Question 1

Auditors are evaluating an account with a recorded balance of $500,000 using mean-per-unit estimation.This account is comprised of 1,000 individual components.The auditors sampled 100 items and determined a total audited value of $52,500.Using a risk of incorrect acceptance of 10 percent,the auditors determined a precision of $40,000.If the tolerable misstatement is $50,000,which of the following is not true?

Accepted Answer

A) The estimated recorded balance of this account is $525,000. 
B) A 90 percent probability exists that the true population value falls between $460,000 and $540,000. 
C) The auditors would conclude that the account balance is fairly stated. 
D) The probability that the auditors will incorrectly accept a materially misstated account balance is 10 percent.

Question 2

Which of the following does not represent a difference between the use of various approaches to classical variables sampling?

Accepted Answer

A) The use of mean-per-unit estimation typically results in a larger standard deviation than the use of either difference estimation or ratio estimation. 
B) The use of difference and ratio estimation normally provides smaller sample sizes than the use of mean-per-unit estimation. 
C) The use of difference and ratio estimation require the auditor to expect a certain number of differences to exist in the population while the use of mean-per-unit estimation does not. 
D) The use of mean-per-unit estimation requires a reliable measure of recorded balance while the use of difference and ratio estimation do not.

Question 3

When the ___ exceeds the___,the audit team is exposed to the risk of incorrect acceptance

Accepted Answer

A) Upper limit on misstatements; tolerable misstatement. 
B) Tolerable misstatement; expected misstatement. 
C) Tolerable misstatement; upper limit on misstatements. 
D) Upper limit on misstatements; expected misstatement.

Question 4

You are planning to use monetary unit sampling to evaluate accounts receivable for Rose Company.The accounts receivable account totals $4,000,000.You have assessed a risk of incorrect acceptance of 10 percent,a tolerable misstatement of $200,000,and an expected misstatement of $40,000.
a.Calculate the sample size and sampling interval.
b.Regardless of your answer to (a),use a sample size of 66 and the related sampling interval to calculate the upper limit on misstatements assuming you found the following differences. $$\begin{array} { c c c c } 
\text { Account } &  \text { Recorded }  & \ \text { Aldited }  & \text { Difference } \
&\text { Balance} & \text { Value} \
201 & \$ 1,000 & \$ 20 & \$ 200 \
532 & 2,000 & 600 & 1,400
\end{array}$$

Accepted Answer

The answer of You are planning to use monetary unit...

Question 5

Which of the following is not considered in establishing the sample size in a monetary unit sampling application?

Accepted Answer

A) Expected misstatement. 
B) Population size. 
C) Risk of incorrect acceptance. 
D) All of the above are considered.

Question 6

Which of the following would not be estimated using variables sampling?

Accepted Answer

A) The balance in the client's accounts receivable. 
B) The extent to which an internal control procedure is not functioning as intended. 
C) The amount of misstatement in a client's inventory. 
D) All of the above would be estimated using variables sampling.

Question 7

The risk of incorrect acceptance relates to the:

Accepted Answer

A) Effectiveness of the audit. 
B) Efficiency of the audit. 
C) Preliminary estimate of materiality. 
D) Allowable risk of tolerable misstatement.

Question 8

Which of the following is considered to be an advantage of monetary unit sampling compared to classical variables sampling? $$\begin{array} { c c c } 
& \text { Selection of larger } & \text { Abity to identijy } \
\text {  } & \text { components } & \text { understatements } \
\text { A. } & \text { Yes } & \text { No } \
\text { B. } & \text { No } & \text { No } \
\text { C. } & \text { No } & \text { Yes } \
\text { D. } & \text { Yes } & \text { Yes } \
\end{array}$$

Accepted Answer

The answer of Which of the following is considered to...

Question 9

Solo,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Hope,Inc.and estimated the account balance by projecting the misstatement based on the number of items examined.In selecting her sample of 70 items,she used an expected misstatement of $40,000 and a tolerable misstatement of $65,000.The account balance consisted of 1,050 items totaling $1,200,000.The sample recorded balance was $80,000,and the audited value was $76,000.What conclusion did Solo draw regarding the account balance?

Accepted Answer

A) Accept because the expected misstatement is less than the tolerable misstatement. 
B) Reject because the expected misstatement is greater than the expected misstatement. 
C) Accept because the expected misstatement is less than the expected misstatement. 
D) Reject because the expected misstatement is greater than the tolerable misstatement.

Question 10

When conducting variables sampling,auditors typically examine

Accepted Answer

A) Transactions of components of the account balance or class of transactions. 
B) The balances in an account balance or class of transactions from one or more prior years. 
C) The separation of duties among client personnel for transactions related to the account balance or class of transactions. 
D) Minutes from meetings of the client's board of directors.

Question 11

Which of the following statements is true regarding performance materiality in a monetary unit sampling application?

