Question 1

Identify the types of audit evidence that are tested using audit sampling techniques.

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Question 2

Auditors who prefer statistical sampling to nonstatistical sampling may do so because statistical sampling helps the auditor:

Accepted Answer

A) measure the sufficiency of the evidential matter obtained. 
B) eliminate the cost of training auditors in the proper use of sampling techniques. 
C) reduce the level of tolerable misstatement to a relatively low amount. 
D) minimize the failure to detect a material misstatement due to nonsampling risk.

Question 3

Your uncle Bob, a CPA, has recently started auditing and he wants your advice on some tests of sales transactions he is conducting. Bob selected a haphazard sample of 15 sales with a total book value of $75,000. In his sample, he found a total of $500 in net overstatement errors. The total sales balance per book is $10,000,000. Overall materiality for the engagement is $300,000. Tolerable misstatement for sales is $70,000. If the sample results indicate that Bob's best estimate of total misstatement in sales is $35,000, can Bob safely conclude that no additional work is needed in this area? Include in your answer a clear discussion of how sample results are compared to tolerable misstatement.

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Question 4

In attributes sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample?

Accepted Answer

A) Population size. 
B) Tolerable deviation rate. 
C) Expected population deviation rate. 
D) Desired Confidence Interval.

Question 5

The risk of incorrect acceptance relates to the:

Accepted Answer

A) effectiveness of the audit. 
B) efficiency of the audit. 
C) preliminary estimates of materiality levels. 
D) tolerable misstatement.

Question 6

Determine the sample size for each of the control procedures shown in the following table (assuming a very large population)using the Table 8-5 and 8-6 above.

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Question 7

Why must an auditor use sampling? What tradeoffs occur when an auditor uses sampling?

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Question 8

An auditor is testing internal control procedures that are evidenced on an entity's vouchers. To select the vouchers for testing, the auditor obtains random numbers between the first and last voucher number in the period. If a random number matches the number of avoided voucher, that voucher ordinarily should be replaced by another voucher in the random sample if the voucher:

Accepted Answer

A) constitutes a deviation. 
B) has been properly voided. 
C) cannot be located. 
D) represents an immaterial dollar amount.

Question 9

The likelihood of assessing control risk too high is the risk that the sample selected to test controls:

Accepted Answer

A) does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment. 
B) contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes. 
C) contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole. 
D) does not support the tolerable misstatement for some or all of management's assertions.

Question 10

For an attributes sampling plan, the tolerable deviation rate is 4%, the computed upper deviation rate is 7%, the sample deviation rate is 3%, and the risk of assessing control risk too low is 5%. Which of the following is true?

Accepted Answer

A) The auditor must increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate. 
B) The auditor is likely to increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate. 
C) The auditor must increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate. 
D) The auditor is likely to increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate.

Question 11

An underlying feature of random-based selection of items is that each:

Accepted Answer

A) stratum of the accounting population be given equal representation in the sample. 
B) item in the accounting population be randomly ordered. 
C) item in the accounting population should have an opportunity to be selected. 
D) item must be systematically selected using replacement.

Question 12

Which of the following statements is correct concerning statistical sampling for tests of controls?

Accepted Answer

A) The population size has little or no effect on determining sample size except for very small populations. 
B) The expected population deviation rate has little or no effect on determining sample size except for very small populations. 
C) As the population size doubles, the sample size also should double. 
D) For a given tolerable deviation rate, a larger sample size should be selected as the expected population deviation rate decreases.

Question 13

Attribute sampling is used to estimate the proportion of a population that possesses a specified characteristic.

Accepted Answer

A) True 
 B)False

Question 14

Based on a 5% risk of assessing control risk too low, how would an auditor interpret a computed upper deviation rate of 7%?

Accepted Answer

A) The auditor is willing to accept a deviation rate of 7% before deciding not to rely on the control. 
B) There is a 5% chance that the deviation rate in the population is less than 7%. 
C) There is a 5% chance that the deviation rate in the population exceeds 7%. 
D) There is a 95% chance that the deviation rate in the population equals 7%.

Question 15

Audit sampling is not used for which type of audit evidence?

Accepted Answer

A) Inquiry. 
B) Inspection of tangible assets. 
C) Reperformance. 
D) Confirmation.

Question 16

If the expected deviation rate exceeds the tolerable deviation rate, the auditor is most likely to:

Accepted Answer

A) have a large sample size. 
B) set control risk at the maximum without sampling. 
C) set control risk at the minimum without sampling. 
D) pick a lower risk of assessing control risk too low to increase sample size.

Question 17

The term "precision" relates to:

Accepted Answer

A) the difference between confidence level and estimated error. 
B) the difference between confidence level and tolerable error. 
C) the difference between expected and tolerable deviation rate. 
D) the difference between expected and sample deviation rate.

Question 18

Statistical sampling provides a technique for:

Accepted Answer

A) exactly defining materiality. 
B) greatly reducing the amount of substantive testing. 
C) eliminating the additional cost of designing and conducting the sampling application. 
D) measuring the sufficiency of evidential matter.

Question 19

Define Type I and Type II errors.

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Question 20

Auditing standards permit both statistical and nonstatistical methods of audit sampling.

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