Q&A Hero

Q: In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected misstatement of this sample was A. $3,000. B. $4,000. C. $6,000. D. $8,000.

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

Q: Which one of the following statements is true regarding two random samples, drawn in the same way, from the same population, one of size 30 and one of size 300? A. The two samples are expected to have the same sample mean. B. The larger sample is more likely to produce a large sample mean. C. The smaller sample will have a smaller 95% confidence interval for the mean. D. The smaller sample will, on average, produce a lower estimate of the variance of the population.

Q: The use of the ratio projection is most effective when A. the dollar amount of the misstatement is expected to relate to the dollar amount of items tested. B. a small number of differences exist in the population. C. estimating populations whose records consist of quantities but not book values. D. large understatement differences exist in the population.

Q: The formula for nonstatistical sampling for tests of account balances provided by the AICPA A. must be used for nonstatistical sampling. B. includes a provision for the risk of incorrect acceptance. C. is affected by the nature of other substantive procedures used to test the account balance. D. is largely based on the variation of items in the account.

Q: The assurance factor for nonstatistical sampling is based on A. the number of items in the account. B. auditor judgment. C. the risk of misstatement in the account and the level of desired assurance. D. variability in the population and the risk of misstatement in the account.

Q: Which of the following most likely would be an advantage in using classical variables sampling rather than monetary-unit sampling? A. An estimate of the standard deviation of the population's recorded amounts is not required. B. The auditor rarely needs the assistance of a computer program to design an efficient sample. C. Inclusion of zero and negative balances generally does not require special design considerations. D. Any amount that is individually significant is automatically identified and selected.

Q: If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least likely to A. increase sample size. B. conduct other substantive procedures. C. adjust the account balance. D. increase the risk of incorrect rejection.

Q: In a monetary-unit sampling plan, the upper misstatement limit is $11,200 and the risk of incorrect acceptance is 5%. This means that A. tolerable misstatement is $11,200. B. there is a 95% chance that the actual misstatement in the account is $11,200 or more. C. there is a 95% chance that the actual misstatement in the account is $11,200. D. there is a 95% chance that the actual misstatement in the account is $11,200 or less.

Q: Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable? A. Combining negative and positive dollar misstatements in the appraisal of a sample. B. Using a sampling technique in which the same account balance could be selected more than once. C. Selecting a random starting point and then sampling every nth dollar. D. Defining the sampling unit in the population as an individual dollar and not as an individual account balance.

Q: In statistical sampling, setting the appropriate confidence level and desired sample precision are decisions made by the auditor that will affect sample size for a substantive procedure. Which of the following should not be a factor in the choice of desired precision? A. The sampling risk. B. The size of an account balance misstatement considered material. C. The audit resources available for execution of the sampling plan. D. The objectives of the audit test being conducted.

Q: What is the primary objective of testing all individually significant items rather than sample testing? A. To increase the audit risk at which a decision will be reached from the results of the sample selected. B. To increase sample size. C. To accept no sampling risk for items greater than tolerable misstatement. D. To increase the size of the confidence bound around the projected misstatement.

Q: Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? A. Set the tolerable deviation rate at a lower level than originally planned. B. Identify the large and unusual disbursements as individually significant and test 100 percent. C. Increase the sample size to reduce the effect of the unusually large disbursements. D. Continue to draw new samples until all the unusually large disbursements appear in the sample.

Q: In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items A. that include fraud will not be overlooked when the auditor exercises compatible reciprocal options. B. may occur in a systematic pattern, thus making the sample more representative. C. may occur more than once in a sample. D. do not have to be prenumbered in order for the auditor to use the technique.

Q: Precision is a statistical measure of the maximum projected difference between the sample estimate and the true but unknown population total and is directly related to A. reliability of evidence. B. relative risk. C. confidence level. D. cost benefit analysis.

Q: In a monetary-unit sample with a sampling interval of $5,000, an auditor discovers that a selected account receivable with a recorded amount of $10,000 has an audit amount of $8,000. If this were the only error discovered by the auditor, the projected misstatement for this sample would be A. $5,000. B. $4,000. C. $2,000. D. $1,000.

