B) The risk of incorrect rejection has an inverse relationship with sample size. 
C) The risk of incorrect rejection exposes the auditor to an efficiency loss. 
D) Incorrect rejection occurs when the true (but unknown)account balance is materially misstated.

Question 7

Law,CPA is using nonstatistical sampling in his examination of Jye Company's accounts receivable.The recorded balance of Jye's accounts receivable was $750,000.Law selected a sample of customer accounts for examination,which were recorded at $50,000.Based on the responses received from accounts receivable confirmations,Law determined an audited value of $45,000 for the accounts receivable. If tolerable misstatement is $60,000,which of the following statements is not true?

Accepted Answer

A) The actual misstatement identified by Law is $5,000. 
B) The estimated account balance would be $825,000. 
C) Law would conclude that the account balance is not fairly stated,since the expected misstatement is greater than the tolerable misstatement. 
D) Law is not able to provide a quantitative conclusion as to the exposure to the risk of incorrect acceptance. 
A) The actual misstatement identified by Law is $5,000. 
B) The estimated account balance would be $825,000. 
C) Law would conclude that the account balance is not fairly stated,since the expected misstatement is greater than the tolerable misstatement. 
D) Law is not able to provide a quantitative conclusion as to the exposure to the risk of incorrect acceptance.

Question 8

How does monetary unit sampling (MUS)ensure that larger dollar components are selected for examination?

Accepted Answer

A) MUS requires the auditor to identify all items having a balance greater than performance materiality prior to beginning the sample selection process. 
B) MUS requires the auditor to stratify the sample into larger and smaller dollar components prior to beginning the sample selection process. 
C) MUS defines the sampling unit as an individual dollar within an account balance or class of transactions. 
D) MUS selects components having larger balances in the prior audit. 
A) MUS requires the auditor to identify all items having a balance greater than performance materiality prior to beginning the sample selection process. 
B) MUS requires the auditor to stratify the sample into larger and smaller dollar components prior to beginning the sample selection process. 
C) MUS defines the sampling unit as an individual dollar within an account balance or class of transactions. 
D) MUS selects components having larger balances in the prior audit.

Question 9

Which of the following is not an acceptable course of action the audit team can choose when sample evidence suggests that the account balance is materially misstated?

Accepted Answer

A) Increase the tolerable misstatement and examine additional items. 
B) Increase the sample size and examine additional items. 
C) Recommend adjustment of the client's account balance. 
D) All of the above are acceptable courses of action. 
A) Increase the tolerable misstatement and examine additional items. 
B) Increase the sample size and examine additional items. 
C) Recommend adjustment of the client's account balance. 
D) All of the above are acceptable courses of action.

Question 10

Which component of the expanded audit risk model is most closely associated with the risk of incorrect acceptance?

Accepted Answer

A) Analytical procedures risk. 
B) Risk of material misstatement. 
C) Nonsampling risk. 
D) Test of details risk. 
A) Analytical procedures risk. 
B) Risk of material misstatement. 
C) Nonsampling risk. 
D) Test of details risk.

Question 11

Which of the following is considered in determining the sample size in a classical variables sampling application but not in a monetary unit sampling application?

Accepted Answer

A) Standard deviation: Yes; Risk of incorrect acceptance: Yes 
B) Standard deviation: Yes; Risk of incorrect acceptance: No 
C) Standard deviation: No; Risk of incorrect acceptance: Yes 
D) Standard deviation: No; Risk of incorrect acceptance: No 
A) Standard deviation: Yes; Risk of incorrect acceptance: Yes 
B) Standard deviation: Yes; Risk of incorrect acceptance: No 
C) Standard deviation: No; Risk of incorrect acceptance: Yes 
D) Standard deviation: No; Risk of incorrect acceptance: No

Question 12

Using an incremental confidence factor of 1.58 (corresponding to the risk of incorrect acceptance of 10 percent),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 13

Summitt,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Hero,Inc.Which of the following methods of sample selection are available to her?

Accepted Answer

A) Random and systematic only. 
B) Block and haphazard only. 
C) Any method she believes will result in a representative sample. 
D) Any method where the results can be probabilistically estimated. 
A) Random and systematic only. 
B) Block and haphazard only. 
C) Any method she believes will result in a representative sample. 
D) Any method where the results can be probabilistically estimated.

Question 14

Which of the following statements is true regarding classical variables sampling?

Accepted Answer

A) A very small dollar account has the same probability of being selected for examination as a very large dollar account. 
B) The determination of sample size requires to auditors to consider a smaller number of factors than are considered under MUS. 
C) Classical variables sampling should be used when the auditor has greater concerns for overstatement (rather than understatement)errors. 
D) The sampling unit is defined as each individual dollar in the account under examination. 
A) A very small dollar account has the same probability of being selected for examination as a very large dollar account. 
B) The determination of sample size requires to auditors to consider a smaller number of factors than are considered under MUS. 
C) Classical variables sampling should be used when the auditor has greater concerns for overstatement (rather than understatement)errors. 
D) The sampling unit is defined as each individual dollar in the account under examination.

Question 15

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 16

Romo,CPA performed nonstatistical sampling to examine the inventory balances of Jones Company.The sample included 125 of the total 1,250 items with a recorded balance of $550,000.Romo determined the expected misstatement to be $25,000 and the tolerable misstatement to be $40,000.The sample had a recorded balance of $54,000 and an audited value of $52,000.What conclusion did Romo draw regarding the account balance?

