Question 1

The risk model is defined as AR = IR × CR × DR. The risk of assessing control risk too low can lead to ________.

Accepted Answer

A)  the auditor performing more work than needed, thus wasting resources 
B)  the auditor failing to do additional work that should be done 
C)  poor choice of procedures 
D)  expanding sample sizes required for statistical sampling of account balances 
A)  the auditor performing more work than needed, thus wasting resources 
B)  the auditor failing to do additional work that should be done 
C)  poor choice of procedures 
D)  expanding sample sizes required for statistical sampling of account balances

Question 2

Analytical procedures, such as vertical analysis, ratio calculations, and time series analysis, are usually done on a sample basis.

Accepted Answer

A) True 
 B)False

Question 3

When the projected likely misstatement is greater than the tolerable misstatement in a sample-based audit of an account balance, the auditor can decide that the account balance is materially misstated and therefore run the risk of incorrect acceptance.

Accepted Answer

A) True 
 B)False

Question 4

Sampling risk is the risk that the sample does not represent the population.

Accepted Answer

A) True 
 B)False

Question 5

Green CPA 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 6

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 judgments 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 judgments on risk and materiality.

Question 7

Assessing control risk too low threatens the efficiency of the audit but not the effectiveness.

Accepted Answer

A) True 
 B)False

Question 8

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 9

In specifying the objectives for substantive testing of accounts receivable, an auditor hypothesizes that the company does not have a right to collect the money, and looks for evidence that they do.

Accepted Answer

A) True 
 B)False

Question 10

The risk of assessing control risk too high is the risk that the evidence of compliance with control procedures in the sample indicates ________.

Accepted Answer

A)  low control risk when the actual degree of compliance does not justify a low control risk assessment 
B)  low control risk when the actual degree of compliance justifies a low control risk assessment 
C)  high control risk when the actual degree of compliance would justify a lower control risk assessment 
D)  high control risk when the actual degree of compliance would justify a higher control risk assessment 
A)  low control risk when the actual degree of compliance does not justify a low control risk assessment 
B)  low control risk when the actual degree of compliance justifies a low control risk assessment 
C)  high control risk when the actual degree of compliance would justify a lower control risk assessment 
D)  high control risk when the actual degree of compliance would justify a higher control risk assessment

Question 11

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

Question 12

Detection risk is the risk that the auditor will not detect material misstatements in the accounts. To limit detection risk to an acceptable level, the auditor ________.

Accepted Answer

A)  performs substantive tests 
B)  tests controls 
C)  gains an understanding of the internal control system 
D)  applies statistical methods 
A)  performs substantive tests 
B)  tests controls 
C)  gains an understanding of the internal control system 
D)  applies statistical methods

Question 13

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 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

The risk of incorrect rejection exists both in statistical and non-statistical sampling.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The amount by which a projected likely misstatement differs from an actual misstatement is usually the result of ________.

Accepted Answer

A)  a misunderstanding of accounting principles 
B)  sampling error 
C)  management override of an internal control procedure 
D)  risk of incorrect acceptance 
A)  a misunderstanding of accounting principles 
B)  sampling error 
C)  management override of an internal control procedure 
D)  risk of incorrect acceptance

Question 18

Which of the following is a term used to describe a departure from a prescribed internal control procedure?

Accepted Answer

A)  Exception. 
B)  Event. 
C)  Misstatement. 
D)  Known error. 
A)  Exception. 
B)  Event. 
C)  Misstatement. 
D)  Known error.

Question 19

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 20

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.

The risk model is defined as AR = IR × CR × DR. The risk of assessing control risk too low can lead to ________.

Analytical procedures, such as vertical analysis, ratio calculations, and time series analysis, are usually done on a sample basis.

When the projected likely misstatement is greater than the tolerable misstatement in a sample-based audit of an account balance, the auditor can decide that the account balance is materially misstated and therefore run the risk of incorrect acceptance.

Sampling risk is the risk that the sample does not represent the population.

Which of the following is an advantage of statistical sampling?

Assessing control risk too low threatens the efficiency of the audit but not the effectiveness.

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

In specifying the objectives for substantive testing of accounts receivable, an auditor hypothesizes that the company does not have a right to collect the money, and looks for evidence that they do.

The risk of assessing control risk too high is the risk that the evidence of compliance with control procedures in the sample indicates ________.

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

Detection risk is the risk that the auditor will not detect material misstatements in the accounts. To limit detection risk to an acceptable level, the auditor ________.

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?

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

The risk of incorrect rejection exists both in statistical and non-statistical sampling.

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

The amount by which a projected likely misstatement differs from an actual misstatement is usually the result of ________.

Which of the following is a term used to describe a departure from a prescribed internal control procedure?

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 ________.

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?

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 Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters

Exam 10: Audit Sampling

The risk model is defined as AR = IR × CR × DR. The risk of assessing control risk too low can lead to ________.

Analytical procedures, such as vertical analysis, ratio calculations, and time series analysis, are usually done on a sample basis.

When the projected likely misstatement is greater than the tolerable misstatement in a sample-based audit of an account balance, the auditor can decide that the account balance is materially misstated and therefore run the risk of incorrect acceptance.

Sampling risk is the risk that the sample does not represent the population.

Which of the following is an advantage of statistical sampling?

Assessing control risk too low threatens the efficiency of the audit but not the effectiveness.

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

In specifying the objectives for substantive testing of accounts receivable, an auditor hypothesizes that the company does not have a right to collect the money, and looks for evidence that they do.

The risk of assessing control risk too high is the risk that the evidence of compliance with control procedures in the sample indicates ________.

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

Detection risk is the risk that the auditor will not detect material misstatements in the accounts. To limit detection risk to an acceptable level, the auditor ________.

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?

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

The risk of incorrect rejection exists both in statistical and non-statistical sampling.

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

The amount by which a projected likely misstatement differs from an actual misstatement is usually the result of ________.

Which of the following is a term used to describe a departure from a prescribed internal control procedure?

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 ________.

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?

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 Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

Filters