quiz 8,9

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.

The sample size for a substantive test of details of an account balance is affected by a number of factors. Assuming all other information remains constant, which of the following would lead to a smaller sample size?

An increase in the amount of tolerable misstatement.

Which of the following sampling methods would be used to estimate a numeric measurement of a population, such as a monetary value?

Variable sampling.

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?

Smaller amount of tolerable misstatement.

The risk of incorrect acceptance relates to the

Effectiveness of the audit.

An auditor may decide to decrease the desired level of confidence when

The planned evidence required from a particular test of detail is reduced because of the strength of evidence provided by an improved substantive analytical procedure.

Which of the following relationships is correct?

Tolerable misstatement and sample size are inversely related.

Which of the following statements concerning the auditor’s use of statistical sampling is correct?

An auditor needs to estimate the monetary amount of the standard deviation of the population in order to use classical variables sampling.

In classical variables sampling, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor’s needs in a given situation?

The acceptable level of risk.

Which of the following statements concerning monetary-unit sampling is correct?

The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan.

An auditor is performing substantive procedures of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicates that there may be numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate?

Classical variables sampling.

When determining the sample size for MUS application, the auditor must determine all of the following except:

The estimated standard deviation.

Monetary-unit-sampling [MUS] is less efficient and generally not used if

The auditor’s objective is oriented towards understatements.

Which of the following would most likely be an advantage in using classical variables sampling rather than monetary-unit sampling?

Inclusion of zero and negative balances generally does not require special design considerations.

An auditor would conclude that an account balance is not fairly stated if the __________________ is less than the __________________.

tolerable misstatement; upper misstatement limit.

An auditor plans to use a monetary-unit sampling plan with a systematic sample selection on an account balance of €1,000,000. There are over 50 items that make up the account balance, ten of which are individually over €50,000. To ensure that all accounts with balances of at least €50,000 are selected, the minimum sample size should be

20

In a probability-proportional-to-size sample with a sampling interval of €15,000, an auditor discovered that a selected inventory item with a recorded amount of €5,000 had an audited amount of €3,500. If this were the only misstatement discovered by the auditor, the projected misstatement of this sample would be

4,500

Which of the following statements is true regarding audit sampling?

Audit firms are increasingly utilizing non-statistical sampling plans using their own proprietary software.

Using the following information and ratio projection, what is the best estimate of the misstatement in the account?

€75,000.

Which of the following represents the reason(s) that statistical sampling has fallen out of favour?

Both (1) the auditors were over-relying on statistical sampling techniques and (2) there is poor linkage between the applied audit setting and traditional statistical sampling applications.

In applying classical variables sampling, an auditor will generally evaluate sample results by calculating the possible error in either direction of a projected misstatement (or point estimate). This statistical concept is known as

Precision [or confidence interval].

Which of the following is considered one of the main advantages of classical variables sampling over monetary-unit sampling?

Inclusion of zero and negative balances generally do not require special sampling considerations.

An auditor is determining the sample size for an inventory observation using difference estimation [classical variables sampling]. To calculate the required sample size, the auditor usually determines the

Yes Yes

Using classical variables sampling, the projected population misstatement is €40,000 and the confidence bound is €2,400. What amount will be compared to tolerable misstatement to determine whether the account is fairly stated?

€42,400.