Q&A Hero

Q: Establishing the tolerable exception rate (TER) requires A) statistical frequency probability tables. B) random number tables. C) a computer program. D) professional judgment.

Q: The exception rate the auditor will permit in the population and still be willing to use the assessed level of control risk is called the A) tolerable exception rate. B) estimated population exception rate. C) acceptable risk of overreliance. D) sample exception rate.

Q: To ensure that all the population items will be properly subjected to the sample selection process, the auditor should A) use a random number generator for sample selection. B) use monetary unit sample selection methods. C) document the range of document numbers in use by the client. D) test the population for completeness.

Q: As part of the audit of sales, the auditor has used attribute sampling to select a sample of sales invoices. The auditor has examined the duplicate sales invoice to determine whether it was approved for credit. The client has a December year end. In October, the auditor conducted the interim audit and drew a sample of 40 items that covered the period from January to September. In order to be able to generalize to the sales population, the auditor should also A) select sample items from the rest of the year. B) increase the sample size in proportion to the total population size. C) use statistical methods to calculate sampling risk. D) use statistical methods to calculate non-sampling risk.

Q: As part of the audit of sales, the auditor has used attribute sampling to select a sample of sales invoices. The auditor has examined the duplicate sales invoice to determine whether it was approved for credit. Which of the following would be termed the "exception?" The A) sales invoice number. B) approval initials. C) name of the person who approves credit. D) absence of an authorization.

Q: As part of the audit of sales, the auditor has used attribute sampling to select a sample of sales invoices. The auditor has examined the duplicate sales invoice to determine whether it was approved for credit. Which of the following would be termed the "attribute?" The A) sales invoice number B) approval initials C) name of the person who approves credit D) absence of an authorization

Q: During the audit of the fixed asset section, the auditor decided to inspect source documents supporting all fixed asset additions exceeding $3,000. This type of audit procedure is called a A) census of the strata over $3,000 B) analytical review C) attribute sample D) monetary unit sample

Q: As part of the audit program for the audit of sales, the auditor will "review sales transactions for large and unusual amounts." Which of the following types of sampling would be suitable for this audit procedure? A) systematic B) attribute C) block D) directed

Q: The overall objectives of the audit test must be stated in terms of the A) anticipated results. B) transaction cycle being tested. C) risks addressed and the transaction cycle being tested. D) risk addressed and the anticipated results.

Q: You have recently been hired as an audit trainee with an internal audit department. Your first assignment will be to select the sample for a test of new capital assets acquired over the last two years. Your review of the internal audit files indicates that the last time this work was done the sample to be tested was selected on a judgmental nonstatistical basis. However, based on your university/college audit course, you believe the work offers good potential for the use of statistical sampling techniques. You know that you will have to be able to explain and justify your opinion to the internal audit manager. Required: Both statistical sampling as well as nonstatistical or judgmental sampling have advantages and disadvantages. Briefly state two advantages and two disadvantages of statistical sampling and one advantage and one disadvantage of nonstatistical sampling.

Q: A) Describe three types of sample selection methods commonly associated with statistical audit sampling. B) Explain the difference between sampling with replacement and without replacement. Which method is more common in audit practice? C) Describe the steps involved in systematic sampling.

Q: Attribute sampling would be an appropriate method to use on which one of the following procedures in an audit program? A) Review sales transactions for large and unreasonable amounts. B) Observe whether the duties of the accounts receivable clerk are separate from handling cash. C) Examine a sample of duplicate sales invoices for credit approval by the credit manager. D) Review the aged schedule of accounts receivable to determine if amounts receivable from officers are included.

Q: The most common method used for performing statistical tests of controls is A) variables sampling. B) attribute sampling. C) judgment sampling. D) random selection of samples.

Q: The auditor is going to select a sample of accounts receivable to circulate external confirmations, and then estimate the total dollar value of the accounts receivable balance. The auditor should use what type of sampling? A) attribute sampling B) discovery sampling C) monetary unit sampling D) variable estimation sampling

Q: The auditor is going to select a sample to find out whether any potentially fraudulent transactions have been processed. The auditor should use what type of sampling? A) attribute sampling B) discovery sampling C) monetary unit sampling D) variable estimation sampling

Q: If an auditor would like to estimate how many sales invoices have errors (such as no required order number showing or authorization for customers exceeding their credit limit) , the auditor would likely use A) random sampling with replacement. B) sampling for attributes. C) sampling for variables. D) stratified random sampling.

