Question 1

When testing automated IT controls, the auditor is most likely to do all of the following except:

Accepted Answer

A)  Examine the IT software. 
B)  Increase sample size because the tolerable deviation rate tends to be higher for automated IT controls. 
C)  Test one or a few of each type of transaction. 
D)  Test general controls over system and program changes.

Question 2

In which of the following cases would the auditor be most likely to conclude that all of the items in an account under consideration should be examined rather than tested on a sample basis?

Accepted Answer

A)  Tolerable deviation is large and expected deviation is low. 
B)  Tolerable deviation is small and expected deviation is high. 
C)  Tolerable deviation is large and expected deviation is high. 
D)  Tolerable deviation is small and expected deviation is low.

Question 3

Based on a 5% risk of assessing control risk too low, how would an auditor interpret a computed upper deviation rate of 7%?

Accepted Answer

A)  The auditor is willing to accept a deviation rate of 7% before deciding not to rely on the control. 
B)  There is a 5% chance that the deviation rate in the population is less than 7%. 
C)  There is a 5% chance that the deviation rate in the population exceeds 7%. 
D)  There is a 95% chance that the deviation rate in the population equals 7%.

Question 4

An underlying feature of random-based selection of items is that each

Accepted Answer

A)  Stratum of the accounting population be given equal representation in the sample. 
B)  Item in the accounting population be randomly ordered. 
C)  Item in the accounting population should have an opportunity to be selected. 
D)  Item must be systematically selected using replacement.

Question 5

The larger the sample, the lower the confidence level and the lower the sampling risk.

Accepted Answer

A) True 
 B)False

Question 6

Your uncle Bob, a CPA, has recently started auditing and he wants your advice on some tests of sales transactions he is conducting. Bob selected a haphazard sample of 15 sales with a total book value of $75,000. In his sample, he found a total of $500 in net overstatement errors. The total sales balance per book is $10,000,000. Overall materiality for the engagement is $300,000. Tolerable misstatement for sales is $70,000. If the sample results indicate that Bob's best estimate of total misstatement in sales is $35,000, can Bob safely conclude that no additional work is needed in this area? Include in your answer a clear discussion of how sample results are compared to tolerable misstatement.

Accepted Answer

The answer of Your uncle Bob, a CPA, has recently...

Question 7

Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical sampling flows from its unique ability to

Accepted Answer

A)  Define the precision required to provide audit satisfaction. 
B)  Mathematically measure uncertainty. 
C)  Establish conclusive audit evidence with decreased audit effort. 
D)  Promote a more legally defensible procedural approach.

Question 8

"Technology has steadily reduced the number of situations in which audit sampling is necessary and in the future technology will probably eliminate the need for auditors to rely on sampling." Defend or refute the preceding statement.

Accepted Answer

The answer of "Technology has steadily reduced the number of...

Question 9

Auditing standards permit both statistical and nonstatistical methods of audit sampling.

Accepted Answer

A) True 
 B)False

Question 10

Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%. In the review of client invoices, Jones should use

Accepted Answer

A)  Discovery sampling. 
B)  Attributes sampling. 
C)  Stratified sampling. 
D)  Variables sampling.

Question 11

Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of controls?

Accepted Answer

A)  Number of items in the population. 
B)  Total dollar amount of the items to be sampled. 
C)  Desired confidence level. 
D)  Risk of assessing control risk too high.

Question 12

In attributes sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample?

Accepted Answer

A)  Population size. 
B)  Tolerable deviation rate. 
C)  Expected population deviation rate. 
D)  Standard deviation.

Question 13

Attribute sampling is used to estimate the proportion of a population that possesses a specified characteristic.

Accepted Answer

A) True 
 B)False

Question 14

When determining the sample size of accounts receivable to test, what are three factors that are important for you to consider?

Accepted Answer

The answer of When determining the sample size of accounts...

Question 15

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

Accepted Answer

A)  As the population size increases, the sample size should increase proportionately. 
B)  Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate. 
C)  There is an inverse relationship between the expected population deviation rate and the sample size. 
D)  In determining tolerable deviation rate, an auditor considers detection risk and the sample size.

Question 16

To determine the sample size for a test of controls, an auditor should consider the tolerable deviation rate, the desired confidence level, and the

Accepted Answer

A)  Expected population deviation rate. 
B)  Computed upper precision limit. 
C)  Risk of assessing control risk too high. 
D)  Risk of incorrect rejection.

Question 17

Audit sampling is commonly used to gather confirmation audit evidence.

Accepted Answer

A) True 
 B)False

Question 18

As a result of tests of controls, an auditor incorrectly assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was

Accepted Answer

A)  More than the risk of assessing control risk too low based on the auditor's sample. 
B)  More than the deviation rate in the auditor's sample. 
C)  Less than the risk of assessing control risk too low based on the auditor's sample. 
D)  Less than the deviation rate in the auditor's sample.

Question 19

The tolerable deviation rate for a test of controls is generally

Accepted Answer

A)  Lower than the expected rate of deviations in the related accounting records. 
B)  Higher than the expected rate of deviations in the related accounting records. 
C)  Identical to the expected rate of deviations in the related accounting records. 
D)  Unrelated to the expected rate of deviations in the related accounting records.

Question 20

Identify the types of audit evidence that are tested using audit sampling techniques.

Accepted Answer

The answer of Identify the types of audit evidence that...

Exam 8: Audit Sampling: An Overview and Application to Tests of Controls

When testing automated IT controls, the auditor is most likely to do all of the following except:

In which of the following cases would the auditor be most likely to conclude that all of the items in an account under consideration should be examined rather than tested on a sample basis?

Based on a 5% risk of assessing control risk too low, how would an auditor interpret a computed upper deviation rate of 7%?

An underlying feature of random-based selection of items is that each

The larger the sample, the lower the confidence level and the lower the sampling risk.

Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical sampling flows from its unique ability to

"Technology has steadily reduced the number of situations in which audit sampling is necessary and in the future technology will probably eliminate the need for auditors to rely on sampling." Defend or refute the preceding statement.

Auditing standards permit both statistical and nonstatistical methods of audit sampling.

Jones, CPA, believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%. In the review of client invoices, Jones should use

Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of controls?

In attributes sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample?

Attribute sampling is used to estimate the proportion of a population that possesses a specified characteristic.

When determining the sample size of accounts receivable to test, what are three factors that are important for you to consider?

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

To determine the sample size for a test of controls, an auditor should consider the tolerable deviation rate, the desired confidence level, and the

Audit sampling is commonly used to gather confirmation audit evidence.

As a result of tests of controls, an auditor incorrectly assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was

The tolerable deviation rate for a test of controls is generally

Identify the types of audit evidence that are tested using audit sampling techniques.