Question 1

Stratification of the population will result in less efficient sampling and increase the sample size required.

Accepted Answer

A) True 
 B)False  False

Question 2

Describe the major types of sampling techniques available to auditors.

Accepted Answer

There are a range of sampling techniques available to auditors which include random selection, systematic selection, haphazard selection, block selection and judgement selection. Random selection requires that the person selecting the sample does not influence the choice of items selected. The resulting sample is then free from bias and each item within the population has an equal chance of being selected for testing. Random number generators can be used to select a sample. Systematic selection involves the selection of a sample for testing by dividing the number of items in a population by the sample size, resulting in the sampling interval (n). Once the sampling interval has been determined a starting point is selected, which is an item in the population below the sampling interval, and then the sample is selected by selecting the first item and then every nth item after that. Haphazard selection involves the selection of a sample by an auditor without using a methodical technique. Block selection involves the selection of items that are grouped together within the population of items available. Judgemental selection involves the selection of items that an auditor believes should be included in their sample for testing. When testing controls, judgement may be used to ensure that transactions processed when a new computer is installed are included in the sample. When conducting substantive testing, judgement may be used to include in the sample large or unusual items.

Question 3

The most common statistical sample selection method according to the study by Hall et al (2002) is dollar-unit sampling. Explain in detail how this method operates and evaluate the advantages and disadvantages of using it.

Accepted Answer

Dollar-unit sampling is a statistical sample selection method that is commonly used in auditing and accounting. This method operates by selecting items for sampling based on their dollar value, rather than their physical quantity or number. The process involves assigning a dollar value to each item in the population, and then selecting a sample of items based on their dollar value.

The first step in dollar-unit sampling is to determine the total dollar value of the population being sampled. Then, a sampling interval is calculated by dividing the total dollar value by the desired sample size. Once the sampling interval is determined, items are selected for the sample by randomly choosing a starting point and then selecting every nth item based on the sampling interval.

One of the main advantages of dollar-unit sampling is that it allows for a more efficient and effective way of selecting a sample. By focusing on the dollar value of items, this method can help to identify high-value items that may have a greater impact on the overall results. Additionally, dollar-unit sampling can also help to reduce the risk of under- or over-auditing certain items, as it provides a systematic and structured approach to sample selection.

However, there are also some disadvantages to using dollar-unit sampling. One potential drawback is that it may not be suitable for populations with a wide range of dollar values, as it could result in a skewed sample that does not accurately represent the entire population. Additionally, the method requires a thorough understanding of the population and its dollar values, which may be time-consuming and resource-intensive.

In conclusion, dollar-unit sampling is a common statistical sample selection method that operates by selecting items based on their dollar value. While it offers advantages such as efficiency and effectiveness, it also has limitations in its applicability to certain populations and the resources required for its implementation. Therefore, it is important for auditors and researchers to carefully consider the specific characteristics of the population before deciding to use dollar-unit sampling.

Question 4

Explain how auditors evaluate the results of tests of controls conducted on a sample.

Accepted Answer

After an auditor has completed their aud

Question 5

During the execution stage of the audit, an auditor will document:

Accepted Answer

A)  details of audit tests undertaken 
B)  their understanding of their client 
C)  related parties identified 
D)  analytical procedures used to aid in risk identification 
A)  details of audit tests undertaken 
B)  their understanding of their client 
C)  related parties identified 
D)  analytical procedures used to aid in risk identification

Question 6

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.

Accepted Answer

A) True 
 B)False

Question 7

Explain sampling risk as it relates to both tests of controls and substantive procedures.

Accepted Answer

Sampling risk is the risk that the sampl

Question 8

Block selection involves the selection of items that are grouped together within the population of items available.

Accepted Answer

A) True 
 B)False

Question 9

When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is a factor that influences the sample size when testing controls?

Accepted Answer

A)  an increase in the auditor's assessment of the risk of material misstatement 
B)  an increase in the tolerable rate of deviation 
C)  stratification of the population when appropriate 
D)  an increase in tolerable misstatement 
A)  an increase in the auditor's assessment of the risk of material misstatement 
B)  an increase in the tolerable rate of deviation 
C)  stratification of the population when appropriate 
D)  an increase in tolerable misstatement

Question 11

The decision of what constitutes sufficient appropriate audit evidence is a matter for professional judgement

Accepted Answer

A) True 
 B)False

Question 12

An account is at a higher risk of misstatement when it requires:

Accepted Answer

A)  complex calculations 
B)  estimation 
C)  both a and b 
D)  simple valuation techniques 
A)  complex calculations 
B)  estimation 
C)  both a and b 
D)  simple valuation techniques

Question 13

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

Accepted Answer

A) True 
 B)False

Question 14

When testing controls, a decrease in the sample size will occur when there is:

Accepted Answer

A)  an increase in the tolerable rate of deviation 
B)  a decrease in the tolerable rate of deviation 
C)  an increase in the extent to which the auditor's risk assessment takes into account relevant controls 
D)  an increase in the number of sampling units in the population 
A)  an increase in the tolerable rate of deviation 
B)  a decrease in the tolerable rate of deviation 
C)  an increase in the extent to which the auditor's risk assessment takes into account relevant controls 
D)  an increase in the number of sampling units in the population

Question 15

Which sampling method involves the selection of items that are grouped together within the population of items available?

