Deck 13: Audit Sampling

Question 1

Audit sampling is involved whenever an auditor:

A) examines 100% of the population.
B) forms a conclusion about the population from which the sample is drawn.
C) performs tests of controls.
D) performs substantive tests.

Answer 1

B

Question 2

If the sample supports the conclusion that the recorded account balance is materially misstated when in fact it is, this is:

A) the risk of incorrect acceptance.
B) the risk of incorrect rejection.
C) the correct decision.
D) the risk of overreliance.

Answer 2

C

Question 3

Which of these would not be considered a method of audit sampling?

A) random selection.
B) systematic selection.
C) haphazard selection.
D) block selection.

Answer 3

D

Question 4

The risk of concluding a material error does not exist when in fact it does, is also known as:

A) risk of overreliance.
B) risk of underreliance.
C) risk of incorrect acceptance.
D) risk of incorrect rejection.

Question 5

The statement that is most accurate about the terminology applied to errors identified when applying tests of controls or substantive testing to an audit sample is:

A) an error identified in substantive testing is referred to as an irregularity.
B) an error identified in substantive testing is referred to as a control deviation.
C) an error identified in a test of controls is referred to as a misstatement.
D) an error identified in a test of controls is referred to as a control deviation.

Question 6

The greatest impact on audit efficiency comes from the risk(s) of:

A) overreliance and incorrect rejection.
B) underreliance and incorrect acceptance.
C) overreliance and incorrect acceptance.
D) underreliance and incorrect rejection.

Question 7

The statement that is inaccurate is: The choice between non-statistical sampling and statistical sampling:

A) does not affect the selection of auditing procedures to be applied to the sample.
B) does affect the appropriateness of the evidence obtained about individual sample items.
C) does not affect the appropriate response by the auditor to errors found in the sample.
D) does not impact on the need to exercise professional judgement.

Question 8

Which of these would not be considered to be a source of non-sampling risk?

A) human mistakes.
B) inappropriate audit procedures.
C) inappropriate sample size.
D) reliance on erroneous information.

Question 9

Which of the following is not a type of sampling risk?

A) risk of overreliance.
B) risk of incorrect decision.
C) risk of sample size.
D) risk of underreliance.

Question 10

The least effective means of controlling non-sampling risk is:

A) adequate supervision.
B) proper planning.
C) adherence to quality control standards.
D) increasing the sample size.

Question 11

The incorrect statement in relation to systematic selection is:

A) it is not appropriate for populations with a fixed pattern.
B) the results cannot be evaluated statistically.
C) it is not possible to measure the probability of an item being selected.
D) none of the above is incorrect

Question 12

The risk of concluding control risk is lower than it actually is, is also known as:

A) risk of overreliance.
B) risk of underreliance.
C) risk of incorrect acceptance.
D) risk of incorrect rejection.

Question 13

The justification for the wide use of non-statistical sampling in auditing is due to:

A) cost/benefit considerations.
B) classical decision theory.
C) the concept of due care.
D) professional scepticism.

Question 14

The sampling unit is:

A) the physical location of the population from which the sample will be drawn.
B) an individual item in the population.
C) the individual control procedure being tested.
D) a population expressed as an attribute of interest.

Question 15

The steps in planning the sample are listed as follows: Which one of the following shows steps A through E in the correct order?

A) B, E, D, A and C.
B) C, A, D, E and B.
C) A, B, C, D and E.
D) C, A, B, E and D.

Question 16

If the sample supports the conclusion that the recorded account balance is materially misstated when it is actually not materially misstated, this is the:

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

Question 17

An auditor may use sampling to obtain information about many different characteristics of a population. However, most audit samples lead either to an estimate of:

A) a dollar rate or a deviation amount.
B) the number of items in the population or the dollar amount of the population.
C) size of the population or the distribution of the population.
D) a deviation rate or a dollar amount.

Question 18

The greatest impact on audit effectiveness comes from the risk(s) of:

A) overreliance and incorrect rejection.
B) underreliance and incorrect acceptance.
C) overreliance and incorrect acceptance.
D) underreliance and incorrect rejection.

Question 19

Whenever sampling is used in an audit procedure, uncertainty will be present. The two sources of this uncertainty are:

A) audit risk and detection risk.
B) inherent risk and control risk.
C) sampling risk and non-sampling risk.
D) detection risk and control risk.

Question 20

The critical difference between statistical and non-statistical sampling is the:

A) required use of judgement in non-statistical sampling
B) sampling risk can be quantified in statistical sampling
C) elimination of non-sampling risk with statistical sampling
D) added precision attained with statistical sampling

Question 21

Which of the following is an advantage of PPS sampling over variable sampling?

A) it is more suitable for detecting errors of understatement.
B) individually material items are automatically selected.
C) as expected error increases, sample size will be smaller than that required by variable sampling.
D) all of the above.

Question 22

An advantage of using stratification is:

A) it increases audit efficiency.
B) it can be used for groups with dissimilar characteristics.
C) probability of selection is the same as random sampling.
D) it is particularly effective in finding understatements.

