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

Question 1

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.

Answer 1

True

Question 2

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 2

C

Question 3

One of the causes of nonsampling risk is

A) choosing the wrong sample size.
B) effective audit procedures.
C) inadequate sample size.
D) failure to recognize exceptions.

Answer 3

D

Question 4

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

Question 5

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 6

Assume a client's internal controls require each sales invoice to be supporting by a shipping document prepared by an outside company, but the clerk preparing sales invoices fails to follow this procedure exactly 3 percent of the time. If the auditor selects a sample of 100 sales invoices and finds two or four sales invoices are missing a shipping document, the sample is nonrepresentative of the population.

Question 7

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

Question 8

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 9

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.

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

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

A)
B)
C)
D)

Question 12

Sampling risk may be controlled by

A)
B)
C)
D)

Question 13

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

Question 14

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

Question 15

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

Question 16

It is virtually impossible to reduce sampling risk to zero.

Question 17

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 18

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

Question 19

A representative sample means the sampled items are similar to the items not sampled.

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

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 22

A sample of all the items in a population still has sampling risk for the auditor.

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

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 25

Assume an important control is shipping documents being attached to invoices. An effective audit procedure for detecting exceptions to this control would be to examine a sample of shipping documents and determining whether each is attached to a duplicate sales invoice.

Question 26

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

Question 27

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

Question 28

Assume the auditor decides a control is not effective if there is a population exception rate of 3%. Assume the auditor accepts this control as effective based on test of control with a sample of 100 items that had 2 exceptions. If the population actually has a 6% exception rate, the auditor correctly accepted the population because the sample was representative of the population.

Question 29

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 30

Which of the following statements is most correct 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 31

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 32

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 33

Auditors can increase the likelihood of a sample being representative by using professional care in the design of the sampling process, in the selection of the sample, and in the evaluation of the sample results.

Question 34

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 35

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

Question 36

Using an appropriate sample selection method does not increase the likelihood of representativeness of the sample.

Question 37

It is never possible to know whether a sample is truly representative of a population.

Question 38

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 39

List the two ways auditors can control sampling risk.

Question 40

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

Question 41

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 42

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 43

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

Question 44

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 45

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 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

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 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

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

Question 50

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 51

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

Question 52

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 53

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

A)
B)
C)
D)

Question 54

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 55

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 56

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 57

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 58

A 95 percent confidence level in statistical sampling means there is more than a 5 percent sampling risk which the auditor needs to address in the sampling design.

Question 59

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 60

Statistical sampling differs from nonstatistical sampling in that, by applying mathematical rules, the auditor can measure sampling risk in planning the sample; however, mathematical rules cannot then be applied in evaluating the sample results.

Question 61

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

Question 62

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

Question 63

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

Question 64

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 in 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 65

Sound statistical theory consistently supports random number sampling with or without replacement.

Question 66

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

Question 67

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 68

Auditors most often generate random numbers by using one of three computer sample selection techniques. Name these three computer sample selection techniques.

Question 69

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 70

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 71

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

Question 72

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 73

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 74

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

Question 75

Auditors prefer to use probabilistic sample selection methods for nonstatistical sample applications involving tests of controls and substantive tests of transactions to improve the likelihood of selecting a representative sample.

Question 76

Haphazard and block sampling are often used in situations where the nature of the data makes the data more difficult to use a probabilistic sampling method.

Question 77

Deviation rate and tolerable deviation are used instead of exception rate when referring to tests of controls.

Question 78

When generating random numbers, the random numbers must be obtained with replacement.

Question 79

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

Question 80

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) tolerable exception rate.