Deck 8: Tools Used in Gathering Audit Evidence

Question 1

Statistical sampling is used when an auditor chooses to examine all purchases of equipment exceeding $1,000.00 and to test the remaining items by analytical procedures.

Answer 1

False

Question 2

Sample size varies directly with the expected failure rate.

Answer 2

True

Question 3

The auditor must define the population to which sampling relates if the auditor is to use statistical sampling for substantive tests of account balances.

Answer 3

True

Question 4

An attribute is defined as a characteristic of the population of interest to the auditor.

Question 5

For tests of control procedures the most commonly used statistical method is Attribute Sampling.

Question 6

The use of haphazard selection of a sample allows for random,statistical evaluation.

Question 7

The most efficient method of testing a large population is the use of nonstatistical sampling.

Question 8

When performing substantive tests using sampling methods,the auditor's main concern is the risk of incorrect rejection.

Question 9

The risk of incorrect acceptance of an account balance as correct,when in fact it is not correct,bears directly on the effectiveness of an audit.

Question 10

The tolerable misstatement is the confidence level needed to infer population values.

Question 11

Audit sampling is the application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic.

Question 12

Increasing the expected failure rate will cause the sample size to increase.

Question 13

The expected failure rate is the auditor's best estimate of the percentage of transactions processed for which the control procedure is not effectively applied.

Question 14

The tolerable failure rate is the minimum rate of control procedure failure that can occur sufficient to cause the auditor to re-assess the preliminary assessment of control risk to a higher level.

Question 15

The individual auditable elements defined by the auditor are the sampling units.

Question 16

The classical sampling methods include difference estimation,ratio estimation,and mean-per-unit sampling.

Question 17

The sample size decreases as the allowance for sampling error decreases.

Question 18

An auditor uses sampling to determine the reasonableness of an account balance by performing detailed analysis of items making up the account balance.

Question 19

Audit sampling implies the gathering of evidence to use as a basis for making valid inferences about the characteristics of the population as a whole without examining every transaction.

Question 20

Statistical sampling assists auditors in determining the sufficiency of evidence gathered.

Question 21

If the statistical confidence level is 90 percent,the test of details (TD)risk is 10 percent.

Question 22

Monetary unit sampling (MUS)is a widely used statistical sampling method because it results in an efficient sample size and concentrates on the dollar value of the account balances.

Question 23

In the formula where I = TM - (EM ´ EEF)/RF;I is the sampling interval in number of units.

Question 24

Population items with a zero balance have the same chance of being chosen as those with dollar balances when using MUS sampling.

Question 25

Classical methods of sampling are relatively easier to use than is MUS sampling.

Question 26

The design of MUS sampling requires the auditor to determine audit risk,tolerable misstatement,and the expected misstatement in the account balance.

Question 27

Nonstatistical samples should be based on the same audit considerations as those used for statistical sampling.

Question 28

Sampling risk is defined as the risk that an inference drawn from a sample will be incorrect.

Question 29

An example of sampling an attribute includes testing a purchase order for the proper signature.

Question 30

Attribute Sampling for testing controls should only be done by the auditor at the end of the fiscal period under audit.

Question 31

Analytical procedures are designed to provide dependent evidence about account balances-to replace the client's underlying estimation process.

Question 32

Random sampling can be used to determine sample size or evaluate sampling results even if the auditor does not plan on using statistical sampling.

Question 33

The design of MUS sampling requires the auditor to determine detection risk,tolerable misstatement,and the expected misstatement in the account balance.

Question 34

MUS sampling is designed to test whether there is an acceptable risk of account balance understatement.

Question 35

One of the most rigorous approaches to analytical procedures is regression analysis.

Question 36

Extracting data from the client's computer system is one of the tasks performed by GAS.

Question 37

Statistical sampling combines the theory of probability and statistical inference with audit judgment and experience.

Question 38

The auditor's tolerable failure rate for Attribute Sampling is the point in which control failures support the planned assessment of audit risk.

Question 39

Evaluating statistical sample results is one of the task performed by GAAS.

Question 40

In the formula where I = TM - (EM ´ EEF)/RF;I is the sampling interval in dollars.

Question 41

Using Attribute Sampling the auditor normally tests for multiple attributes using the same source documents.

Question 42

Incorrect acceptance is directly related to

A)the efficiency of the audit.
B)the ineffectiveness of the audit.
C)the cost of the audit.
D)all of the above.

Question 43

In Attribute Sampling if the achieved upper limit exceeds the tolerable rate the auditor can rely upon the control as working.

Question 44

Random number,systematic sampling and material value sampling are acceptable sample selection methods for statistical sampling.

Question 45

In Attribute Sampling if the selected item cannot be located,the auditor considers that control procedure as not working.

Question 46

Which one of the following is a decision the auditor needs to make about attribute sampling?

A)Management selection of sample size
B)Period covered by testing
C)Population size
D)Whether to use dollar unit or variables sampling

Question 47

Nonsampling risk includes all of the following except

A)misinterpretation of information.
B)use of improper audit procedure.
C)improper projection of results to the population.
D)carelessness of the auditor.
E)all of the above.

Question 48

Sampling risk is the risk that

A)the sample will not contain characteristics representative of the population such that inferences made about that population will be incorrect.
B)the population will not contain characteristics representative of the sample such that inferences made about that sample will be incorrect.
C)Neither A nor B is correct.
D)Both A and B are correct.

Question 49

The auditor's risk of concluding that the book value of inventory is correct when it is materially misstated is the risk of

A)incorrect rejection.
B)incorrect acceptance.
C)insufficient sample size.
D)none of the above.

