Deck 17: Overview of Sampling

Question 1

An auditor is most likely to use statistical sampling under which of the following situations?

A)Random numbers can be associated with population items.
B)Strictly defensible results based on mathematics are not necessary.
C)The auditor has a very good knowledge of the population.
D)The population is very diverse with some segments especially prone to misstatement.

Answer 1

A

Question 2

Place the following steps in the sampling process in the order in which they are performed. 1 = Measure sample items
2 = Select sample items
3 = Define the population

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

Answer 2

D

Question 3

Which of the following is not an advantage of statistical sampling?

A)Statistical sampling provides auditors with a sufficient sample size that controls exposure to sampling risk.
B)Statistical sampling uses selection methods that expose all items in the population to selection.
C)Statistical sampling evaluates the sample evidence in such a manner that controls exposure to sampling risk.
D)Statistical sampling deploys audit procedures that all auditors to more effectively evaluate evidence.

Answer 3

D

Question 4

In which of the following situations would the use of sampling be most appropriate?

A)The need for precise information is less important.
B)The number of items comprising the population is smaller.
C)The likelihood of selecting a representative sample is relatively low.
D)The use of sampling would be appropriate in all of the above situations.

Question 5

Which of the following statements is true with regard to sampling?

A)Sampling can only be used in situations in which the population is relatively homogenous in nature.
B)Sampling is typically more efficient than examining the entire population.
C)Sampling is typically more effective than examining the entire population.
D)Sampling should be used when the need for more precise information is important.

Question 6

Why is defining the population so important in a sampling application?

A)To permit the auditor to select the appropriate type of substantive procedure.
B)To ensure that the results appropriately represent the entire population.
C)To reduce sampling risk to the appropriate level.
D)To allow the auditor to appropriately measure sample items.

Question 7

Which of the following would typically result in nonsampling risk?

A)Selecting a nonrepresentative sample.
B)Making a mistake in recording sample results.
C)Intentionally omitting several items in the population from examination.
D)None of the above result in nonsampling risk.

Question 8

The set of items about which a conclusion is made in a sampling application is referred to as a (n):

A)Sampling unit.
B)Sample.
C)Population unit.
D)Population.

Question 9

Which of the following types of sampling applications can appropriately be used under generally accepted auditing standards?

A)Statistical sampling: Yes; Nonstatistical sampling: Yes
B)Statistical sampling: Yes; Nonstatistical sampling: No
C)Statistical sampling: No; Nonstatistical sampling: Yes
D)Statistical sampling: No; Nonstatistical sampling: No

Question 10

Which of the following steps in the sampling process is ordinarily performed last?

A)Determine the objective of sampling.
B)Measure sample items.
C)Evaluate the sample results.
D)Define the characteristic of interest.

Question 11

Select the description that best illustrates sampling risk.

A)Applying audit procedures,which are inappropriate for the audit objectives.
B)Failing to recognize misstatements or deviations in the documents examined.
C)Arriving at incorrect statistical conclusions due to computational errors.
D)Choosing a sample which has proportionately more errors than the population.

Question 12

In which of the following types of sampling applications is the auditor exposed to sampling risk?

A)Statistical sampling: Yes; Nonstatistical sampling: Yes
B)Statistical sampling: Yes; Nonstatistical sampling: No
C)Statistical sampling: No; Nonstatistical sampling: Yes
D)Statistical sampling: No; Nonstatistical sampling: No

Question 13

Which of the following allow the auditor to limit the exposure to sampling risk?

A)Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: Yes
B)Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: No
C)Determining an appropriate sample size: No; Performing an appropriate audit procedure: Yes
D)Determining an appropriate sample size: No; Performing an appropriate audit procedure: No

Question 14

If a golf professional is interested in determining whether a golf ball can be hit over 300 yards,which of the following relationships between the adjusted sample estimate of distance and the actual distance would represent sampling risk?

A)Adjusted Estimate = 295 yards,Actual = 298 yards.
B)Adjusted Estimate = 305 yards,Actual = 301 yards.
C)Adjusted Estimate = 310 yards,Actual = 295 yards.
D)All of the above are examples of sampling risk.

Question 15

Nonsampling risk can occur in which of the following types of sampling plans:

A)Statistical sampling: Yes; Nonstatistical sampling: Yes
B)Statistical sampling: Yes; Nonstatistical sampling: No
C)Statistical sampling: No; Nonstatistical sampling: Yes
D)Statistical sampling: No; Nonstatistical sampling: No

Question 16

What is the primary drawback with respect to the use of sampling?

