Question 1

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 2

After extrapolating the results of performing substantive tests on a sample of accounts from the accounts receivable subsidiary ledger,Allen CPA concluded that the accounts receivable balance was materially misstated.In fact,the balance was materially correct.This situation illustrates the risk of ________.

Accepted Answer

A) incorrect rejection 
B) incorrect acceptance 
C) assessing control risk too low 
D) assessing control risk too high 
A) incorrect rejection 
B) incorrect acceptance 
C) assessing control risk too low 
D) assessing control risk too high

Question 3

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 4

The probability that an auditor's conclusion based on a sample might differ from the auditor's conclusion based on an audit of the entire population identifies the concept of ________.

Accepted Answer

A) sampling risk 
B) confidence levels 
C) statistical sampling 
D) tolerable rate and the expected deviation rate 
A) sampling risk 
B) confidence levels 
C) statistical sampling 
D) tolerable rate and the expected deviation rate

Question 5

The purpose of tests of controls is to determine whether ________.

Accepted Answer

A) internal control policies and procedures are working as prescribed 
B) substantive testing can be kept to a minimum 
C) errors and irregularities are prevented or detected in a timely manner 
D) the auditor has an understanding of the control system 
A) internal control policies and procedures are working as prescribed 
B) substantive testing can be kept to a minimum 
C) errors and irregularities are prevented or detected in a timely manner 
D) the auditor has an understanding of the control system

Question 6

Under CAS 520 efficiency risk is the risk of concluding from a sample or test that a material misstatement exists when in fact it does not.

Accepted Answer

A) True 
 B)False

Question 7

Efficiency risk exists only in non-statistical sampling.

Accepted Answer

A) True 
 B)False

Question 8

In addition to population size,which of the following is used in attribute sampling to determine the sample size?

Accepted Answer

A) Sampling risk,sample deviation rate,and tolerable deviation rate. 
B) Sampling risk,sample deviation rate,and expected population deviation rate. 
C) Sampling risk,tolerable deviation rate,and expected population deviation rate. 
D) Sample deviation rate,tolerable deviation rate,and expected population deviation rate. 
A) Sampling risk,sample deviation rate,and tolerable deviation rate. 
B) Sampling risk,sample deviation rate,and expected population deviation rate. 
C) Sampling risk,tolerable deviation rate,and expected population deviation rate. 
D) Sample deviation rate,tolerable deviation rate,and expected population deviation rate.

Question 9

Which description best illustrates sampling risk?

Accepted Answer

A) Applying audit procedures which 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 which 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 10

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 (RIA)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 of

Question 11

Huey and Duey,PAs audited the accounts receivable of Grando Limited on a sample basis.There were 2,000 customer accounts in the subsidiary ledger with a total recorded value of $450,000.As part of the audit program,Huey and Duey selected a sample of 100 accounts having a recorded value of $25,000.They performed the audit procedures and determined that the audited amount of the sample totaled $24,000.
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 Huey and Duey set the tolerable misstatement for accounts receivable at $28,000.

Accepted Answer

A)(1)Average difference method:
PLM = sa

Question 12

The determination of an appropriate sample on a representative basis must be made using statistical methods.

Accepted Answer

A) True 
 B)False

Question 13

Sampling risk is the risk that the auditor chooses the wrong sample selection method.

Accepted Answer

A) True 
 B)False

Question 14

Non-sampling risk exists in both statistical and non-statistical sampling.

Accepted Answer

A) True 
 B)False

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.

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 probability that an auditor's conclusion based on a sample might differ from the auditor's conclusion based on an audit of the entire population identifies the concept of ________.

The purpose of tests of controls is to determine whether ________.

Under CAS 520 efficiency risk is the risk of concluding from a sample or test that a material misstatement exists when in fact it does not.

Efficiency risk exists only in non-statistical sampling.

In addition to population size,which of the following is used in attribute sampling to determine the sample size?

Which description best illustrates sampling risk?

The determination of an appropriate sample on a representative basis must be made using statistical methods.

Sampling risk is the risk that the auditor chooses the wrong sample selection method.

Non-sampling risk exists in both statistical and non-statistical sampling.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

The Revenues, receivables, and Receipts Process and Cash Account Balance

The Purchases, payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, including Fraud Auditing

Filters

Exam 10: Audit Sampling

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.

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 probability that an auditor's conclusion based on a sample might differ from the auditor's conclusion based on an audit of the entire population identifies the concept of ________.

The purpose of tests of controls is to determine whether ________.

Under CAS 520 efficiency risk is the risk of concluding from a sample or test that a material misstatement exists when in fact it does not.

Efficiency risk exists only in non-statistical sampling.

In addition to population size,which of the following is used in attribute sampling to determine the sample size?

Which description best illustrates sampling risk?

The determination of an appropriate sample on a representative basis must be made using statistical methods.

Sampling risk is the risk that the auditor chooses the wrong sample selection method.

Non-sampling risk exists in both statistical and non-statistical sampling.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

The Revenues, receivables, and Receipts Process and Cash Account Balance

The Purchases, payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, including Fraud Auditing

Filters