QUIZ 1 AT - FINALS

Audit sampling involves the

• Selection of all items over a certain amount.

• Application of audit procedures to less than 100% of items within a class of transactions or an account balance such that all items have a chance of selection.

• Application of audit procedures to all items that comprise a class of transactions or an account balance.

• Application of audit procedures to all items over a certain amount and those that are unusual or have a history of error.

Population, as defined in PSA 530, means the entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions. It is important for the auditor to ensure that the population is

I. Appropriate to the objective of the audit procedure.

II. Complete.

• I only

• II only

• Both I and II

• Neither I nor II

An advantage of statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

• Afford greater assurance than a nonstatistical sample of equal size.

• Provide an objective basis for quantitatively evaluating sampling risks.

• Can more easily convert the sample into a dual-purpose test useful for substantive testing.

• Eliminate the need to use judgment in determining appropriate sample sizes.

The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the

• Effectiveness of the audit.

• Efficiency of the audit.

• Preliminary estimates of materiality levels.

• Tolerable misstatement.

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 internal control justifies such an assessment.

• Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances of transactions classes.

• Contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole.

• Does not support the tolerable misstatement for some or all of management’s assertions.

While performing a test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was the materially misstated. It was in fact, not materially misstated. This situation illustrates the risk of

• Incorrect rejection

• Incorrect acceptance

• Assessing control risk too low

• Assessing control risk too high

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

• Stratum of the accounting population be given equal representation in the sample.

• Item in the accounting population be randomly ordered.

• Item in the accounting population should have an opportunity to be selected.

• Item must be systematically selected using replacement.

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.

• An auditor may select audit procedures that are not appropriate to achieve the specific objective.

• An auditor may fail to recognize errors in the documents examined for the chosen sample.

• The documents related to the chosen sample may not be available for inspection.

Which of the following statistical selection techniques is least desirable for use by an auditor?

• Systematic selection

• Stratified selection

• Haphazard selection

• Sequential selection

When performing a test of control with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population

• Must be systematically replaced in the population after sampling

• May systematically occur more than once in the sample

• Must be recorded in a systematic pattern before the sample can be drawn

• May occur in a systematic pattern, thus destroying the sample randomness