Deck 8: Specialized Audit Tools: Sampling and Generalized Audit Software

Question 1

The most common statistical approaches for substantive testing are classical variables sampling and MUS.

Answer 1

True

Question 2

An attribute is defined as a characteristic of the population of interest to the auditor.

Answer 2

True

Question 3

The expected population deviation rate is the auditor's best estimate of the percentage of transactions processed for which a control is not effectively applied.

Answer 3

True

Question 4

Statistical sampling used in control testing eliminates the need for evaluation of errors from a qualitative perspective.

Question 5

When performing substantive tests using sampling methods, the auditor's main concern is the risk of incorrect rejection.

Question 6

The sample size decreases as the risk of over-reliance decreases.

Question 7

Statistical sampling assists auditors in determining the sufficiency of evidence gathered.

Question 8

Audit sampling is the application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic.

Question 9

When testing controls, the use of haphazard selection of a sample allows for random, statistical evaluation.

Question 10

Sample size varies directly with sampling risk.

Question 11

The risk of incorrect acceptance of an account balance as correct, when in fact it is not correct, bears directly on the effectiveness of an audit.

Question 12

Increasing the expected failure rate will cause the sample size to increase.

Question 13

The auditor must define the population to which sampling relates if the auditor is to use statistical sampling for substantive tests of account balances.

Question 14

The individual auditable elements defined by the auditor are the sampling units.

Question 15

For tests of controls, the most commonly used statistical method is attribute sampling.

Question 16

Statistical sampling is used when an auditor chooses to examine all purchases of equipment exceeding $1,000.00 and to test the remaining items by analytical procedures.

Question 17

The tolerable misstatement is the confidence level needed to infer population values.

Question 18

The most efficient method of testing a large population is the use of non-statistical sampling.

Question 19

The tolerable failure rate is the level at which the control's failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor's planned assessment of control risk in performing tests of account balances.

Question 20

Audit sampling implies the gathering of evidence to use as a basis for making valid inferences about the characteristics of the population as a whole without examining every transaction.

Question 21

Population items with a zero balance have the same chance of being chosen as those with dollar balances when using MUS sampling.

Question 22

When evaluating an MUS sample, if the auditor finds no misstatements in the sample, the misstatement projection is zero dollars, and the total estimated misstatement will equal the projected misstatement for items in lower-stratum.

Question 23

Evaluating statistical sample results is one of the tasks that can be performed by GAS.

Question 24

The population is a group of items in an account balance that the auditor wants to test.

Question 25

Sample size in a MUS sample is a function of risk of incorrect acceptance, tolerable misstatement, and expected misstatement.

Question 26

Monetary unit sampling (MUS) results in an efficient sample size and concentrates on the dollar value of the account balances.

Question 27

A sample which exceeds the tolerable rate of deviation results in the auditor's reliance on internal control effectiveness.

Question 28

Sampling risk is defined as the risk that an inference drawn from a sample will be incorrect.

Question 29

Statistical sampling combines the theory of probability and statistical inference with audit judgment and experience.

Question 30

The population for MUS is defined as the number of dollars in the population being tested.

Question 31

Non-statistical samples should be based on the same audit considerations as those used for statistical sampling.

Question 32

Projected misstatements are developed by extrapolation from the misstatements in sample items to the population.

Question 33

Population items with zero balances have no chance of being selected using PPS sampling.

Question 34

Random sampling can be used even if the auditor does not plan on using statistical sampling.

Question 35

An example of attribute testing involves obtaining evidence that the client has matched the vendor invoice details with a purchase order and receiving report before payment approval.

Question 36

Attribute sampling for testing controls should only be done by the auditor at the end of the fiscal period under audit.

Question 37

Tolerable misstatement is the maximum amount of misstatement the auditor can accept in the population without requiring an audit adjustment or a qualified audit opinion.

Question 38

Monetary unit sampling (MUS) sampling is designed to test whether there is an acceptable risk of account balance understatement.

Question 39

Either nonstatistical or statistical sampling is appropriate for substantive tests of details.