Q: In applying classical variables sampling, an auditor attempts to A. estimate a qualitative characteristic of interest. B. determine various rates of occurrence for specified attributes. C. discover at least one instance of a critical deviation. D. predict a monetary population value within a range of precision.

Q: Which of the following sampling methods would be used to estimate a numerical measurement of population, such as the dollar value of an account? A. Attributes sampling. B. Stop-or-go sampling. C. Classical variables sampling. D. Random-number sampling.

Q: For monetary-unit sampling, a sampling interval of 400 means that A. every 400th item in the account will be selected in the sample. B. the average size of items in the account is 400. C. every 400th dollar in the account will be included in the sample. D. the average misstatement in sample items is $400.

Q: An accounts receivable account balance is $500,000 and the auditor determines a sample size of 30 would provide adequate assurance. The auditor plans to use a monetary-unit sampling plan with systematic sample selection. The auditor notices that there are six customer accounts of at least $15,000 and would like the systematic selection technique to select all items that are at least $15,000, even if that means the sample size is slightly larger than 30. To achieve the auditor's objectives, the sampling interval should be A. 6. B. 20. C. 16,666. D. 15,000.

Q: Monetary-unit sampling is said to eliminate the need to stratify the sample because A. sample items are selected in proportion to their dollar amount. B. the risk of incorrect acceptance is inversely related to sample size. C. tolerable misstatement is considered when determining sample size. D. the upper limit on misstatements can be computed based on statistical principles.

Q: In monetary-unit sampling, population size is A. the dollar balance in an account. B. the number of items in an account. C. unrelated to sample size. D. included in the denominator of the formula to determine sample size.

Q: Monetary-unit sampling should not be used if A. the population includes several large items. B. the auditor expects overstatement errors. C. many items in the account are expected to have errors. D. no items in the account are expected to have errors.

Q: For monetary-unit sampling, the number of items tested is A. always equal to sample size. B. always greater than sample size. C. always greater than or equal to sample size. D. always less than or equal to sample size.

Q: Which of the following statements best describes an inherent limitation of the monetary-unit sampling method? A. It can only be used for substantive testing of asset accounts. B. It requires the use of a computer system to perform the required calculations. C. Misstatement rates must be large and the misstatements must be overstatements. D. Misstatement rates must be small and the misstatements must be overstatements.

Q: An auditor is preparing to sample an entity's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is A. attribute sampling. B. ratio-estimation sampling. C. monetary-unit sampling. D. mean-per-unit sampling.

Q: In statistical or nonstatistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if A. monetary-unit sampling (MUS) is used. B. the population contains both very high and very low recorded amounts. C. the auditor's estimated tolerable misstatement is extremely small. D. the standard deviation of recorded amounts is relatively small.

Q: Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? A. Expected amount of misstatement but not the measure of tolerable misstatement. B. Expected amount of misstatement and the measure of tolerable misstatement. C. Measure of tolerable misstatement but not the expected amount of misstatement. D. Neither the expected amount of misstatement nor the measure of tolerable misstatement.

Q: A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? A. Greater reliance on internal controls. B. Greater reliance on analytical procedures. C. Smaller expected frequency of misstatements. D. Smaller measure of tolerable misstatements.

Q: While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. Such a situation illustrates the risk of A. incorrect rejection. B. incorrect acceptance. C. assessing control risk too high. D. assessing control risk too low.

Q: The risk of incorrect acceptance and the risk of overreliance relate to the A. preliminary estimates of materiality levels. B. allowable risk of tolerable error. C. efficiency of the audit. D. effectiveness of the audit.

Q: Classical variables sampling uses normal distribution theory to evaluate the characteristics of a population based on sample data.

Q: After a sample is drawn randomly, the allowance for sampling risk must be statistically quantified within a specified level of confidence.

Q: Haphazard selection allows the auditor to select items judgmentally.

Q: The objective of monetary-unit sampling is to test the assertion that no material misstatements exist in an account balance or class of transactions.

Q: Monetary-unit sampling is commonly used by auditors to test controls.

Q: Expected misstatement is directly related to sample size.

Q: Confidence level is inversely related to sample size.

Q: Monetary-unit sampling is based on attribute sampling concepts.

Q: The size of the upper limit on misstatement is largely dependent on the sample size, which is inversely related to the desired confidence level.

Q: The purpose of audit sampling is to draw inferences about the entire population from the results of a sample.

Q: 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.

Q: Before performing sampling procedures in an audit of controls, Sue set the tolerable deviation rate at 4.0%. After the procedures, she computes a computed upper deviation rate of 5.4%. What can Sue conclude about the entity's controls?

Q: For a particular audit, the sample size for testing controls over the revenue cycle is relatively large. What can you infer about the desired confidence level, the tolerable deviation rate, and the expected population deviation rate?

Q: "Computer assisted audit techniques and big data analysis have steadily reduced the number of situations in which audit sampling is necessary and, in the future, will probably eliminate the need for auditors to rely on sampling." Defend or refute the preceding statement.

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

Q: Audit sampling is not used for which type of audit evidence? A. Inquiry. B. Inspection of tangible assets. C. Reperformance. D. Confirmation.

Q: Audit sampling is commonly used for which type of audit evidence? A. Reperformance. B. Analytical procedures. C. Inquiry. D. Observation.

Q: The term precision relates to 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.

Q: Which of the following risks is related to efficiency of testing? A. The risk of incorrect rejection. B. Inherent risk. C. The risk of incorrect acceptance. D. None of these.

Q: Which of the following risks is related to effectiveness of testing? A. The risk of incorrect rejection. B. Inherent risk. C. The risk of incorrect acceptance. D. None of these.

Q: 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? 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.

Q: Which of the following statements is correct concerning statistical sampling in tests of controls? A. As the population size increases, the sample size should increase proportionately. B. Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate. C. There is an inverse relationship between the expected population deviation rate and the sample size. D. In determining tolerable deviation rate, an auditor considers detection risk and the sample size.

Q: To determine the sample size for a test of controls, an auditor should consider the tolerable deviation rate, the desired confidence level, and the A. expected population deviation rate. B. computed upper precision limit. C. risk of assessing control risk too high. D. risk of incorrect rejection.

Q: In nonstatistical sampling for tests of controls, increasing the desired confidence level results in a A. higher tolerable deviation rate. B. lower expected deviation rate. C. larger sample size. D. smaller sample size.

Q: For a large population of cash disbursement transactions, Smith, CPA is testing controls by using attribute sampling techniques. Anticipating an expected deviation rate of 3 percent, Smith found from a table that the required sample size is 400 with a tolerable deviation rate of 5 percent and a desired confidence level of 95 percent. If Smith anticipated an expected deviation rate of only 2 percent but wanted to maintain the same tolerable deviation rate and confidence level, the sample size would be closest to A. 200. B. 400. C. 533. D. 800.

Q: Which of the following combinations guarantees a larger sample size? A. Decrease the desired confidence level and decrease the tolerable deviation rate. B. Increase the desired confidence level and decrease the tolerable deviation rate. C. Decrease the desired confidence level and increase the expected deviation rate. D. Increase the tolerable deviation rate and increase the expected deviation rate.

Q: For attributes sampling, of the three factors that enter into sample size determination, which two factors can the auditor adjust to reflect the importance of the control? A. Tolerable deviation rate and confidence level. B. Expected deviation rate and confidence level. C. Population size and tolerable deviation rate. D. Tolerable deviation rate and expected deviation rate.

Q: When performing a test of controls with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population A. must be systematically replaced in the population after sampling. B. may systematically occur more than once in the sample. C. must be recorded in a systematic pattern before the sample can be drawn. D. may occur in a systematic pattern, thus destroying the sample randomness.

Q: If the size of the sample to be used in a particular test of controls has not been determined by utilizing statistical concepts, but the sample has been chosen in accordance with random selection procedures A. no inferences can be drawn from the sample. B. the auditor has committed a nonsampling error. C. depending on the size of the sample chosen, the auditor may actually achieve desired precision. D. the auditor will have to evaluate the results by reference to the principles of discovery sampling.

Q: An auditor who uses statistical sampling for attributes in testing internal controls is most likely to reduce the planned reliance on a prescribed control when the A. sample deviation rate plus the allowance for sampling risk equals the tolerable deviation rate. B. sample deviation rate is less than the expected population deviation rate used in planning the sample. C. tolerable deviation rate less the allowance for sampling risk exceeds the sample deviation rate. D. sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Q: An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods A. afford greater assurance 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: Auditors who prefer statistical sampling to nonstatistical sampling may do so because statistical sampling helps the auditor A. measure the sufficiency of the evidential matter obtained. B. eliminate subjectivity in the evaluation of sampling results. 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.

Q: Statistical sampling provides a technique for A. exactly defining materiality. B. greatly reducing the amount of substantive testing. C. eliminating judgment in testing. D. measuring the sufficiency of evidential matter.

Q: Which of the following best describes the distinguishing feature of statistical sampling? A. It requires the examination of a smaller number of supporting documents. B. It provides a means for measuring mathematically the degree of uncertainty that results from examining only part of a population. C. It reduces the problems associated with the auditor's judgment concerning materiality. D. It is evaluated in terms of two parameters: statistical mean and random selection.

Q: Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical sampling flows from its unique ability to A. define the precision required to provide audit satisfaction. B. mathematically measure uncertainty. C. establish conclusive audit evidence with decreased audit effort. D. promote a more legally defensible procedural approach.

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

Q: For an attributes sampling plan, the tolerable deviation rate is 4.5%, the computed upper deviation rate is 7%, the sample deviation rate is 3%, and the desired confidence level is 95%. What is the allowance for sampling risk included in the computed upper deviation rate? A. 1.5%. B. 3%. C. 4%. D. 5%.

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

Q: As a result of tests of controls, an auditor over relied on internal control and decreased substantive testing. This overreliance occurred because the true deviation rate in the population was A. less than the risk of assessing control risk too low on the auditor's sample. B. less than the deviation rate in the auditor's sample. C. more than the risk of assessing control risk too low on the auditor's sample. D. more than the deviation rate in the auditor's sample.

Q: As a result of tests of controls, an auditor incorrectly assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was A. more than the risk of assessing control risk too low based on the auditor's sample. B. more than the deviation rate in the auditor's sample. C. less than the risk of assessing control risk too low based on the auditor's sample. D. less than the deviation rate in the auditor's sample.

Q: Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of controls? A. Number of items in the population. B. Total dollar amount of the items to be sampled. C. Desired confidence level. D. Risk of assessing control risk too high.

Q: In which of the following cases would the auditor be most likely to conclude that all of the items in an account under consideration should be examined rather than tested on a sample basis? A. Tolerable deviation is large and expected deviation is low. B. Tolerable deviation is small and expected deviation is high. C. Tolerable deviation is large and expected deviation is high. D. Tolerable deviation is small and expected deviation is low.

Q: When testing automated IT controls, the auditor is most likely to do all of the following except: A. examine the IT software. B. increase sample size because the tolerable deviation rate tends to be higher for automated IT controls. C. test one or a few of each type of transaction. D. test general controls over system and program changes.

Q: If auditors conducting attributes sampling found that the entity deviated from a prescribed control in nine of the first 10 items examined, the auditor is most likely to A. increase sample size. B. increase the computed upper deviation rate. C. decrease the tolerable deviation rate. D. stop the test and increase control risk.

Q: A control is deemed to be more important than thought at the time that attributes sampling parameters were set. The auditor is most likely to respond by A. decreasing the risk of assessing control risk too high. B. increasing population size. C. decreasing the tolerable deviation rate. D. decreasing the expected deviation rate.

Q: In attributes sampling, population size has little or no effect on sample size once the population exceeds approximately A. 1,000. B. 5,000. C. 100,000. D. 1,000,000.

Q: The computed upper deviation rate is A. the maximum rate of deviations that the auditor is willing to accept before deciding not to rely on the control. B. the rate of deviations that the auditor expects to occur in the population. C. a point estimate of the population deviation rate. D. the sum of the sample deviation rate and an appropriate allowance for sampling risk.

Q: 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? A. Population size. B. Tolerable deviation rate. C. Expected population deviation rate. D. Standard deviation.

Q: In determining the sample size for a test of controls, an auditor should consider the expected deviation rate, desired confidence level, and the A. tolerable deviation rate. B. risk of incorrect acceptance. C. nature and cause of deviations. D. population size.