Deck 15: Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Question 1

Which of the following statements is most correct?

A)A sample of all items of a population will eliminate sampling risk,but increase nonsampling risk.
B)The use of an appropriate sample selection technique ensures a representative sample.
C)The auditor's failure to recognize an exception is a significant cause of sampling risk.
D)The use of inappropriate audit procedures is a significant cause of nonsampling risk.

Answer 1

D

Question 2

One of the causes of nonsampling risk is

A)choosing the wrong sample size.
B)ineffective audit procedures.
C)inadequate sample size.
D)exceptions being found in the sample.

Answer 2

B

Question 3

Which one of the choices below is most correct regarding a cause of sampling risk?

A)ineffective use of audit procedures
B)testing less than the entire population
C)use of extensive tests of controls
D)use of random sampling

Answer 3

B

Question 4

List the two ways auditors can control sampling risk.

Question 5

Sampling risk results from the auditor's failure to recognize exceptions in transaction data.

Question 6

Which of the following is the risk that audit tests will not uncover existing exceptions in a sample?

A)sampling risk
B)nonsampling risk
C)audit risk
D)detection risk

Question 7

It is virtually impossible to reduce sampling risk to zero.

Question 8

A sample of all items in a population will have a zero sampling risk.

Question 9

In practice,auditors do not know whether a sample is representative,even after all testing is complete.

Question 10

A sample in which the characteristics of the sample are the same as those of the population is a(n)

A)variables sample.
B)representative sample.
C)attributes sample.
D)random sample.

Question 11

If a particular internal control is not followed by the client exactly 6% of the time,and the auditor's tests of that control find three control violations in a sample of 50,the sample is considered to be representative.

Question 12

To determine if a sample is truly representative of the population,an auditor would be required to

A)conduct multiple samples of the same population.
B)never use sampling because of the expense involved.
C)audit the entire population.
D)use systematic sample selection.

Question 13

When the auditor decides to select less than 100 percent of the population for testing,the auditor is said to use

A)audit sampling.
B)representative sampling.
C)poor judgment.
D)estimation sampling.

Question 14

Discuss what is meant by "sampling risk" and "nonsampling risk."

Question 15

An auditor can increase the likelihood that a sample is representative by using care in

A)
B)
C)
D)

Question 16

Sampling risk may be controlled by

A)
B)
C)
D)

Question 17

One way to control sampling risk is to increase sample size.

Question 18

Discuss two causes of nonsampling risk.Also discuss ways the auditor can control nonsampling risk.

Question 19

If an auditor does a test in the wrong direction,sampling risk will increase.

Question 20

Which of the following is the risk that an auditor will reach an incorrect conclusion because a sample is not representative of the population?

A)sampling risk
B)nonsampling risk
C)audit risk
D)detection risk

Question 21

List the three phases in audit sampling for both statistical and nonstatistical sampling.

Question 22

The process which requires the calculation of an interval and then selects the items based on the size of the interval is

A)statistical sampling.
B)random sample selection.
C)systematic sample selection.
D)computerized sample selection.

Question 23

Which of the following is a correct statement regarding probabilistic versus nonprobabilistic sample selection?

A)Auditors may make nonstatistical evaluations when using probabilistic sample selection.
B)The AICPA recommends probabilistic sample selection.
C)Nonstatistical sampling can't provide results that are as effective as a statistical sample.
D)There is only one type of nonprobabilistic sample selection method.

Question 24

Which of the following is not a phase in the planning of both statistical and nonstatistical sampling?

A)Plan the sample.
B)Determine the probability that fraud has occurred.
C)Select the sample and perform the tests.
D)Evaluate the results.

Question 25

Which of the following statements is most correct with respect to the evaluation of nonprobabilistic sample results?

A)It is acceptable to make nonprobabilistic evaluations only when probabilistic sample selection is used.
B)It is acceptable to make nonprobabilistic evaluations only if the auditor cannot quantify sampling risk.
C)It is never acceptable to evaluate a nonprobabilistic sample using statistical methods.
D)All of the above are correct.

