Question 1

Which of the following is an advantage of statistical sampling?

Accepted Answer

A) It permits a less rigid approach to unique audit problems. 
B) It uses an evaluation method that allows evaluation of the sample on factors other than the sample evidence. 
C) It permits auditors to use a computer to select a random sample. 
D) It requires auditors to be exact in their judgements on risk and materiality. 
A) It permits a less rigid approach to unique audit problems. 
B) It uses an evaluation method that allows evaluation of the sample on factors other than the sample evidence. 
C) It permits auditors to use a computer to select a random sample. 
D) It requires auditors to be exact in their judgements on risk and materiality.

Question 2

Non-statistical sampling may be better to use than statistical sampling when:

Accepted Answer

A) The auditor has insufficient knowledge about the population to take a statistical sample. 
B) The inherent risk of error in the population is low. 
C) The population is known to be diverse, with a high inherent risk of error. 
D) Auditors are not technically proficient in sampling. 
A) The auditor has insufficient knowledge about the population to take a statistical sample. 
B) The inherent risk of error in the population is low. 
C) The population is known to be diverse, with a high inherent risk of error. 
D) Auditors are not technically proficient in sampling.

Question 3

In a sample-based audit of an account balance, which of the following combinations properly expresses the relationship between changes in the factors indicated and changes in sample size?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 4

If statistical calculations were not applied then a sampling method would be considered non-statistical even though a random sample was selected.

Accepted Answer

A) True 
 B)False

Question 5

Assume several auditors selected various unrestricted, unstratified random samples from a population of 1,200 customers' accounts receivable with a recorded value of $480,000.The results of their tests are shown in the table below.
Required:
For each of the sample sizes, calculate the projected likely misstatement (PLM) using (1) average difference method, and (2) the Dollar Unit Sample method.Treat each case independently.Round the PLM solutions to the nearest dollar.
Projected Likely Misstatement
Overstatement (Understatement)

Accepted Answer

Projected Likely Mis

Question 6

Left and Right PAs audited the accounts receivable of Investo Limited on a sample basis.There were 2,000 customer accounts in the subsidiary ledger with a total recorded value of
$375,000.As part of the audit program, Left and Right selected a sample of 100 accounts having a recorded value of $20,000.They performed the audit procedures and determined that the audited amount of the sample totalled $19,000.
Required:
A) Calculate the projected likely misstatement (PLM) using (1) the average difference method and (2) the ratio method.
B) Evaluate the results of the calculation in part a.- assume that Left and Right set the tolerable misstatement for accounts receivable at $25,000.

Accepted Answer

A) (1) Average difference method:
PLM =

Question 7

Which of the following audit procedures is not typically used in audit sampling applications?

Accepted Answer

A) Observation of personnel and procedures. 
B) Physical count of tangible assets. 
C) Recalculation. 
D) Confirmation. 
A) Observation of personnel and procedures. 
B) Physical count of tangible assets. 
C) Recalculation. 
D) Confirmation.

Question 8

Jack and Jill, two auditors who have separate accounting practices, have independently assessed the risks associated with the accounts receivable of their respective clients.The appropriate audit risk for both is determined to be .02.Both agree that inherent risk should be set at the maximum (1.0) and that no analytical procedures will be performed.Jack evaluates control risk as moderate (.40) while Jill assesses it as relatively low (.20).Using the audit risk model, answer the following questions.
Required:
A) What is the risk of incorrect acceptance for Jack and for Jill?
B) Based on your answer in part a, which auditor will have to collect the most evidence? Explain your reasoning.
C) What effect does differing assessments of control risk have on the sample size of accounts receivable? Explain.

Accepted Answer

A) Using the audit risk model, the risk

Question 9

Which of the following courses of action is an auditor most likely to follow in designing a sampling plan for cash disbursements if the auditor is aware of several unusually large cash disbursements?