Question 40

Extracting data from the client's computer system is one of the tasks that can be performed by GAS.

Question 41

In attribute sampling if the selected item cannot be located, the auditor should assume that the control procedure was not followed and assess that item as a failure.

Question 42

Random number, haphazard selection and block sampling are acceptable sample selection methods for non-statistical sampling.

Question 43

Which of the following describes sampling risk?

A) The sample will not contain characteristics representative of the population such that inferences made about that population will be incorrect.
B) The population will not contain characteristics representative of the sample such that inferences made about that sample will be incorrect.
C) The auditor incorrectly applies sampling methodology.
D) The sample size will be larger than needed.

Question 44

Which of the following occurs when, based on sample results, control risk is assessed excessively high?

A) Audit inefficiency.
B) A less expensive audit.
C) Reduction of substantive testing.
D) Errors that are more likely to occur than anticipated.

Question 45

Which of the following is not considered when obtaining audit evidence through sampling?

A) The effectiveness of control procedures.
B) The efficiency of control procedures.
C) The dollar accuracy of account balances.
D) The dollar accuracy of classes of transactions.

Question 46

When performing sampling, the auditor is most concerned with which of the following?

A) Risk of incorrect rejection.
B) Risk of incorrect acceptance.
C) Risk of excess sample size.
D) Risk of errors in the population.

Question 47

Which one of the following is not a decision the auditor makes when using attribute sampling?

A) Sample size.
B) Selection of items included in the sample.
C) Evaluation of sample information.
D) Whether to document all phases.

Question 48

In MUS sampling basic precision is the upper misstatement limit when no misstatements are detected in a MUS sample. It is computed by multiplying the sampling interval by the error expansion factor.

Question 49

Using attribute sampling the auditor can test for multiple attributes using the same source documents.

Question 50

By using Generalized Audit Software (GAS), the auditor can potentially audit the whole population rather than taking a sample.

Question 51

In analysis of the results of an attribute sampling plan, an auditor may determine that the sample size must be increased.

Question 52

The audit objective of attribute sampling is to test the correctness of an account balance.

Question 53

In attribute sampling if the upper limit of the possible deviation rate exceeds the tolerable rate the auditor can rely upon the control as being effective.

Question 54

Stratification of the population into several homogeneous subpopulations generally creates audit efficiency.

Question 55

Which of the following is not considered to be non-sampling risk?

A) Misinterpretation of information.
B) Use of improper audit procedure.
C) The sample does not represent the population.
D) Carelessness of the auditor.

Question 56

Incorrect acceptance is directly related to which of the following?

A) The efficiency of the audit.
B) The ineffectiveness of the audit.
C) The cost of the audit.
D) All of the above.

Question 57

For which of the following audit procedure would sampling be most appropriate?

A) Inquiry
B) Observation
C) Confirmation
D) Analytics

Question 58

Concluding that the book value of inventory is correct when it is materially misstated is an example of which of the following risks?

A) Incorrect rejection.
B) Incorrect acceptance.
C) Insufficient sample size.
D) None of the above.

Question 59

Which one of the following is a decision the auditor makes when using attribute sampling?

A) The sampling unit.
B) Period covered by testing.
C) Completeness of the population.
D) All of the above are auditor decisions.

Question 60

Random number, systematic sampling and material value sampling are acceptable sample selection methods for statistical sampling.

Question 61

While auditors may use either statistical or non-statistical sampling, some auditors restrict the use of non-statistical sampling for what reason?

A) It is less effective.
B) It is less objective.
C) It is less efficient.
D) It is less risky.

Question 62

In testing account balances, haphazard sampling is an acceptable method of sampling provided the auditor believes the sample to be which of the following?

A) Statistically sound.
B) Representative of the population.
C) Representative of the sample.
D) In the upper stratum.

Question 63

When planning a test of details using MUS sampling, tolerable misstatement is usually set at what level?

A) Higher than performance materiality.
B) Lower than performance materiality
C) Higher than the expected error amount.
D) Lower than the expected error amount.

