Question 1

When testing controls, sampling risk is the risk that the auditor:

Accepted Answer

A)  concludes that their client's internal controls are ineffective when they are effective. 
B)  concludes that their client's internal controls are effective when they are ineffective. 
C)  both a and b. 
D)  none of the above.

Question 2

What impact will there be on sample size when there is an increase in the number of sampling units in the population?

Accepted Answer

A)  increase 
B)  decrease 
C)  negligible 
D)  none of the above

Question 3

Substantive audit procedures include:

Accepted Answer

A)  detailed tests of balances. 
B)  analytical procedures. 
C)  detailed tests of transactions. 
D)  all of the above.

Question 4

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

Accepted Answer

The answer of Explain how auditors evaluate the results of...

Question 5

George Melkonian wanted to determine whether his auditing class knew how different factors influence sample size. He made two statements:
(i) "An increase in the expected rate of deviation of the population to be tested will decrease sample size."
(ii) "An increase in the tolerable rate of deviation will decrease sample size."
George asked his class to indicate which of the statements, if any, were false.

Accepted Answer

A)  (i) 
B)  (ii) 
C)  (i) and (ii) are false 
D)  neither of the two statements is false

Question 6

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.

Question 7

What impact will there be on sample size for substantive testing when there is an increase in the tolerable misstatement?

Accepted Answer

A)  decrease 
B)  negligible 
C)  increase 
D)  none of the above

Question 8

Describe the major types of sampling techniques available to auditors.

Accepted Answer

The answer of Describe the major types of sampling techniques...

Question 9

Identify and explain the factors that influence the sample size for tests of controls.

Accepted Answer

The answer of Identify and explain the factors that influence...

Question 10

Lucy Pelletier was training a team of new auditors and delivered some interesting rules of thumb about control risk and detection risk:
"The required level of confidence is a function of control risk when testing controls and detection risk when conducting substantive tests."
"When detection risk is determined to be low, an auditor will require a low level of confidence that the transactions and accounts are not materially misstated.
Which of the above two statements are true?

Accepted Answer

A)  (i) only 
B)  (ii) only 
C)  both (i) and (ii) 
D)  neither (i) or (ii)

Question 11

The risk that the auditor concludes that a material misstatement exists when it does not is
likely to result in an increase in audit effort when it is not required.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

The answer of Explain the differences between the main objectives...

Question 13

When control risk is high, the audit strategy is to:

Accepted Answer

A)  do little or no tests of controls and increase reliance on substantive testing of transactions and account balances. 
B)  assume the client's management is dishonest and immediately report them to the Canada Revenue Agency (CR
A) . 
C)  increase reliance on tests of controls and reduce reliance on substantive testing of transactions and account balances.. 
D)  refuse to continue with the remainder of the audit due to the high risk of fraud.

Question 14

When testing controls, non-sampling risk is the risk that an auditor:

Accepted Answer

A)  designs tests that are ineffective. 
B)  does not select a sample. 
C)  both a and b. 
D)  none of the above.

Question 15

When conducting substantive testing, which of the following is not a factor that influences the sample size?

Accepted Answer

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

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

Walter Polonia was explaining to his junior staff the implications of sampling risk when conducting substantive testing. He made the following two statements:
"If we conclude that a material misstatement does not exist when it does, then we have an increased control risk."
"If we conclude that a material misstatement exists when it does not we have an inefficient audit."
Which statements, if any, were true?

Accepted Answer

A)  (i) 
B)  (ii) 
C)  (i) and (ii) 
D)  neither (i) or (ii)

Question 19

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 20

For high-risk accounts, the timing of most audit procedures will be:

Accepted Answer

A)  whenever the client says it is most convenient for them to be conducted. 
B)  at, or after, year-end. 
C)  before year end. 
D)  during the interim audit testing stage.

Exam 6: Sampling and Overview of the Risk Response Phase of the Audit

When testing controls, sampling risk is the risk that the auditor:

What impact will there be on sample size when there is an increase in the number of sampling units in the population?

Substantive audit procedures include:

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

Tests of controls are conducted to establish that:

What impact will there be on sample size for substantive testing when there is an increase in the tolerable misstatement?

Describe the major types of sampling techniques available to auditors.

Identify and explain the factors that influence the sample size for tests of controls.

The risk that the auditor concludes that a material misstatement exists when it does not is likely to result in an increase in audit effort when it is not required.

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

When control risk is high, the audit strategy is to:

When testing controls, non-sampling risk is the risk that an auditor:

When conducting substantive testing, which of the following is not a factor that influences the sample size?

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

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

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.

For high-risk accounts, the timing of most audit procedures will be: