ch 8 - quiz audit

Which of the following is true regarding technological advances and auditing?

A well-controlled, automated accounting system that processes routine transactions with few errors can reduce the number of times auditors need to utilize sampling techniques in an audit.

The risk of incorrect rejection is associated with

Sampling risk.

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

A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

Does not support the auditor’s planned assessed level of control risk when the true operating effectiveness of the control justifies such an assessment.

Which of the following has an inverse relationship to sample size:

Tolerable deviation rate.

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk (CR) lower than appropriate. The most likely explanation for this situation is that

The deviation/failure rate in the auditor’s sample is less than the TDR, but the deviation/failure rate in the population exceeds the TDR.

What is an auditor’s evaluation of a statistical sample for attributes when a test of 50 documents results in three deviations if the tolerable deviation rate is 7 per cent, the expected population deviation rate is 5 per cent, and the allowance for sampling risk is 2 per cent?

The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that

The deviation rate in the auditor’s sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate.

Which of the following types of evidence is most likely to utilize sampling?

Confirmation.

For which of the following audit tests would an auditor most likely use attribute sampling?

Examining supporting documentation for purchases for evidence of proper authorization.

Which of the following types of statistical testing is likely to be used for a test of controls?

Attribute sampling.

An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to

Measure the sufficiency of the evidence obtained.

Samples to test internal controls are intended to provide a basis for an auditor to conclude whether

The controls are operating effectively.

An auditor plans to examine a sample of 40 accounts payable invoices for proper approval as prescribed by the entity’s internal accounting control procedures. One of the invoices in the chosen sample cannot be found, and the auditor is unable to use alternative procedures to determine whether the invoice was properly approved. The auditor should

Treat the missing invoice as a deviation for the purpose of evaluating the sample.

Which of the following statements is true in an attribute sampling plan where the tolerable deviation rate is 7 per cent, the computed upper deviation rate is 6.5per cent, the sample deviation rate is 2 per cent, and the risk of assessing control risk too low is 5 per cent?

The auditor is likely to determine that the results do support reliance on the control because the computed upper deviation rate is less than the tolerable deviation rate.

Which of the following best illustrates the components that make up the upper deviation rate [UDR]?

Sample deviation rate + allowance for sampling risk.

When assessing the tolerable deviation rate (TDR), the auditor should consider that while deviations from control procedures increase the risk of material misstatements, such deviations may not necessarily result in errors. This explains why

A recorded disbursement that is not properly authorized may nonetheless be recorded properly in the cash disbursements journal.

When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why

A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.

In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the

Tolerable deviation rate (7 per cent) was less than the computed upper deviation rate (8 per cent).

Based on the information above, the planned allowance for sampling risk was

4½ per cent.

Which of the following statements is correct concerning statistical sampling in tests of controls?

There is an inverse relationship between the sample size and the tolerable deviation rate.

Which of the following statements is true regarding non-statistical sampling?

Sample sizes for non-statistical sampling should be comparable to statistical sampling.

Most of the steps for planning and carrying out a non-statistical test of controls are the same as those for a statistical test of controls. Which of the following represent the steps that could differ between non-statistical and statistical sampling as discussed in the text?

Determining the sample size, selecting the sample items, calculating the computed upper deviation rate.