Accepted Answer

A) Increase the sample size to reduce the effect of the unusually large disbursements. 
B) Continue to draw new samples until all the unusually large disbursements are included in the sample. 
C) Set the tolerable deviation rate at a lower level than originally planned. 
D) Stratify the cash disbursements population so that all of the unusually large disbursements are selected. 
A) Increase the sample size to reduce the effect of the unusually large disbursements. 
B) Continue to draw new samples until all the unusually large disbursements are included in the sample. 
C) Set the tolerable deviation rate at a lower level than originally planned. 
D) Stratify the cash disbursements population so that all of the unusually large disbursements are selected.

Question 10

Auditing a larger sample reduces the probability of determining that the control is working well when in fact it is not.

Accepted Answer

A) True 
 B)False

Question 11

An example of non-sampling risk is the selection of a random sample that is not representative of the population.

Accepted Answer

A) True 
 B)False

Question 12

In the audit of account balances, the sample size will tend to be smaller when the

Accepted Answer

A) Risk of incorrect acceptance is lower. 
B) Risk of incorrect rejection is lower. 
C) Tolerable misstatement is smaller. 
D) Population variability is smaller. 
A) Risk of incorrect acceptance is lower. 
B) Risk of incorrect rejection is lower. 
C) Tolerable misstatement is smaller. 
D) Population variability is smaller.

Question 13

Green CA audited the inventory of ABC Company on a sample basis.Green audited a sample of 120 items and found a net overstatement of $600.The audited sample had a recorded value of $12,000.The entire inventory contained 2,400 items with a total book value of $280,000.The projected likely overstatement using the average difference method is

Accepted Answer

A) $12,000. 
B) $14,000. 
C) $48,000. 
D) $56,000. 
A) $12,000. 
B) $14,000. 
C) $48,000. 
D) $56,000.

Question 14

Non-statistical sampling is audit sampling in which auditors do not use the probability calculations to express the results.

Accepted Answer

A) True 
 B)False

Question 15

Which description best illustrates sampling risk?

Accepted Answer

A) Applying audit procedures that are inappropriate for the audit objectives. 
B) Failing to recognize errors or deviations in the documents examined. 
C) Arriving at incorrect statistical conclusions because of computational errors. 
D) Choosing a sample that does not represent the population. 
A) Applying audit procedures that are inappropriate for the audit objectives. 
B) Failing to recognize errors or deviations in the documents examined. 
C) Arriving at incorrect statistical conclusions because of computational errors. 
D) Choosing a sample that does not represent the population.

Question 16

Using the audit risk model: If audit risk is 0.05, inherent risk is 1.0, control risk is 0.20, and analytical procedures risk is 1.0, the risk of incorrect acceptance is 0.25.

Accepted Answer

A) True 
 B)False

Question 17

Green CA audited the inventory of ABC Company on a sample basis.Green audited a sample of 120 items and found a net overstatement of $600.The audited sample had a recorded value of $12,000.The entire inventory contained 2,400 items with a total book value of $280,000.The projected likely overstatement using the dollar unit sampling method is

Accepted Answer

A) $12,000. 
B) $14,000. 
C) $48,000. 
D) $56,000. 
A) $12,000. 
B) $14,000. 
C) $48,000. 
D) $56,000.

Question 18

The set of all of the elements that comprise an account balance or a class of transactions is referred to as a

Accepted Answer

A) Sampling unit. 
B) Sample. 
C) Population unit. 
D) Population. 
A) Sampling unit. 
B) Sample. 
C) Population unit. 
D) Population.

Question 19

When performing the substantive tests on an account balance, the auditor is concerned about two aspects of sampling-based decision errors: 1) the risk of incorrect rejection (RIR) and 2) the risk of incorrect acceptance (RIA).Which of the following is true about RIR and RIA?

Accepted Answer

A) RIR is of greater concern to the auditor than the RIA. 
B) RIA is of greater concern to the auditor than the RIR. 
C) RIA and the RIR are of equal importance to the auditor. 
D) Neither the RIR nor the RIA need be considered by the auditor. 
A) RIR is of greater concern to the auditor than the RIA. 
B) RIA is of greater concern to the auditor than the RIR. 
C) RIA and the RIR are of equal importance to the auditor. 
D) Neither the RIR nor the RIA need be considered by the auditor.