Question 64

In analyzing misstatements using sampling techniques, the auditor should analyze the misstatements in what manners?

A) Qualitatively and quantitatively.
B) Absolutely and proportionately.
C) Haphazardly and randomly.
D) Methodically and systematically.

Question 65

When determining sampling size in attribute sampling, which of the following is usually true?

A) Sampling risk will be too high.
B) Tolerable misstatement amount is determined.
C) A failure rate is not to be expected.
D) Population size is not a major factor.

Question 66

When using MUS, an auditor found that the sampling interval should be $15,755. If selecting the sample manually, the auditor should round the sample interval to which of the following amounts?

A) $16,000.
B) $15,000.
C) $14,000.
D) $10,000.

Question 67

Which of the following is a factor that the auditor should consider when choosing between non-statistical and statistical sampling?

A) Whether the audit staff is adequately trained to use statistical sampling.
B) Whether the population lends itself to a random-based selection method.
C) Whether the auditor wants a statistical measure of the risk of drawing a wrong conclusion.
D) All of the above.

Question 68

When confirming receivables in testing for overstatements, assume that there are few or no misstatements expected and the selection will be based on the dollar value of individual items. Which of the following is the auditor most likely to use?

A) MUS sampling.
B) Stratified mean-per-unit sampling.
C) Ratio estimation sampling.
D) Attribute sampling.

Question 69

Which of the following is not an item the auditor needs to determine in designing sampling for substantive testing?

A) The audit objective.
B) The method of selecting a sample.
C) Expected misstatement conditions.
D) Expected deviation rate.

Question 70

When performing attribute sampling, which of the following varies directly with the sample size?

A) The expected failure rate.
B) The tolerable failure rate.
C) The risk of overreliance.
D) The nonsampling risk.

Question 71

Which of the following applications are incorporated into statistical sampling?

A) Binomial and confidence intervals.
B) Random and haphazard selection.
C) Hypergeometric distribution with audit risk.
D) Probability and statistical inference with audit judgment.

Question 72

Which of the following statistical sampling methods is most commonly used to test control procedures?

A) Variable sampling.
B) Ratio estimation sampling.
C) Attribute sampling.
D) Dollar unit sampling.

Question 73

MUS is designed to test for which of the following?

A) Overstatements.
B) Understatements.
C) Neither understatements nor overstatements.
D) Either understatements or overstatements.

Question 74

Which of the following does the design of a MUS sample not require the auditor to determine?

A) Risk of incorrect acceptance.
B) Inherent risk.
C) Ratio of expected misstatement to tolerable misstatement.
D) Ratio of tolerable misstatement to the total population value.

Question 75

Which of the following is the level at which the control's failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor's planned assessment of control risk in performing tests of account balances?

A) Tolerable failure rate.
B) Allowable risk of assessing control risk too low.
C) Expected failure rate.
D) Allowance for sampling error.

Question 76

Which one of the following issues need not be addressed when planning an audit sample to test control procedures?

A) Audit objective of the test.
B) Minimum failure rate.
C) Expected population deviation rate.
D) Auditor's allowable risk of assessing control risk too low.

Question 77

MUS is based on which of following?

A) Attributes estimation sampling.
B) Classical variables sampling.
C) Population variability sampling.
D) Expected error sampling.

Question 78

The results of MUS sampling will be unacceptable when the total estimated misstatement exceeds which of the following?

A) The tolerable error rate.
B) The tolerable misstatement amount.
C) The expected deviation rate.
D) The expected deviation amount.

Question 79

Which one of the following is not a typical step used to implement an attribute sampling plan?

A) Define the attributes of interest and what constitutes failure(s).
B) Select and test the sample items.
C) Evaluate the sample results.
D) Define the non-statistical sampling method that is most effective and efficient.

Question 80

Which of the following is a method of reducing non-sampling risk?

A) Proper supervision and instruction of the client's employees.
B) Proper supervision and instruction of the audit team.
C) The use of attributes sampling rather than variables sampling.
D) Controls to ensure that the sample drawn is random and representative.