Deck 12: Sampling and Materiality

Question 1

Which of the phrases below completes the statement? ?
Audit sampling is the application of audit procedures to __________ such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.

A) Documents judged to be significant.
B) Source documents such as sales invoices.
C) Less than 100 per cent of items within a population of relevant items.
D) All of the items within a population of relevant items.

Answer 1

Less than 100 per cent of items within a population of relevant items.

Question 2

The audit manager has asked you to review the results of some statistical sampling testing, which resulted in 20 per cent of the payables balance being tested. Materiality has been set at €100,000. The testing results indicate that there is a €45,000 error in the sample: €20,000 which is due to invoices not being recorded in the correct period as a result of weak controls and additionally there is a one-off error of €25,000 which was made by a temporary clerk.
What would be an appropriate course of action on the basis of these results?

A) The error is immaterial and therefore no further work is required.
B) The effect of the control error should be projected across the whole population.
C) The company should be asked to adjust the payables figure by €45,000.
D) A different sample should be selected as these results are not reflective of the population.

Answer 2

The effect of the control error should be projected across the whole population.

Question 3

The auditor may decide that it would be more appropriate to examine the entire population (100 per cent examination) of items that make up an account balance if the population comprises a small number of large value items.

Answer 3

True

Question 4

Audit software can be used to select balances for testing from a large population.

Question 5

The lower the tolerable error the greater the sample size.

Question 6

Attribute sampling requires only two responses - yes or no.

Question 7

Which of the phrases below completes the statement? ? Sampling risk is the risk that the auditor's conclusion based on a sample may __________ the conclusion if the entire population were subjected to the same audit procedure. ?

A) Be different from
B) Be material to
C) Not be material to
D) Be the same as

Question 8

Which of the following sampling methods correctly describes systematic sampling?

A) A sampling method which is a type of value-weighted selection in which sample size, selection and evaluation results in a conclusion in monetary amounts
B) A sampling method which involves having a constant sampling interval, the starting point for testing is determined randomly
C) A sampling method in which the auditor selects a block(s) of contiguous items from within the population
D) A sampling method whereby the population is divided by size to determine the number of transactions tested i.e. the higher the value the more are tested

Question 9

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

A) Interval sampling
B) Selective sampling
C) Cluster sampling
D) Monetary unit sampling

Question 10

Does judgemental sampling entail: ?

A) picking a sample using a random number generator.
B) splitting the population into sub-populations and then taking a different sampling approach to each.
C) picking a sample at set intervals in the population e.g. every 100^th invoice.
D) using personal experience and professional discretion to pick unusual items from the population.

Question 11

Which of the following statements is not correct about materiality?

A) Performance materiality is an estimate of materiality set lower than the estimate of materiality for the financial statements as a whole.
B) Materiality involves both quantitative and qualitative judgements.
C) Auditor's consideration of materiality is influenced by the auditor's perception of the needs of an informed decision maker who will rely on the financial statements.
D) At the planning state, the auditor considers materiality at the financial statement level only.

Question 12

Monetary Unit Sampling (also known as Value Weighted Selection) is a statistical sampling method which is useful when sampling populations where the individual balances can vary widely in size
Here is a selection from a list of Receivables balances for Wibble:
The sampling size is 100 items.
Which balances will be selected for testing out of the ones shown?

A) i, iii, vi, vii
B) i, iv, v, vi
C) i, iv, vi, viii
D) i, v, vii, viii

Question 13

Audit sampling is one component of audit risk the auditor has to pay special attention to.

Question 14

Monetary Unit Sampling will tend to include higher value balances in the sample to be tested.

Question 15

Stratified sampling divides the population into layers to identify higher value transactions.

Question 16

Auditors will accept a 5 per cent error rate in a sample as being reasonable.