Question 20

The sample deviation rate is the best single-point estimate of the actual, but unknown, deviation rate in the population.

Accepted Answer

A) True 
 B)False

Which of the following is an advantage of statistical sampling?

Non-statistical sampling may be better to use than statistical sampling when:

In a sample-based audit of an account balance, which of the following combinations properly expresses the relationship between changes in the factors indicated and changes in sample size?

If statistical calculations were not applied then a sampling method would be considered non-statistical even though a random sample was selected.

Which of the following audit procedures is not typically used in audit sampling applications?

Which of the following courses of action is an auditor most likely to follow in designing a sampling plan for cash disbursements if the auditor is aware of several unusually large cash disbursements?

Auditing a larger sample reduces the probability of determining that the control is working well when in fact it is not.

An example of non-sampling risk is the selection of a random sample that is not representative of the population.

In the audit of account balances, the sample size will tend to be smaller when the

Non-statistical sampling is audit sampling in which auditors do not use the probability calculations to express the results.

Which description best illustrates sampling risk?

Using the audit risk model: If audit risk is 0.05, inherent risk is 1.0, control risk is 0.20, and analytical procedures risk is 1.0, the risk of incorrect acceptance is 0.25.

The set of all of the elements that comprise an account balance or a class of transactions is referred to as a

When performing the substantive tests on an account balance, the auditor is concerned about two aspects of sampling-based decision errors: 1) the risk of incorrect rejection (RIR) and 2) the risk of incorrect acceptance (RIA).Which of the following is true about RIR and RIA?

The sample deviation rate is the best single-point estimate of the actual, but unknown, deviation rate in the population.

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Legal Liability

Preliminary Audit Planning: Understanding the Auditee

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Fraud Awareness Auditing

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Exam 10: Audit Sampling

Which of the following is an advantage of statistical sampling?

Non-statistical sampling may be better to use than statistical sampling when:

In a sample-based audit of an account balance, which of the following combinations properly expresses the relationship between changes in the factors indicated and changes in sample size?

If statistical calculations were not applied then a sampling method would be considered non-statistical even though a random sample was selected.

Which of the following audit procedures is not typically used in audit sampling applications?

Which of the following courses of action is an auditor most likely to follow in designing a sampling plan for cash disbursements if the auditor is aware of several unusually large cash disbursements?

Auditing a larger sample reduces the probability of determining that the control is working well when in fact it is not.

An example of non-sampling risk is the selection of a random sample that is not representative of the population.

In the audit of account balances, the sample size will tend to be smaller when the

Non-statistical sampling is audit sampling in which auditors do not use the probability calculations to express the results.

Which description best illustrates sampling risk?

Using the audit risk model: If audit risk is 0.05, inherent risk is 1.0, control risk is 0.20, and analytical procedures risk is 1.0, the risk of incorrect acceptance is 0.25.

The set of all of the elements that comprise an account balance or a class of transactions is referred to as a

When performing the substantive tests on an account balance, the auditor is concerned about two aspects of sampling-based decision errors: 1) the risk of incorrect rejection (RIR) and 2) the risk of incorrect acceptance (RIA).Which of the following is true about RIR and RIA?

The sample deviation rate is the best single-point estimate of the actual, but unknown, deviation rate in the population.

Introduction to Auditing

Audit, Assurance, and Quality Control Standards

Reports on Audited Financial Statements and Audited Internal Controlt

Professional Ethics and Auditor Responsibilities

Legal Liability

Preliminary Audit Planning: Understanding the Auditee

Assessing Risks and Internal Control

Audit Evidence and Assurance

Control Assessment and Testing

Revenues, Receivables, and Receipts Process

Purchases, Payables, and Payments Processtrue

Production and Payroll Process

Finance and Investment Process

Completing the Audit

Other Public Accounting Services and Reports

Fraud Awareness Auditing

Filters