Question 1

Which of the following is appropriate in the selection of a statistical sample?

Accepted Answer

A)  Random selection. 
B)  Block selection. 
C)  Stratified selection. 
D)  All of the given answers.

Question 2

An auditor planning tests of controls specifies a risk of assessing control risk too low of five per cent and a tolerable deviation rate of six per cent and expects one deviation. For these specifications, the planned sample size should be: (Use the following table to determine your answer.)
Number of factors for sampling risks of:

Accepted Answer

A)  60. 
B)  50. 
C)  80. 
D)  Some other amount.

Question 3

The accounting department reports that the balance of accounts receivable is $210 000. You are willing to accept that balance if it is within $15 000 of the actual balance. Using a variables sampling plan, you compute a 95 per cent confidence interval of $208 000 to $225 000. You would therefore:

Accepted Answer

A)  not be able to determine the acceptability of the receivable balance. 
B)  accept the balance but with a lower level of confidence. 
C)  take a larger sample before totally rejecting the balance and requiring adjustments. 
D)  accept the $210 000 balance because the confidence interval is within the materiality limits.

Question 4

Based on a five per cent risk of assessing control risk too low, how would an auditor interpret a computed upper deviation rate of seven per cent?

Accepted Answer

A)  There is a five per cent chance that the deviation rate in the population is less than seven per cent. 
B)  The auditor is willing to tolerate a deviation rate of seven per cent before deciding not to rely on the control. 
C)  There is a 95 per cent chance that the deviation rate in the population equals seven per cent. 
D)  There is a five per cent chance that the deviation rate in the population exceeds seven per cent.

Question 5

An auditor is planning the confirmation of accounts receivable. The total of debit balances in the aged trial balance of receivables is $4 million. The auditor has decided that the tolerable misstatement (basic precision) for this sampling application is $50 000, the risk of incorrect acceptance is five per cent and zero error is expected. There are 2500 customer balances. The auditor decides to use dollar-unit sampling and determines a sample size of 100. The sampling interval for dollar-unit sampling using the systematic selection method is approximately:

Accepted Answer

A)  50. 
B)  200. 
C)  1 000. 
D)  40 000.

Question 6

When selecting items for testing, the auditor concentrates their selection on high dollar value items. This approach is:

Accepted Answer

A)  never appropriate in performing audit procedures under Australian auditing standards. 
B)  not an audit sampling technique but is often an appropriate evidence collection technique. 
C)  appropriate only if the auditor is undertaking statistical sampling. 
D)  generally a useful and efficient method for all audit tests.

Question 7

Dollar-unit sampling is said to eliminate the need to stratify the sample because:

Accepted Answer

A)  the risk of incorrect acceptance is inversely related to sample size. 
B)  sample items are selected in proportion to their dollar amount. 
C)  the upper limit on misstatements can be computed based on statistical principles. 
D)  tolerable misstatement is considered when determining sample size.

Question 8

All of the following are true for dollar-unit sampling except:

Accepted Answer

A)  it is not necessary to estimate the standard deviation of the population. 
B)  large items have a higher probability of selection. 
C)  several account balances can be combined and treated as one sampling unit. 
D)  understated items have a lower probability of selection than they would otherwise.

Question 9

As a result of tests of controls, an auditor found that they had assessed control risk as too low (their planned reliance on internal control was too high). This assessment occurred because the deviation rate in the sample was:

Accepted Answer

A)  more than the risk of assessing control risk too low based on the auditor's sample. 
B)  more than the auditor's planned deviation rate. 
C)  less than the risk of assessing control risk too low based on the auditor's sample. 
D)  less than the auditor's planned deviation rate.

Question 10

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

Accepted Answer

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

Question 11

The tolerable deviation rate for a test of controls is generally:

Accepted Answer

A)  unrelated to the expected deviation rate in the related accounting records. 
B)  identical to the expected deviation rate in the related accounting records. 
C)  higher than the expected deviation rate in the related accounting records. 
D)  lower than the expected deviation rate in the related accounting records.

Question 12

An auditor is preparing to sample a client's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection (in that all items greater than the sample interval will be selected) is:

Accepted Answer

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

Question 13

An advantage of using statistical over non-statistical sampling methods in tests of controls is that the statistical methods:

Accepted Answer

A)  provide an objective basis for quantitatively evaluating sampling risk. 
B)  afford greater assurance than a non-statistical sample of equal size. 
C)  eliminate the need to use judgment in determining appropriate sample sizes. 
D)  can more easily convert the sample into a dual-purpose test useful for substantive testing.

Question 14

An auditor planning tests of controls specifies a risk of assessing control risk too low of 10 per cent and a tolerable deviation rate of six per cent and expects no deviations. For these specifications, the planned sample size should be: (Use the following table to determine your answer.)
Number of factors for sampling risks of:

Accepted Answer

A)  60. 
B)  50. 
C)  40. 
D)  Some other amount.

Question 15

In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the:

Accepted Answer

A)  effectiveness of the audit. 
B)  efficiency of the audit. 
C)  audit quality controls. 
D)  selection of the sample.

Question 16

The tolerable deviation rate for tests of controls necessary to justify assessing control risk at less than maximum depends primarily on which of the following?

Accepted Answer

A)  The assessed level of control risk. 
B)  The cause of deviations. 
C)  The tolerable deviation rate used in audits of similar clients. 
D)  The amount of any identified substantive misstatements.

Question 17

Sarah Jones, an auditor, believes the industry-wide occurrence rate of client billing errors is three per cent and has established a tolerable deviation rate of five per cent. In the review of client invoices to test that the invoice is properly checked and authorised, Jones should use:

Accepted Answer

A)  attribute sampling. 
B)  discovery sampling. 
C)  variable sampling. 
D)  stratified sampling.

Question 18

Which of the following best illustrates the concept of sampling risk?

Accepted Answer

A)  The documents related to the chosen sample may not be available for inspection. 
B)  An auditor may fail to recognise deviations in the documents examined for the chosen sample. 
C)  An auditor may select audit procedures that are not appropriate to achieve the specific objective. 
D)  A randomly chosen sample may not be representative of the population as a whole for the characteristic of interest.

Question 19

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

Accepted Answer

A)  An increase in tolerable misstatement would increase sample size, but an increase in assessed level of control risk would decrease sample size. 
B)  Both an increase in tolerable misstatement and an increase in assessed level of control risk would increase sample size. 
C)  Both an increase in tolerable misstatement and an increase in assessed level of control risk would decrease sample size. 
D)  An increase in tolerable misstatement would decrease sample size, but an increase in assessed level of control risk would increase sample size

Question 20

Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a dollar value?

Accepted Answer

A)  Stop-or-go sampling. 
B)  Attribute sampling. 
C)  Random-number sampling. 
D)  Variables sampling.

Exam 11: Audit Sampling Part Four: Completion and Communication