Q: The occurrence rate or exception rate for attribute sampling is defined as the A) exception rate that the auditor will permit in the population and still be willing to use the assessed control risk. B) risk that the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than materiality. C) exception rate that the auditor expects to find in the population before testing begins. D) ratio of the items containing a specific attribute to the total number of population items.

Q: A public accountant examining inventory may appropriately apply sampling for attributes in order to estimate the A) average price of inventory items. B) percentage of slow-moving inventory items. C) dollar value of inventory. D) physical quantity of inventory items.

Q: A statistical method used to estimate the proportion of items in a population containing a characteristic of interest is A) population-proportional-to-size sampling. B) attribute sampling. C) variables sampling. D) estimation sampling.

Q: Which of the following best describes what the auditor means by the exception rate in the attribute sampling plan? The A) number of errors that can reasonably be expected to be found in a population. B) frequency with which a certain characteristic occurs within a population. C) degree of confidence that the sample is representative of the population. D) dollar range within which the true population total can be expected to fall.

Q: When the auditor would like to improve the efficiency of the audit by focusing work on transactions that may be more subject to material error in a particular area of the population, the auditor will use A) block testing. B) haphazard sample selection. C) random sample selection. D) stratified sample selection.

Q: A method of sampling in which all the items in the population are divided into two or more subpopulations is A) variables sampling. B) attribute sampling. C) stratified sampling. D) divisible sampling.

Q: In performing a review of his client's cash disbursements, a public accountant uses systematic sampling with a random start. The primary disadvantage of systematic sampling is that population items A) must be reordered in a systematic pattern before the sample can be drawn. B) may occur in a systematic pattern, thus negating the randomness of the sample. C) may occur twice in the sample. D) must be replaced in the population after sampling to permit valid statistical inference.

Q: When systematic sample selection is used, the first item is selected randomly and all other items are selected automatically. If the characteristic of interest is not distributed randomly in the population, the systematic selection creates the possibility of A) bias. B) abnormal frequency distribution. C) judgmental intervention in the process. D) selecting mostly larger dollar items.

Q: In systematic selection, population size is divided by the number of sample items desired in order to determine the A) interval. B) tolerable exception rate. C) computed upper exception rate. D) mean.

Q: The process which requires the calculation of an interval and then selects the items based on the size of the interval is A) statistical sampling. B) random selection. C) systematic selection. D) computerized selection.

Q: When does the auditor use simple random sampling? A) when the auditor has a particular judgmental criteria that is used to select the sample B) where the auditor wants numbers in sequence and would like to select the sample rapidly C) for testing of cut-off after the year end with respect to accounts payable D) for populations where each item is considered to have the same characteristics for audit purposes

Q: When the auditor intends to evaluate a sample statistically, the only acceptable selection method is A) probabilistic selection. B) judgmental selection. C) haphazard selection. D) block selection.

Q: When statistical sampling is used, the sample selected must be a probabilistic one. In addition, the auditor should A) use the haphazard selection method to make sure that the sample is properly selected. B) use appropriate statistical evaluation methods of non-sampling risk computations. C) request the client to review the sample and approve all items that are selected. D) use appropriate statistical evaluation methods of sampling risk computations.

Q: Kyle is performing a test of detail using a non-statistical sample. A) Can Kyle formally measure sampling error? B) What should Kyle consider in determining the sampling error?

Q: A) Describe the differences between statistical and nonstatistical sampling in terms of (1) the sample selection methods used, and (2) measurement (quantification) of sampling risk. B) Describe each of the three types of sample selection methods commonly associated with nonstatistical audit sampling. C) Directed sample selection is the selection of each item in the sample based on some judgment criteria established by the auditor. Describe three commonly used criteria.

Q: A) Discuss what is meant by "sampling risk." B) Discuss what is meant by "nonsampling risk." C) Discuss two causes of nonsampling risk. Also discuss ways the auditor can control nonsampling risk. D) Discuss two ways the auditor can control sampling risk.

