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

Question 1

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.

Answer 1

C

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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.

Question 5

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 6

List the two ways auditors can control sampling risk.

Question 7

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 8

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 9

Sampling risk may be controlled by:

A)
B)
C)
D)

Question 10

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 11

One of the causes of nonsampling risk is:

A)improper supervision and instruction of the client's employees.
B)ineffective audit procedures.
C)inadequate sample size.
D)exceptions being found in the sample.

Question 12

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

A)
B)
C)
D)

Question 13

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 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

Briefly explain why auditors utilize audit sampling.

Question 19

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)The use of random sampling

Question 20

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

Question 21

It is virtually impossible to reduce sampling risk to zero.

Question 22

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 methods are acceptable and commonly used.

Question 23

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 24

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

Question 25

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.

Question 26

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 27

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 28

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 29

Which of the following statements best expresses the impact that the performance of audit procedures has on statistical vs.nonstatistical sampling?

A)Audit procedures on the sample item will vary as a result of using either statistical or nonstatistical sampling.
B)The audit procedures will be the same for either statistical or nonstatistical sampling but they must be performed differently for each.
C)Statistical sampling requires quantitative audit procedures, whereas nonstatistical sampling requires judgmental audit procedures.
D)Audit procedures on the sample item will not vary as a result of using either statistical or nonstatistical sampling.

Question 30

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

Question 31

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

Question 32

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 33

An advantage of using statistical sampling techniques is that such techniques:

A)mathematically measure 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

Nonprobabilistic selection methods are not based on mathematical probabilities; therefore:

A)the extent to which a sample is representative of the population may be difficult to determine.
B)they are discouraged by the AICPA.
C)they are not allowed by the Statements on Auditing Standards.
D)they are not as effective as statistical sampling.

Question 35

Which of the following statements is a valid criticism of nonstatistical sampling?

A)Many audit tests, such as footing of journals, must be performed outside a statistical sampling context.
B)The cost of performing random selection or testing often exceeds the benefits.
C)Nonstatistical sampling does not differ substantially from statistical sampling methods.
D)Conclusions may be drawn in more precise ways when using statistical sampling methods.

Question 36

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

Question 37

You are designing the audit plan for Mathews & Company.You are a strong proponent for statistical sampling over nonstatistical sampling.Make your case.

Question 38

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

Question 39

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 40

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 41

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

A)Auditor is concerned with the lowest rate.
B)Auditor is concerned with the highest rate.
C)Auditor is concerned with the average on previous audits.
D)This doesn't impact the auditor's decision.

Question 42

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 43

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 44

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

A)
B)
C)
D)

Question 45

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 46

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 47

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 48

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 49

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

Question 50

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)CUER cannot be considered in the context of specific audit objectives.

Question 51

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

Question 52

You are determining the significance of the following: you set a 5% risk of assessing control risk to 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 53

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 54

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 55

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

Question 56

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

Question 57

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 58

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 59

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 60

The highest estimated exception rate in the population at a particular acceptable risk of assessing control risk too low is:

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

Question 61

When the computed upper exception rate is greater than the tolerable exception rate, 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.
D)Write a letter to management which outlines the control deficiencies.

Question 62

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 63

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

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 EPER

Question 64

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 65

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

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

Question 66

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 67

If the auditor concludes that the CUER is 5% at a 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 68

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 69

The exception rate the auditor will permit in the population and still be willing to reduce the assessed level of control risk is called the:

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

Question 70

The acceptable risk of overreliance:

A)is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are.
B)is less of a concern to the auditors than the risk of underreliance.
C)represents the auditor's measure of sampling risk.
D)is determined by a statistical formula, and not by professional judgment.

Question 71

In testing controls, an overreliance on internal controls that reduces substantive tests and increases the likelihood of not detecting a material misstatement occurs because:

A)true deviation in the population was less than the sample.
B)true deviation in the population was greater than the sample.
C)auditor judgment was flawed.
D)it is inherent in the audit risk model.

Question 72

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

Question 73

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 74

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 75

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 76

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 77

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

Question 78

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 79

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 80

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.