Accepted Answer

A) Performance materiality replaces the overall level of financial statement materiality. 
B) Expected misstatement is the application of performance materiality to a particular sampling procedure. 
C) Performance materiality addresses the risk that the aggregate of individually material misstatements may not cause the financial statements to be materially misstated. 
D) Performance materiality provides auditors with a conservative measure that considers the presence of undetected misstatements.

Question 12

What is the projected misstatement?

Accepted Answer

A) $5,000. 
B) $10,000. 
C) $15,000. 
D) $30,000.

Question 13

Which of the following factors is most likely established based on the results of prior audit examinations?

Accepted Answer

A) Expected misstatement. 
B) Population size. 
C) Risk of incorrect acceptance. 
D) Tolerable misstatement.

Question 14

Allister is auditing a client's accounts balance recorded at $500,000 using monetary unit sampling and determined a sample size of 100 items.The following two misstatements were identified as a result of the substantive tests: 
$$\begin{array} { c c } 
\text { Recorded Balaree } & \text { Audited Arrount } \
\$ 4,000 & \$ 1,000 \
\$ 2,000 & \$ 1,500 \

\end{array}$$ Confidence factors for a 5 percent risk of incorrect acceptance are shown below: $$\begin{array} { c c } 
\text { Gverstatemert } & \text { Factor } \
\text { ETcrs } & \
0 & 3.00 \
1 & 4.75 \
2 & 6.30
\end{array}$$ What is the incremental allowance for sampling risk?

Accepted Answer

A) $3,500 
B) $5,000 
C) $8,500 
D) $15,000

Question 15

Indicate how each of the following considerations would impact sample size in a classical variables sampling application by using I (increase),D (decrease),or N (no effect).
1____.The inventory account balance several unusually large items.Carson had decided to stratify the inventory account balance so that the unusually large items are selected.
2____.Carson assigned a higher level of the risk of incorrect rejection initially because he can quickly and inexpensively select additional items for examination if needed.
3____.Carson increased the expected misstatement due to the change in Furniture Expert's method of processing and recording transactions.
4____.Carson conducted a small pilot sample to assess the population's standard deviation.The results indicated that the population was highly variable.
5____.The risk of incorrect acceptance has been decreased because the results of Carson's attributes sampling related to inventory transactions indicated control risk should be increased.
6____.During the audit,Carson realized his initial determination of the population size only included the first 11 months of year.When he corrected the population to include all 12 months the recorded inventory account balance increased by $100,000 and 55 items.

Accepted Answer

The answer of Indicate how each of the following considerations...

Question 16

The audit team is using monetary unit sampling to examine an entity's accounts receivable balance,which is recorded at $500,000.The team has determined the tolerable misstatement to be $25,000,the risk of incorrect acceptance to be 5 percent,and the expected misstatement to be 2 percent.Using the monetary unit sampling Sample Size table,what is the appropriate sample size?

Accepted Answer

A) 75 
B) 162 
C) 231 
D) 300

Question 17

A number of factors influence the sample size for a variables sampling application.All other factors held constant,which of the following would lead to a larger sample size?

Accepted Answer

A) A lower assessed level of risk of material misstatement. 
B) Increased use of analytical procedures to obtain evidence about particular assertions. 
C) Lower frequency and magnitude of misstatements. 
D) Lower levels of tolerable misstatement.

Question 18

Auditors are evaluating an account with a recorded balance of $600,000 using classical variables sampling.Based on an allowable risk of incorrect acceptance of 5 percent,the auditors have determined the following: -Estimated account balance = $680,000
-Precision = $20,000
-Tolerable misstatement = $50,000
Which of the following best describes the auditors' decision and rationale for that decision?

Accepted Answer

A) The auditors would accept the account balance as fairly stated,since the sample estimate falls outside of the precision interval. 
B) The auditors would conclude that the account balance is not fairly stated,since the sample estimate falls outside of the precision interval. 
C) The auditors would accept the account balance as fairly stated,since the difference between the lower bound of the precision interval and recorded balance exceeds the tolerable misstatement. 
D) The auditors would conclude that the account balance is not fairly stated,since the difference between the lower bound of the precision interval and recorded balance exceeds the tolerable misstatement.

Question 19

_____ sampling methods use normal distribution theory and the central limit theorem to provide a range estimate of the account balance or class of transactions or the misstatement in the account balance or class of transactions.

Accepted Answer

A) Attributes. 
B) Classical variables. 
C) Nonstatistical. 
D) Monetary unit sampling (MUS).

Question 20

Indicate how each of the following conditions affect sample size in a monetary unit sampling application by using the letters I (increase),D (decrease),or N (no effect),assuming that all other factors are held constant.
1___.An increase in the expected misstatement from $5,000 to $10,000.
2___.A decrease in the population size from $1,500,000 to $1,350,000.
3___.An increase in the tolerable misstatement from $25,000 to $35,000.
4___.An increase in the risk of incorrect rejection from 5 percent to 10 percent.
5___.A decrease in the risk of incorrect acceptance from 5 percent to 1 percent.

Accepted Answer

The answer of Indicate how each of the following conditions...

Exam 19: Variables Sampling