Q: An underlying feature of the random-based selection of items is that each A) stratum of the population be given equal representation in the sample. B) each item in the population must be randomly ordered. C) each item in the population should have an equal opportunity to be selected. D) each item must be systematically selected using replacement.

Q: The auditor wants to trace credits from the accounts receivable transaction history files to the duplicate bank deposit slips and other authorized sources as a test for fictitious credits in the data files. Which of the following sampling methods would be the least costly to use in this situation? A) simple random B) block C) systematic D) probability proportionate-to-size

Q: Which of the following statements is a valid criticism of the use of non-statistical sampling methods? A) Many audit tests, such as footing of journals, must be performed outside a statistical sampling context. B) The cost of performing random selection or testing often exceeds the benefits. C) Nonstatistical sampling does not differ substantially from statistical sampling methods. D) The difficulty of remaining unbiased in the selection of items.

Q: When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called A) block selection. B) haphazard selection. C) systematic selection. D) statistical selection.

Q: A common use of block testing is testing A) cut-off. B) existense. C) authorization. D) valuation.

Q: The auditor has selected a sequence of 200 payroll cheques to verify the numerical continuity of the cheque numbers. What type of sampling is the auditor doing? A) haphazard B) systematic C) directed D) block

Q: The auditor has decided to audit all accounts receivable amounts that are over 120 days old and over $5,000. What type of sample selection method is the auditor using? A) haphazard B) systematic C) directed D) block

Q: An example of judgmental sampling is A) block sampling. B) simple random sample selection. C) systematic sample selection. D) proportionate-to-size sample selection.

Q: The auditing standards indicate that A) it is preferable to use statistical sampling instead of non-statistical sampling. B) it is preferable to use non-statistical sampling instead of statistical sampling. C) it is equally acceptable to use either statistical or non-statistical sampling. D) non-statistical sampling should only be used if statistical sampling is too costly to use.

Q: An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods A) afford greater assurance and clarity than a nonstatistical sample of equal size. B) provide an objective basis for quantitatively evaluating sample risks. C) can more easily convert the sample into a dual-purpose test useful for substantive testing. D) eliminate the need to use judgment in determining appropriate sample sizes.

Q: Carrie found an error in the sample she tested from the population of accounts receivable that was over 90 days old. The error found by Carrie should be extrapolated to the population of A) all past due accounts receivable. B) accounts receivable over 90 days. C) all accounts receivable. D) current accounts receivable.

Q: One of the purposes of using statistical sampling is to quantify sampling risk. For which of the following audit tests would sampling risk be zero? The auditor A) used monetary unit sampling to select a sample of payroll payments. B) used attribute sampling to select a sample of shipping documents. C) sent empty (zero balance) external confirmations to suppliers with large dollar balances. D) sent external confirmations to all financial institutions used by the client.

Q: One of the ways to reduce sampling risk is to A) use an appropriate method of selecting sample items from the population. B) carefully design the audit procedures to be used. C) provide proper supervision and instruction of the audit team. D) use variables sampling rather than attribute sampling.

Q: Sampling risk (sampling error) is an inherent part of sampling that results from A) inappropriate audit procedures. B) failure to recognize exceptions. C) testing less than the entire population. D) weaknesses in the client's internal control system.

Q: One of the ways to eliminate nonsampling risk is through A) proper supervision and instruction of the client's employees. B) proper supervision and instruction of the audit team. C) the use of attribute sampling rather than variables sampling. D) controls which ensure that the sample drawn is random and representative.

Q: One of the causes of nonsampling error is A) the use of inappropriate or ineffective audit procedures. B) failure to draw a random sample. C) failure to draw a representative sample. D) the use of attribute sampling instead of variables sampling.

Q: Nonsampling errors occur when audit tests do not uncover existing exceptions in the A) population. B) sample. C) planning stage. D) financial statements.

Q: Assume that the client's internal controls require a clerk to attach a shipping document to every duplicate sales invoice. But this procedure is not followed exactly 3 percent of the time. If the auditor selects a sample of 200 duplicate sales invoices, which of the following sample results is most representative of the population? A) three shipping documents are missing B) six shipping documents are missing C) five shipping document are missing D) there were no shipping documents missing

Q: A sample in which the characteristics of the sample are the same as those of the population is a(n) A) random sample. B) variables sample. C) attribute sample. D) representative sample.