Question 50

In MUS sampling basic precision is the upper misstatement limit when no misstatements are detected in a MUS sample.It is computed by multiplying the sampling interval by the error expansion factor.

Question 51

Audit sampling is used to obtain evidence about each of the following except

A)the effectiveness of control procedures.
B)the efficiency of control procedures.
C)the dollar accuracy of account balances.
D)the dollar accuracy of classes of transactions.

Question 52

Random number and systematic sampling are acceptable sample selection methods for statistical sampling.

Question 53

The audit objective of Attribute Sampling is to test the correctness of an account balance.

Question 54

Control risk that is assessed excessively high leads to:

A)audit inefficiency.
B)a less expensive audit.
C)reduction of substantive testing.
D)errors that are more likely to occur than anticipated.

Question 55

In analysis of the results of audit sampling,an auditor may determine that the sample size must be increased.

Question 56

Which one of the following accounting constraints supports the concept of audit sampling?

A)Conservatism
B)Materiality
C)Cost-benefit
D)Industry practice

Question 57

Random number,haphazard selection and block sampling are acceptable sample selection methods for nonstatistical sampling.

Question 58

Which one of the following is not a decision the auditor needs to make about attribute sampling?

A)Sample size
B)Selection of items included in the sample
C)Evaluation of sample information
D)Whether to document all phases

Question 59

Stratification of the population into several homogeneous subpopulations generally creates audit efficiency.

Question 60

The auditor is most concerned with which of the following?

A)Risk of incorrect rejection
B)Risk of incorrect acceptance
C)Risk of excess sample size
D)Risk of errors in the population

Question 61

When using MUS sampling,an auditor found that the sampling interval should be $15,755.If selecting the sample manually,the auditor should round the sample interval to

A)$16,000.
B)$15,000.
C)$14,000.
D)$10,000.

Question 62

When planning a test of details using MUS sampling,tolerable misstatement is usually set

A)higher than planning materiality.
B)lower than planning materiality.
C)either higher or lower than planning materiality.
D)the same as materiality.

Question 63

Which one of the following issues need not be addressed when planning an audit sample to test control procedures?

A)Audit objective of the test
B)Minimum rate of control procedure failure
C)Expected rate of control procedure failure
D)Auditor's allowable risk of assessing control risk too low

Question 64

Statistical sampling is best known for combining

A)binomial and confidence intervals.
B)random and haphazard selection.
C)hypergeometric distribution with audit risk.
D)probability and statistical inference with audit judgment.

Question 65

Which one of the following is not a typical step used to implement an attribute estimation sampling plan?

A)Define the attributes of interest and what constitutes failure(s)
B)Select and audit the sample items
C)Evaluate the sample results
D)Define the nonstatistical sampling method that is most effective and efficient

Question 66

When confirming receivables in testing for overstatements,there are few or no misstatements expected,and the selection is based on dollars,the auditor is likely to use

A)MUS sampling.
B)stratified mean-per-unit sampling.
C)ratio estimation sampling.
D)attribute sampling.

Question 67

Factors that the auditor should consider when choosing between nonstatistical and statistical sampling include

A)whether the audit staff is adequately trained to use statistical sampling.
B)whether the population lends itself to a random-based selection method.
C)whether the auditor wants an objective measure of the risk of drawing a wrong conclusion.
D)all of the above.

Question 68

Nonstatistical sampling may be utilized for Tests of Controls Substantive Testing

A)Yes Yes
B)Yes No
C)No No
D)No Yes

Question 69

The statistical sampling method most commonly used to test control procedures is

A)variable sampling.
B)ratio estimation sampling.
C)attribute estimation sampling.
D)dollar unit sampling.

Question 70

When determining the sample size,the auditor must realize that for most purposes:

A)sampling risk is high.
B)tolerable failure rate is predetermined.
C)a failure rate is not to be expected.
D)population size is not a major factor.

Question 71

The design of a MUS sample requires the auditor to determine all of the following except

A)detection risk.
B)inherent risk.
C)tolerable misstatement.
D)expected misstatement in the account balance.

Question 72

The probability proportional to size sampling is designed to test for

A)overstatements.
B)understatements.
C)neither understatements nor overstatements.
D)either understatements or overstatements.

Question 73

The sample size varies directly with

A)the expected failure rate.
B)the tolerable error rate.
C)the allowable risk of assessing control risk too low.
D)the nonsampling risk.

Question 74

Probability proportional to size sampling is designed to test for overstatement of an account balance while classical variable methods are designed to test for

A)both overstatement and understatement.
B)understatement only.
C)overstatement only.
D)exact dollar balances.

Question 75

The steps used in sampling during substantive testing includes the determination of each of the following except

A)the audit objective.
B)the method of selecting a sample.
C)expected misstatement conditions.
D)control failure risk.

Question 76

While auditors may use either statistical or nonstatistical sampling,some auditors restrict the use of nonstatistical sampling mainly because it is

A)less effective.
B)less objective.
C)less efficient.
D)less risky.

Question 77

In MUS sampling,the formula for the sampling interval is

A)
B)
C)
D)

Question 78

In analyzing misstatements using sampling techniques,the auditor should analyze the misstatements

A)qualitatively and quantitatively.
B)absolutely and proportionately.
C)haphazardly and randomly.
D)methodically and systematically.

Question 79

Haphazard sampling is an acceptable method of sampling provided the auditor believes the sample to be

A)statistically sound.
B)representative of the population.
C)representative of the sample.
D)in the upper stratum.

Question 80

The maximum rate of control procedure failure that can occur and still support the preliminary assessment of control risk is

A)tolerable failure rate.
B)allowable risk of assessing control risk too low.
C)expected failure rate.
D)allowance for sampling error.