Question 26

In systematic sample selection,the population size is divided by the number of sample items desired in order to determine the

A)sampling interval.
B)tolerable exception rate.
C)computed upper exceptions rate.
D)mean.

Question 27

Which of the following is an accurate statement regarding sampling?

A)A 95 percent confidence level provides a 5 percent sampling risk.
B)The auditor can perform the audit tests only after the sample items are selected.
C)The purpose of planning the sample is to make sure that the audit tests are performed in a manner that provides the desired sampling risk and minimizes the likelihood of nonsampling errors.
D)All of the above are accurate statements.

Question 28

Simple random sampling

A)is used when there is a need to emphasize one or more types of population items.
B)requires both input and output parameters to be set when using a random number generator.
C)is generally used with replacement sampling.
D)is a probabilistic sampling method.

Question 29

A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a

A)random sample.
B)statistical sample.
C)judgment sample.
D)representative sample.

Question 30

When using nonstatistical sampling,the sample must be a probabilistic one.

Question 31

Which of the following statements is most correct with concerning the quantification of sampling risk?

A)Sampling risk cannot be quantified.
B)Sampling risk can be quantified only when nonprobabilistic selection techniques are used to select the sample.
C)Sampling risk can be quantified only when probabilistic selection techniques are used to select the sample.
D)None of the above is correct.

Question 32

When a population is divided into subpopulations,usually by dollar size,and larger samples are taken from the subpopulation with the larger sizes,________ is being used.

A)sampling with probability proportional to size
B)stratified sampling
C)block sampling
D)haphazard sampling

Question 33

An advantage of using statistical sampling techniques is that such techniques

A)quantify sampling risk.
B)eliminate the need for judgmental decisions.
C)define the values of precision and reliability required to provide audit satisfaction.
D)have been established in the courts to be superior to judgmental sampling.

Question 34

Which of the following statements is not correct regarding probabilistic and nonprobabilistic sample selection?

A)In probabilistic selection,every population item has a known chance of being selected.
B)It is acceptable to evaluate a nonprobabilistic sample using statistical methods.
C)Probabilistic selection is required for all statistical sampling methods.
D)Both probabilistic and nonprobabilistic methods are acceptable and commonly used.

Question 35

Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical sampling flows from its ability to

A)quantify sampling risk.
B)promote a more legally defensible procedural approach.
C)define the precision required to provide audit satisfaction.
D)establish conclusive audit evidence with decreased audit effort.

Question 36

It is equally acceptable under professional auditing standards for auditors to use either statistical or nonstatistical sampling methods.

Question 37

Describe the differences between statistical and nonstatistical sampling in terms of (1)the sample selection methods used,and (2)quantification of sampling risk.

Question 38

The advantage of systematic sample selection is that

A)it is easy to use.
B)there is limited possibility of it being biased.
C)it is unnecessary to determine if the population is arranged randomly.
D)it automatically selects items material to the financial statements.

Question 39

Which of the following methods of sample selection is appropriately used when selecting a random sample?

A)
B)
C)
D)

Question 40

There are three phases in both statistical and nonstatistical sampling.The first phase is to

A)generate random numbers for the sample.
B)evaluate the results.
C)plan the sample.
D)select the sample.

Question 41

The use of haphazard sample selection is encouraged under professional auditing standards.

Question 42

Nonprobabilistic sampling methods are not based on mathematical probabilities,and therefore the representativeness of the sample may be difficult to determine.

Question 43

In performing a review of a client's cash disbursements,an auditor uses systematic sample selection with a random start.The primary disadvantage of this technique is population items

A)may occur twice in the sample.
B)must be reordered in a systematic pattern before the sample can be drawn.
C)may occur in a systematic pattern,thus negating the randomness of the sample.
D)must be replaced in the population after sampling to permit valid statistical inference.

Question 44

What is the key advantage and disadvantage associated with systematic sample selection?
How must auditors address this disadvantage?

Question 45

When auditors wish to evaluate a sample statistically,an acceptable selection method is:

A)systematic sample selection.
B)judgmental selection.
C)haphazard selection.
D)block sample selection.

Question 46

Which of the following is a correct statement regarding block sampling?

A)It is acceptable to use block sampling only if a reasonable number of blocks are used.
B)Block sampling uses sampling with replacement.
C)Block sampling is a probabilistic sampling method.
D)There is considerable cost and time involved when block sampling is used.

Question 47

You are determining the significance of the following: you set a 5% risk of assessing control risk too low and your computation of the upper deviation risk is 7%.What could you conclude?

A)There is a 95% chance the deviation rate is the population is less than 5%.
B)There is a 5% chance the deviation rate in the population is less than 7%.
C)There is a 95% chance the deviation rate in the population exceeds 95%.
D)There is a 5% chance the deviation rate in the population exceeds 7%.

Question 48

Which of the following occurrences would be least likely to warrant further audit attention for the auditor?

A)deviations from client's established control procedures
B)deviations from client's budgeted values
C)monetary misstatements in populations of transaction data
D)monetary misstatements in populations of account balance details

Question 49

When the auditor goes through a population and selects items using nonprobabilistic selection methods,without regard to their size,source,or other distinguishing characteristics,it is called

A)block sample selection.
B)haphazard selection.
C)systematic sample selection.
D)statistical selection.

Question 50

Describe each of the four types of sample selection methods commonly associated with statistical audit sampling.

Question 51

The most serious shortcoming of the haphazard sample selection method is

A)it is not subject to statistical sampling methods.
B)it is time consuming to use.
C)it is costly to use.
D)it is difficult to remain completely unbiased in the selection.

Question 52

Directed sample selection,block sample selection,and haphazard sample selection are three types of probabilistic sample selection methods.

Question 53

In using audit sampling for exception rates

A)the auditor wants to know the most the exception rate is likely to be.
B)sampling error is the likelihood that the auditor will miss a monetary misstatement.
C)the upper limit of the interval estimate is known as the sampling risk.
D)the computed upper exception rate (CUER)cannot be considered in the context of specific audit objectives.

Question 54

The upper limit of the probable population exception rate is the

A)upper exception rate.
B)estimated population exception rate.
C)computed upper exception rate.
D)the tolerable exception rate.

Question 55

Although systematic sample selection is easy to use,its primary disadvantage is that it is not a probabilistic sampling method.

Question 56

When selecting a sample,random numbers may be obtained either with replacement or without replacement.Although both selection methods are theoretically sound,auditors rarely use replacement sampling.

Question 57

Which of the following is most correct when using audit sampling for exception rates?

A)The auditor is concerned with the lowest rate.
B)The auditor is concerned with the highest rate.
C)The auditor is concerned with the average on previous audits.
D)The auditor is not concerned with the exception rate for audits of nonpublic companies.

Question 58

Which of the following statements is correct when dealing with sampling for exception rates?

A)The term exception refers to both deviations from the client's control procedures and amounts that are not monetarily correct.
B)When used with sampling,the term deviation is synonymous with the term exception.
C)The actual population exception rate is the same as the sample exception rate.
D)In using audit sampling for exception rates,the auditor is most concerned with the confidence interval.

Question 59

Which of the following statements regarding block sampling is least likely to be True?

A)Block sampling is the selection of several items in sequence.
B)It is acceptable to use block sampling for tests of transactions only if a reasonable number of blocks is used.
C)Only one block should be selected to increase the probability of a representative sample.
D)Once the first item in the block is selected,the remainder of the block is chosen automatically.

Question 60

Which is not a method used by auditors to generate random numbers?

A)electronic spreadsheets
B)systematic sample generators
C)random number generators
D)generalized audit software

Question 61

What types of exceptions are auditors most concerned with when evaluating populations of accounting data?

Question 62

Which of the following is the exception rate that the auditor expects to find before testing?