Q: CAS 530 has a very specific definition of sampling. Assuming that each item (described as a sampling unit) in the populations below could be selected as part of the sample, which of the following illustrates the other part of the CAS 530 definition of sampling? A) looking at 50 sales invoices from the current population of 100,000 B) recalculating interest calculations for notes payable C) estimating the gross profit by product for all company products D) inspecting all legal invoices for potential contingent liabilities

Q: 11.1 Define sampling. Decide when an auditor would use statistical rather than nonstatistical sampling

Q: Describe the impact on the audit process of a client conversion to IFRS1)A)B)C)D)

Q: Jane is a sole practitioner operating out of a local office. She is part of a regional group of firms, and occasionally does a small audit, with the assistance of one staff person. Using automated working paper software, she runs a standard set of analytical review calculations for each audit, then puts them in the working paper file. She does not look at the analytical review process again. Since most of her audit clients have no internal controls, she then calculates materiality, and conducts a substantive audit. She prefers to do more substantive testing rather than having to do all kinds of work with internal controls. Required: What is wrong with Jane's audit approach?

Q: A standard audit program can dramatically increase A) audit efficiency. B) quality of audit evidence. C) communication between the audit team. D) the amount of work that can be delegated to more junior staff members.

Q: Cimco Forest is a client of your PA firm that has requested that the audit of its financial statements be completed 25 days after its year end. Given the time constraint, the auditor A) should not accept Cimco as a client. B) should increase the size of the audit team. C) can perform audit procedures at an interim date and roll forward the interim balances to year end. D) should change the audit program to include more tests of controls and less tests of details as they are more time consuming.

Q: Tests of details are designed based upon planned results of analytical review and planned results of tests of controls. Should the planned results differ materially from the actual results of analytical review and tests of controls then A) audit risk will be revised. B) the planned audit program will require revision. C) inherent risk will be revised. D) tests of controls will not be considered for overall risk assessment processes.

Q: Julianne is performing an analysis of the bad debt expense as a percentage of total sales. When performing the analytical procedure, it is important that Julianne A) can rely on the internal controls of the accounts receivable process. B) has an expectation of the result that should be obtained. C) has concluded that the accounts receivable balance is free from material misstatement. D) has requested permission from the client.

Q: Last year the materiality for the client was $590,000. This year it is $400,000. All things being equal, how will the change in materiality affect the extent of tests of details? A) increase B) decrease C) no effect as the tests of controls will be increased D) no effect as the tests of controls will be decreased

Q: When does the auditor normally conduct tests of controls? A) prior to the completion of the tests of details B) after the completion of all analytical review C) prior to the preparation of the client risk analysis D) prior to the finalization of the audit risk model

Q: Choosing the appropriate analytical procedures requires the auditor to use A) the standards developed by the auditor's firm. B) automated working paper software. C) computer assisted audit techniques. D) professional judgment.

Q: Analytical procedures are mandatory during which phases of the audit? A) tests of controls and tests of details B) planning and final evaluation C) planning and tests of details D) tests of details and final evaluation

Q: After completing tests of key controls, the auditor should review the results and consider whether A) the planned degree of reliance on internal controls is justified. B) the audit evidence obtained from the study of internal controls can provide a reasonable basis for an opinion. C) further study of internal controls is likely to justify any restriction of tests of details of balances. D) sufficient knowledge has been obtained about the entity's entire internal control structure.

Q: Which of the following ultimately determines the specific audit procedures necessary to provide an auditor with a reasonable basis for the expression of an opinion? A) the audit program B) the auditor's professional judgment C) generally accepted auditing standards D) the auditor's working papers

Q: "This is really confusing! I've sat in on three audit planning meetings so far, and each one has gone differently. I've been responsible for the sales section each time. Sure the risks are all different, but in the first one I'm supposed to do flowcharts and detailed narrative for the sales systems, in the second one I'm supposed to use the firm's computerized system to answer detailed questions, and in the last one the partner only wants a brief description of the system in narrative form - no more than one page, he said." Required: Explain why it may be necessary to do different types of documentation to support an understanding of internal controls, in the context of risks and evidence mix.