Question 23

In which of these audit procedures is sampling most likely to be used?

A) analytical procedures.
B) enquiring.
C) vouching.
D) observing.

Question 24

Sample size is determined by the application of a statistically based formula which includes all of the following except:

A) sampling risk.
B) tolerable error.
C) required confidence level.
D) all of the above are included in the formula

Question 25

List the nine steps in planning the sample.

Question 26

Before selecting the sample for testing, it is necessary to plan what that sample will be. Which of these is not a step in planning the sample?

A) determine the objectives of the test.
B) consider qualitative aspects of the errors.
C) define the sampling unit.
D) specify tolerable error.

Question 27

When systematic selection is used to select a sample:

A) there is no structure to selection.
B) every "nth" item is selected.
C) items are randomly selected.
D) items are stratified for selection.

Question 28

An auditor is using statistical sampling for tests of controls. Which would be the most appropriate statistical sampling method to use?

A) attribute sampling plans.
B) variable sampling plans.
C) probability-proportional-to-size sampling.
D) dollar unit sampling.

Question 29

Which of the following is not a type of attribute sampling plan (or method)?

A) sequential sampling.
B) discovery sampling.
C) difference estimation sampling.
D) attribute sampling.

Question 30

Before selecting a sample, it is necessary to specify the expected error. The main purpose for doing this is:

A) it is necessary in determining sampling risk.
B) it is necessary to compare it to the previous year.
C) it is the maximum amount that can be misstated where the auditor can still conclude that the account is fairly stated.
D) it is important in determining sample size.

Question 31

In considering the qualitative aspects of the deviations found in the sample, the auditor would be least concerned to find:

A) a single error with a direct material effect on the financial statements.
B) a control deviation.
C) several material errors.
D) a number of non-systematic deviations.

Question 32

A situation in which variable sampling was preferable over PPS sampling would be:

A) where errors of understatement are expected or are being sought.
B) where the population includes zero and negative balances.
C) where many errors are expected.
D) all of the above.

Question 33

A method of non-statistical sampling that involves selecting items at will without regard to document number, amount, or other features is

A) haphazard sampling.
B) block sampling.
C) systematic sampling.
D) random sampling.

Question 34

In evaluating the sample results, the planned control risk will be supported when the projected deviation rate is:

A) greater than or equal to the expected population deviation rate.
B) greater than or equal to the tolerable deviation rate.
C) less than or equal to the expected population deviation rate.
D) less than or equal to the tolerable deviation rate.

Question 35

Which of these is not a reason for using non-statistical sampling?

A) proposed adjustment based on qualitative analysis.
B) incorrect evaluation of sampling risk.
C) impracticality of random selection.
D) lower training costs.

Question 36

The control which is least likely to be used as an attribute in an audit sampling plan for tests of controls is:

A) authorisation of sale by appropriate sales order department personnel
B) approval of credit by authorised credit department personnel
C) hiring of competent personnel only
D) existence of a sales invoice copy

Question 37

Of the following factors which would have the effect of decreasing sample size for tests of control?

A) an increase in the tolerable error.
B) an increase in the expected error.
C) an increase in the auditor's required confidence level.
D) an increase in the number of sampling units.

Question 38

A sample selection method that is appropriate for non-statistical sampling plans, but not statistical plans is:

A) systematic.
B) block.
C) haphazard.
D) both block and haphazard.

Question 39

Random selection is used in audit sampling so that:

A) larger items are more likely to be selected.
B) each item has a known and equal chance of being selected.
C) a representative sample is guaranteed.
D) b and c

Question 40

1. Distinguish between sampling and non-sampling risk.
2.Identify and describe the four types of sampling risk that may occur in audit sampling including how they occur and how they impact an audit.

Question 41

1. Differentiate between statistical and non-statistical sampling.
2.List two advantages of non-statistical sampling over statistical sampling.

Question 42

Identify the two statistical sampling methods available for substantive testing and list the situations when you would use these methods.

Question 43

Define tolerable misstatement, tolerable rate of deviation and confidence level for both tests of control and substantive testing.

Question 44

For each of the following situations, indicate whether there would be an increase, decrease, or no effect on sample size:
1. The auditor has assessed control risk as low.
2. The auditor has discovered that the number of sampling units in the population has increased from 2380 to 5640.
3. The auditor has used stratification.
4. The auditor has increased the total error that they are willing to accept.
5..The auditor has assessed the risk of material misstatement as high.
6. The auditor now expects to find more errors than originally anticipated.
7. The risk that the auditor will conclude that a material error does not exist when in fact it does has increased.

Question 45

List the four advantages and four disadvantages of Probability-Proportional-to-Size (PPS) Sampling compared to Variable Sampling.

Question 46

Identify the three methods of selecting the sample that are suggested in ASA 530 and explain how each is conducted.

Question 47

1. Identify the purpose(s) of tests of controls and define what errors are being sought.
2. Identify the purpose(s) of substantive testing and define what errors are being sought.