A)sample exception rate
B)estimated population exception rate
C)computed exception rate
D)tolerable exception rate

Question 63

Which of the following must be set prior to testing a sample?

A)sample exception rate
B)achieved upper precision limit
C)computed exception rate
D)tolerable exception rate

Question 64

The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the

A)acceptable exception rate.
B)estimated population exception rate.
C)sample exception rate.
D)tolerable exception rate.

Question 65

Deviation refers to a departure from prescribed controls or amounts that are not monetarily correct.

Question 66

When analyzing exceptions,the auditor should keep in mind that

A)all exceptions must be reported to management.
B)they should determine the breakdown in the internal controls that allowed the exceptions to occur.
C)the nature of an exception and its causes have no effect on the qualitative evaluation of the system.
D)exceptions do not need to be analyzed if it is too costly.

Question 67

The risk which the auditor is willing to take in accepting a control as being effective when the True population exception rate is greater than a tolerable rate is the

A)finite correction factor.
B)tolerable exception rate.
C)acceptable risk of overreliance.
D)estimated population exception rate.

Question 68

If the auditor concludes that the computer upper exception rate (CUER)is 5% at an 8% sampling risk,this means that the exception rate in the population is no greater than 5% with an 8% risk of the exception rate exceeding 5%.

Question 69

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the

A)tolerable exception rate.
B)estimated population exception rate.
C)acceptable risk of overreliance.
D)sample exception rate.

Question 70

Which of the following would have the least impact in determining sample size?

A)acceptable risk of overreliance
B)risk of assessing control risk too low
C)tolerable exception rate
D)population size

Question 71

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions,the auditor

A)can conclude that the sample exception rate is 2%.
B)can conclude that the population exception rate is 2%.
C)can calculate the highest exception rate expected in the population.
D)cannot make any conclusions about either the sample or the population.

Question 72

If the auditor decides to assess control risk at the moderate level in a private company audit,when in previous years the auditor set control risk at the maximum level,then tests of controls for the current year would be

A)increased in number.
B)reduced in number.
C)not performed.
D)unchanged from prior planned settings.

Question 73

The relationship of tolerable exception rate (TER)to sample size is

A)direct (larger TER = larger sample).
B)inverse (larger TER = smaller sample).
C)variable (sometimes larger,sometimes smaller).
D)not determinable.

Question 74

The upper limit of the interval estimate is also known as the confidence interval.

Question 75

When planning the audit sample,

A)one objective of the tests of controls is to test the effectiveness of the controls.
B)audit sampling applies to analytical procedures.
C)audit sampling generally applies to automated controls.
D)the auditor must generalize from the sample to the population.

Question 76

When the computed upper exception rate (CUER)is greater than the tolerable exception rate (TER),it is necessary for the auditor to take specific action.Which of the following courses of action would be most difficult to justify?

A)Reduce the tolerable exception rate so as to accept the sample results.
B)Expand the sample size and perform more tests.
C)Revise the assessed control risk upward.
D)Write a letter to management which outlines the control deficiencies.

Question 77

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated?

A)sample exception rate
B)estimated population exception rate
C)computed upper exception rate
D)exception

Question 78

Place the following steps in their proper order: 1. Analyze exceptions.
2) Select the sample.
3) Define attributes and exception conditions.
4) State the objectives of the audit test.
5) Specify the tolerable exception rate.

A)1,3,2,4,5.
B)4,3,1,2,5.
C)4,3,5,2,1.
D)1,2,3,4,5.

Question 79

Auditors often use the ________ to determine the estimated population exception rate.

A)current year's audit results
B)tolerable exception rate
C)preceding year's audit results
D)estimated computed by management

Question 80

Which of the following represents the best description of the tolerable exception rate?

A)the highest exception rate the auditor will permit in the control being tested and still conclude it is operating effectively
B)the highest exception rate the auditor expects to find in the population
C)the number of exceptions found in the sample divided by the sample size
D)the highest estimated exception rate in a population at a given estimated population exception rate.