Q: You are conducting the audit of a medium-sized company that has a chief accountant and three employees. Segregation of duties is excellent, with jobs allocated to provide maximum levels of controls. Segregation is supported by accounting software with user identification and password that limits functions to the appropriate job. Required: A) What type of audit approach would you recommend? Why? B) How would your answer change if the accounting department was organized on a job sharing basis so that all employees did some of every task to keep the work more interesting? Why?

Q: A) There are seven types of audit evidence: inspection, observation, inquiries of the client, external confirmation, recalculation, reperformance, analytical procedures. For each of the following types of audit tests, indicate the type(s) of evidence that can be obtained through the test: (1) tests of controls, (2) analytical procedures, and (3) tests of details of balances. B) Contrast the circumstances in which the auditor would choose not to test controls with those in which he or she would perform tests of controls. C) Types of audit tests include tests of controls, analytical procedures, and tests of details of balances. Please rank the preceding three types of tests from least costly to most costly.

Q: The audit program for most audits is designed in three parts. Those parts are A) risk assessment procedures, tests of controls, and tests of details. B) risk assessment procedures, analytical procedures, and tests of details. C) obtaining an understanding of internal controls, analytical procedures, and tests of details. D) tests of controls, analytical procedures, and tests of details of balances.

Q: The highest cost audit will be incurred when the auditor expects that the internal control system would A) be effective, but the auditor found extensive control test deviations. B) have few effective controls, but client's personnel were well-trained and knowledgeable. C) be very sophisticated, and the tests of controls confirmed this. D) have few effective controls, and tests of balances found many errors.

Q: PA is conducting the audit of Middi Furniture Company, a medium-sized company with few effective controls and significant inherent risks. Management has decided that it is not cost-effective to implement better internal controls. What audit strategy will PA likely select for this client? A) combined audit approach for all transaction cycles and accounts B) substantive audit approach for all transaction cycles and accounts C) combined audit approach for all cycles except cash and inventory D) substantive audit approach for all cycles except sales and payroll

Q: There will be heavy emphasis on tests of controls when A) controls are ineffective and assessed control risk is high. B) controls are effective and assessed control risk is low. C) the auditor is doing a "fraud audit." D) it is a first-year audit.

Q: The auditor is deciding upon audit procedures to be used in the audit for a particular cycle (i.e. what combination of the four types of tests are needed to obtain sufficient appropriate audit evidence). This type of decision is called A) audit risk. B) audit strategy. C) evidence mix. D) detection risk.

Q: When the auditor identifies an area of the accounting system with missing controls (i.e., a weakness or deviation), this would lead to a modification of the audit program in that area that would A) increase the amount of tests of controls. B) increase the reliance on tests of controls. C) cause the issuance of a qualified or adverse opinion. D) eliminate the need for a test of controls.

Q: If the auditor is not using tests of control, then A) tests of detail must be used. B) analytical procedures must be used. C) tests of design of internal controls must at least be used. D) the auditor will have to qualify the audit opinion.

Q: Symco Inc has a policy that all cash disbursements of $2,000 or more must be approved by the treasurer. While performing a test of controls on a sample of disbursements, Craig discovered that the assistant controller had authorized a cash disbursement of $3,500 while the treasurer was on vacation. This control deviation is significant only if A) it is determined that the assistant controller is not qualified to approve cash disbursements of this size. B) it occurred with sufficient frequency to cause the auditor to believe there may be material dollar misstatements in the statements. C) the amount of the deviation identified is larger than the planning materiality. D) the amount of the deviation identified is larger than the planning materiality and no compensating control exists.

Q: The auditor has conducted tests of controls of the write off of accounts receivable and found two exceptions. These exceptions are A) an indication of the likelihood of errors or fraud and other irregularities. B) confirmation that controls are not functioning as designed throughout the year. C) information about the quantity of the dollar error in accounts receivable. D) indications that employee training is required in the accounting area.

Q: Which of the following audit tests is usually the least costly to perform? A) analytical procedures B) tests of controls C) tests of balances D) confirmations

Q: PA has designed an audit approach where she places maximum possible reliance on controls. This means that she will be A) conducting only tests of controls. B) using analytical review and tests of controls. C) following a combined audit approach. D) setting control risk at 100%.

Q: Control risk has been assessed at 100% for your client. What audit approach will you follow? A) combined approach. B) substantive approach. C) reliance on analytical review and tests of controls. D) reliance on tests of controls and tests of details.