A)Individuals may fail to obtain a true understanding of the question they are examining.
B)The time spent in planning and selecting the sample may exceed the time savings from examining only a subset of the items.
C)The conclusion reached by examining a sample of items may differ from the conclusion that would be reached if the entire population were examined.
D)Sampling cannot be used to examine account balances that are material to the financial statements.

Question 17

The probability that an auditor's conclusion based on a sample might be different from the conclusion based on the entire population identifies the concept of:

A)Confidence levels.
B)Nonsampling risk.
C)Nonstatistical sampling.
D)Sampling risk.

Question 18

In sampling,an individual makes a statement about a _____ of interest by examining a _____ (or subset)of items

A)Sample; population.
B)Sampling unit; population.
C)Population; sample.
D)Population; sampling unit.

Question 19

Which of the following statements best describes nonstatistical sampling?

A)Nonstatistical sampling does not allow the auditor to measure the exposure to sampling risk.
B)Nonstatistical sampling only selects very large dollar items for examination.
C)Nonstatistical sampling should be used only in situations in which the auditor anticipates issuing a qualified or adverse opinion on the client's financial statements.
D)Nonstatistical sampling should be used when the auditor selects a substantive audit approach.

Question 20

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to:

A)Eliminate nonsampling risk.
B)Reduce the level of audit risk and overall materiality to a relatively low level.
C)Measure the sufficiency of the evidence gathered.
D)Minimize the failure to detect misstatements and irregularities.

Question 21

The type of sampling most frequently used by the auditors during their substantive procedures is referred to as:

A)Account balance sampling.
B)Attributes sampling.
C)Item sampling.
D)Variables sampling.

Question 22

While performing an audit of accounts receivable,Allen,CPA,found that the sample results supported the conclusion that the accounts receivable balance was materially misstated.However,the balance was,in fact,not materially misstated.This situation illustrates the risk of:

A)Incorrect rejection.
B)Incorrect acceptance.
C)Overreliance.
D)Underreliance.

Question 23

Which of the following most closely represents an unrestricted random selection procedure?

A)Identifying a starting point within the population and bypassing a fixed number of items.
B)Matching items in the population to a series of randomly-selected numbers.
C)Randomly selecting invoices to customers whose last names start with "W".
D)Randomly picking items from an accounts receivable file.

Question 24

If the upper limit rate of deviation exceeds the tolerable rate of deviation,the auditor would most likely:

A)Accept the account balance as fairly stated.
B)Reject the account balance as fairly stated.
C)Increase the planned effectiveness of substantive procedures.
D)Not increase the planned effectiveness of substantive procedures.

Question 25

Which of the following is not a criterion for using a selection method with statistical sampling?

A)The method provides a reasonable likelihood of selecting a representative sample.
B)The method allows the probability of selecting sample items to be determined.
C)The method specifically identifies each item in the population with a number.
D)The method allows the selection process to be replicated.

Question 26

A disadvantage of using a systematic random selection procedure is that:

A)This type of procedure does not permit the auditor to measure the exposure to sampling risk.
B)This type of procedure does not make all items available for selection.
C)This type of procedure requires that the population be arranged in a random order.
D)This type of procedure provides the auditor with a higher level of exposure to nonsampling risk compared to other selection procedures.

Question 27

The method of sample selection in which a random starting point is selected and a fixed number of items are bypassed prior to the next item being selected is referred to as:

A)Block selection.
B)Haphazard selection.
C)Systematic random selection.
D)Unrestricted random selection.

Question 28

After the auditor has defined the population to be examined,the next step would be to:

A)Define the characteristic of interest.
B)Select the sample items.
C)Determine the sample size.
D)Measure the sample items.

Question 29

The precision interval has a ____ percent probability of including the ____.

A)Sampling risk; adjusted sample estimate.
B)Sampling risk; true population value.
C)1 minus sampling risk; adjusted sample estimate.
D)1 minus sampling risk; true population value.

Question 30

In performing variables sampling,the auditor will conclude that the account balance is not materially misstated if the ____ is less than or equal to ____.

A)Upper limit on misstatement; tolerable misstatement.
B)Expected error; tolerable misstatement.
C)Tolerable misstatement; upper limit on misstatement.
D)Tolerable misstatement; expected error.

Question 31

Which of the following does not affect the sample size in an attributes sampling application?

A)Expected population deviation rate.
B)Upper limit rate of deviation.
C)Sampling risk.
D)Tolerable rate of deviation.

