WorksheetsAuditing Exam 3
Total questions: 20
Worksheet time: 5hrs 0mins
Which of the following sampling methods would be used to estimate a numeric measurement of a population, such as a dollar value?
Random Sampling
Variable Sampling
Attribute Sampling
Numeric Sampling
A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?
smaller amount of tolerable misstatement
smaller expected frequency of misstatements
greater reliance on analytical procedures
greater reliance on internal controls
Considering each independently, a change in which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?
Expected Misstatement & Tolerable Misstatement
No & Yes
Yes & Yes
No & No
Yes & No
The risk of incorrect acceptance relates to the:
Efficiency of the audit
Effectiveness of the audit
allowable risk of tolerable misstatement.
planning materiality.
Which of the following statements concerning monetary-unit sampling is correct?
The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan.
The sampling distribution should approximate the normal distribution.
Overstated units have a lower probability of sample selection than units that are understated.
The sampling interval is calculated by dividing the number of physical units, such as the number of invoices, in the population by the sample size.
How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?
Increase in Tolerable Misstatement & Increase in Assessed Level of Control Risk
Increase sample size & Decrease sample size
Increase sample size & Increase sample size
Decrease sample size & Decrease sample size
Decrease sample size & Increase sample size
An auditor is performing substantive procedures of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicates that there may be numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate?
classical variables sampling
monetary-unit sampling
attribute sampling
stop-n-go sampling
Which of the following statements concerning the auditor’s use of statistical sampling is correct?
An assumption of monetary-unit sampling is that the underlying accounting population is normally distributed.
The selection of zero balances usually does not require special sample design considerations when using monetary-unit sampling.
A classical variables sample needs to be designed with special considerations to include negative balances in the sample.
An auditor needs to estimate the dollar amount of the standard deviation of the population in order to use classical variables sampling.
In classical variables sampling, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor’s needs in a given situation?
the estimated percentage of deviations in the population
the qualitative aspects of misstatements
the acceptable level of risk
the total dollar amount of the population
Which of the following would most likely be an advantage in using classical variables sampling rather than monetary-unit sampling?
Any amount that is individually significant is automatically identified and selected.
The auditor rarely needs the assistance of a computer program to design an efficient sample.
An estimate of the standard deviation of the population’s recorded amounts is not required.
Inclusion of zero and negative balances generally does not require special design considerations.
An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to:
minimize the failure to detect errors and fraud.
reduce audit risk and materiality to a relatively low level.
measure the sufficiency of the evidential matter obtained.
eliminate the risk of nonsampling errors.
Samples to test internal controls are intended to provide a basis for an auditor to conclude whether:
the controls are operating effectively.
the risk of incorrect acceptance is too high.
the financial statements are materially misstated.
materiality for planning purposes is at a sufficiently low level.
When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why:
a recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement.
a recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.
deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate.
deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions.
Which of the following combinations results in the greatest decrease in sample size in an attribute sample for a test of controls?
Desired Confidence Level & Tolerable Deviation Rate & Expected Population Deviation Rate
Decrease & Increase & Increase
Increase & Increase & Decrease
Decrease & Increase & Decrease
Decrease & Decrease & Increase
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent.
In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the:
expected population deviation rate (7 percent) was more than the percentage of errors in the sample (3½ percent).
tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent).
computed upper deviation rate (8 percent) was more than the percentage of errors in the sample (3½ percent).
expected population deviation rate (2½ percent) was less than the tolerable deviation rate (7 percent).
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent.
Based on the information above, the planned allowance for sampling risk was:
3½ percent.
5½ percent.
1 percent.
4½ percent.
Which of the following statements is correct concerning statistical sampling in tests of controls?
As the population size doubles, the sample size should also double.
There is an inverse relationship between the sample size and the tolerable deviation rate.
Deviations from controls at a given rate usually result in misstatements at a higher rate.
The qualitative aspects of deviations are not considered by the auditor.
The following table depicts the possible outcomes for the auditor’s estimated computed upper deviation rate based on a sample relative to the auditor’s tolerable deviation rate (i.e., the computed upper deviation rate will either be above or below the tolerable deviation rate). The table also depicts the two possible states of the actual population deviation rate compared with the auditor’s tolerable deviation rate (the actual population deviation rate is unknown to the auditor).
Auditor’s Estimate Based on Sample Results Actual Population Deviation Rate Is Less Than Tolerable Deviation Rate Actual Population Deviation Rate Exceeds Tolerable Deviation Rate Computed upper deviation rate is less than tolerable deviation rate. 1 3 Computed upper deviation rate exceeds tolerable deviation rate. 2 4
Suppose as a result of sample testing of controls, an auditor assesses control risk higher than necessary given the actual (but unknown) population deviation rate and thereby increases substantive testing. This is illustrated by which of the four possible outcome conditions in the table above?
1
2
3
4
Assume an auditor is evaluating a statistical attribute sample of 50 items that resulted in three deviations. What should the auditor conclude if the tolerable deviation rate is 7 percent, the expected population deviation rate is 5 percent, and the allowance for sampling risk is 2 percent?
The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.
The planned assessed level of control risk should be modified because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate.
The sample results should be accepted as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.
The sample results should be accepted as support for the planned assessed level of control risk because the tolerable deviation rate less the allowance for sampling risk equals the expected population deviation rate.
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is that:
the deviation rate in the auditor’s sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate.
the deviation rate in the auditor’s sample exceeds the tolerable deviation rate, but the deviation rate in the population is less than the tolerable deviation rate.
the deviation rates of both the auditor’s sample and the population exceed the tolerable deviation rate.
the deviation rates of both the auditor’s sample and the population are less than the tolerable deviation rate.