Accepted Answer

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

Question 16

Explain the differences between the main objectives of tests of controls and substantive procedures.

Accepted Answer

Tests of controls are conducted to estab

Question 17

An auditor uses their professional judgement when determining the nature, timing and extent of audit procedures to use for each audit. Explain why the nature, timing and extent of audit testing are crucial factors in every audit.

Accepted Answer

The nature, timing, and extent of audit

Question 18

Tests of controls are conducted to establish that:

Accepted Answer

A)  controls operate consistently throughout the period 
B)  there are no material misstatements in the financial statements 
C)  controls operate effectively 
D)  both a and c 
A)  controls operate consistently throughout the period 
B)  there are no material misstatements in the financial statements 
C)  controls operate effectively 
D)  both a and c

Question 19

When auditors conclude that an internal control is effective, they will rely on the control to prevent and detect a material misstatement and reduce their detailed substantive procedures.

Accepted Answer

A) True 
 B)False

Question 20

Tests of controls are audit procedures designed to detect material misstatements at the assertion level.

Accepted Answer

A) True 
 B)False

Stratification of the population will result in less efficient sampling and increase the sample size required.

Describe the major types of sampling techniques available to auditors.

The most common statistical sample selection method according to the study by Hall et al (2002) is dollar-unit sampling. Explain in detail how this method operates and evaluate the advantages and disadvantages of using it.

Explain how auditors evaluate the results of tests of controls conducted on a sample.

During the execution stage of the audit, an auditor will document:

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.

Explain sampling risk as it relates to both tests of controls and substantive procedures.

Block selection involves the selection of items that are grouped together within the population of items available.

When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Which of the following is a factor that influences the sample size when testing controls?

The decision of what constitutes sufficient appropriate audit evidence is a matter for professional judgement

An account is at a higher risk of misstatement when it requires:

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

When testing controls, a decrease in the sample size will occur when there is:

Which sampling method involves the selection of items that are grouped together within the population of items available?

Explain the differences between the main objectives of tests of controls and substantive procedures.

An auditor uses their professional judgement when determining the nature, timing and extent of audit procedures to use for each audit. Explain why the nature, timing and extent of audit testing are crucial factors in every audit.

Tests of controls are conducted to establish that:

When auditors conclude that an internal control is effective, they will rely on the control to prevent and detect a material misstatement and reduce their detailed substantive procedures.

Tests of controls are audit procedures designed to detect material misstatements at the assertion level.

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment 1

Risk Assessment II

Audit Evidence

Gaining an Understanding of the Clients System of Internal Controls

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

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Exam 7: Sampling and Overview of the Risk Response Phase of the Audit

Stratification of the population will result in less efficient sampling and increase the sample size required.

Describe the major types of sampling techniques available to auditors.

The most common statistical sample selection method according to the study by Hall et al (2002) is dollar-unit sampling. Explain in detail how this method operates and evaluate the advantages and disadvantages of using it.

Explain how auditors evaluate the results of tests of controls conducted on a sample.

During the execution stage of the audit, an auditor will document:

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.

Explain sampling risk as it relates to both tests of controls and substantive procedures.

Block selection involves the selection of items that are grouped together within the population of items available.

When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Which of the following is a factor that influences the sample size when testing controls?

The decision of what constitutes sufficient appropriate audit evidence is a matter for professional judgement

An account is at a higher risk of misstatement when it requires:

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

When testing controls, a decrease in the sample size will occur when there is:

Which sampling method involves the selection of items that are grouped together within the population of items available?

Explain the differences between the main objectives of tests of controls and substantive procedures.

An auditor uses their professional judgement when determining the nature, timing and extent of audit procedures to use for each audit. Explain why the nature, timing and extent of audit testing are crucial factors in every audit.

Tests of controls are conducted to establish that:

When auditors conclude that an internal control is effective, they will rely on the control to prevent and detect a material misstatement and reduce their detailed substantive procedures.

Tests of controls are audit procedures designed to detect material misstatements at the assertion level.

Introduction and Overview of Audit and Assurance

Ethics, Legal Liability and Client Acceptance

Risk Assessment 1

Risk Assessment II

Audit Evidence

Gaining an Understanding of the Clients System of Internal Controls

Execution of the Audit Testing of Controls

Execution of the Audit Performing Substantive Procedures

Substantive Testing and Balance Sheet Accounts

Substantive Testing and Income Statement Accounts

Completing and Reporting on the Audit

Filters