Accepted Answer

A) Conclude that the account balance is fairly stated,since the expected misstatement is greater than the expected misstatement. 
B) Conclude that the account balance is not fairly stated,since the expected misstatement is greater than the tolerable misstatement. 
C) Conclude that the account balance is not fairly stated,since the expected misstatement is less than the expected misstatement. 
D) Conclude that the account balance is fairly stated,since the expected misstatement is less than the tolerable misstatement. 
A) Conclude that the account balance is fairly stated,since the expected misstatement is greater than the expected misstatement. 
B) Conclude that the account balance is not fairly stated,since the expected misstatement is greater than the tolerable misstatement. 
C) Conclude that the account balance is not fairly stated,since the expected misstatement is less than the expected misstatement. 
D) Conclude that the account balance is fairly stated,since the expected misstatement is less than the tolerable misstatement.

Question 17

The sampling method used to examine a population when the auditor wants to estimate a continuous amount (or value)of the population is:

Accepted Answer

A) Attributes sampling. 
B) Balance sampling. 
C) Discovery sampling. 
D) Variables sampling. 
A) Attributes sampling. 
B) Balance sampling. 
C) Discovery sampling. 
D) Variables sampling.

Question 18

Which of the following would be the most likely situation in which an auditor would use variables sampling?

Accepted Answer

A) Comparing the recorded balance in accounts receivable to expected balances or prior-years' balances. 
B) Selecting customer balances in accounts receivable for confirmation. 
C) Evaluating sales invoices for evidence of authorization by client personnel. 
D) Mathematically evaluating the client's provision for the allowance for doubtful accounts. 
A) Comparing the recorded balance in accounts receivable to expected balances or prior-years' balances. 
B) Selecting customer balances in accounts receivable for confirmation. 
C) Evaluating sales invoices for evidence of authorization by client personnel. 
D) Mathematically evaluating the client's provision for the allowance for doubtful accounts.

Question 19

Which of the following is not a correct relationship between a factor and sample size in a monetary unit sampling application?

Accepted Answer

A) Expected misstatement; Inverse. 
B) Recorded balance of the account; Direct. 
C) Risk of incorrect acceptance; Inverse. 
D) Tolerable misstatement; Inverse. 
A) Expected misstatement; Inverse. 
B) Recorded balance of the account; Direct. 
C) Risk of incorrect acceptance; Inverse. 
D) Tolerable misstatement; Inverse.

Question 20

Why is the auditor more concerned with controlling the exposure to the risk of incorrect acceptance than with the risk of incorrect rejection?

Accepted Answer

A) Only the risk of incorrect acceptance results in an incorrect decision by the auditor. 
B) The risk of incorrect rejection is not related to the auditor's substantive procedures. 
C) The risk of incorrect rejection can be controlled by performing substantive procedures during the interim period. 
D) The risk of incorrect acceptance may ultimately result in the auditor incorrectly issuing an unmodified opinion on the client's financial statements. 
A) Only the risk of incorrect acceptance results in an incorrect decision by the auditor. 
B) The risk of incorrect rejection is not related to the auditor's substantive procedures. 
C) The risk of incorrect rejection can be controlled by performing substantive procedures during the interim period. 
D) The risk of incorrect acceptance may ultimately result in the auditor incorrectly issuing an unmodified opinion on the client's financial statements.

In classical variables sampling,a measure of the variability of the population is known as the

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?

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 rejection?

How does monetary unit sampling (MUS)ensure that larger dollar components are selected for examination?

Which of the following is not an acceptable course of action the audit team can choose when sample evidence suggests that the account balance is materially misstated?

Which component of the expanded audit risk model is most closely associated with the risk of incorrect acceptance?

Which of the following is considered in determining the sample size in a classical variables sampling application but not in a monetary unit sampling application?

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

Summitt,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Hero,Inc.Which of the following methods of sample selection are available to her?

Which of the following statements is true regarding classical 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?

The sampling method used to examine a population when the auditor wants to estimate a continuous amount (or value)of the population is:

Which of the following would be the most likely situation in which an auditor would use variables sampling?

Which of the following is not a correct relationship between a factor and sample size in a monetary unit sampling application?

Why is the auditor more concerned with controlling the exposure to the risk of incorrect acceptance than with the risk of incorrect rejection?

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Finance and Investment Cycle

Completing the Audit

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Exam 19: Variables Sampling

In classical variables sampling,a measure of the variability of the population is known as the

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?

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 rejection?

How does monetary unit sampling (MUS)ensure that larger dollar components are selected for examination?

Which of the following is not an acceptable course of action the audit team can choose when sample evidence suggests that the account balance is materially misstated?

Which component of the expanded audit risk model is most closely associated with the risk of incorrect acceptance?

Which of the following is considered in determining the sample size in a classical variables sampling application but not in a monetary unit sampling application?

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

Summitt,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Hero,Inc.Which of the following methods of sample selection are available to her?

Which of the following statements is true regarding classical 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?

The sampling method used to examine a population when the auditor wants to estimate a continuous amount (or value)of the population is:

Which of the following would be the most likely situation in which an auditor would use variables sampling?

Which of the following is not a correct relationship between a factor and sample size in a monetary unit sampling application?

Why is the auditor more concerned with controlling the exposure to the risk of incorrect acceptance than with the risk of incorrect rejection?

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