Question 32

A sample selection method in which a series of contiguous items are selected from the population is referred to as:

A)Block selection.
B)Haphazard selection.
C)Systematic random selection.
D)Unrestricted random selection.

Question 33

Which of the following sampling risks is associated with the use of variables sampling?

A)Risk of underreliance: Yes; Risk of incorrect rejection: Yes
B)Risk of underreliance: Yes; Risk of incorrect rejection: No
C)Risk of underreliance: No; Risk of incorrect rejection: Yes
D)Risk of underreliance: No; Risk of incorrect rejection: No

Question 34

A sample selection method in which items are selected in a nonsystematic manner is referred to as:

A)Block selection
B)Haphazard selection.
C)Systematic random selection.
D)Unrestricted random selection.

Question 35

Which of the following does not have a direct relationship with sample size?

A)Expected population deviation rate.
B)Population size.
C)Risk of overreliance.
D)All of the above have a direct relationship with sample size.

Question 36

Which of the following components of the audit risk model is most closely associated with variables sampling?

A)Audit risk.
B)Risk of material misstatement.
C)Detection risk.
D)Analytical procedures risk.

Question 37

Which of the following risks expose the auditor to effectiveness losses?

A)Risk of underreliance,risk of incorrect acceptance.
B)Risk of overreliance,risk of incorrect rejection.
C)Risk of underreliance,risk of incorrect rejection.
D)Risk of overreliance,risk of incorrect acceptance.

Question 38

Which of the following characteristics of substantive procedures is most closely associated with the use of sampling?

A)Extent of further audit procedures.
B)Nature of further audit procedures.
C)Timing of further audit procedures.
D)All of the above are closely associated with the use of sampling.

Question 39

Why is the auditor more concerned with the risk of overreliance rather than the risk of underreliance?

A)The risk of underreliance is not a type of sampling risk.
B)The risk of overreliance exposes the auditor to an efficiency loss.
C)The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures.
D)The risk of overreliance cannot be measured by the auditor during the sampling process.

Question 40

In the study of internal control,the auditor uses sampling to compare the _____________to the ______________.

A)Adjusted estimate of misstatement; overall materiality.
B)Sampling risk; precision.
C)Adjusted estimate of the deviation rate; tolerable rate of deviation.
D)Precision interval; upper limit on misstatement.

Question 41

The upper limit on misstatement is:

A)An adjustment of the sample estimate of misstatement to reflect the desired level of sampling risk.
B)An adjustment of the sample deviation rate to reflect the desired level of sampling risk.
C)The maximum rate of deviation that could exist before auditors would reduce the reliance on an internal control.
D)The maximum misstatement that could exist before auditors would conclude that the account balance is not fairly stated.

Question 42

Which of the following activities is least likely to result in the audit team's exposure to sampling risk?

A)Identifying all components of a client's accounts receivable balance.
B)Determining the appropriate number of components of a client's accounts receivable balance for confirmation.
C)Selecting components of a client's accounts receivable balance for confirmation.
D)Evaluating confirmations returned from the client's customers and following up on any discrepancies noted by the customers.

Question 43

Which of the following sample selection techniques can be used with statistical sampling applications?

Question 44

Which of the following would be an example of an action that exposes an auditor to nonsampling risk?

A)The audit team draws a sample of transactions from throughout the entire period under audit.
B)The audit team uses an inappropriate type of audit procedure to evaluate sample evidence.
C)The audit team uses professional judgment in evaluating sample results.
D)The audit team limits the selection of sample items to larger dollar balances in an account.

Question 45

When the auditor concludes that the account balance is not materially misstated when,in fact,it is materially misstated,the auditor has committed the:

A)Risk of underreliance.
B)Risk of overreliance.
C)Risk of incorrect acceptance.
D)Risk of incorrect rejection.

Question 46

Which of the following is not true with respect to the use of statistical and nonstatistical sampling?

A)Statistical sampling allows the auditor to quantitatively measure the sufficiency of evidence gathered.
B)Statistical sampling does not require auditors to utilize extensive judgment during the sampling process.
C)Statistical sampling allows the auditor to make quantitative statements with respect to the results of the sampling procedures.
D)Both statistical and nonstatistical sampling are permissible under generally accepted auditing standards.

Question 47

Why does the risk of incorrect rejection result in an efficiency loss to the auditor?

A)Additional time is necessary to propose adjustments to the client's account balances.
B)The auditor typically expands the sample to examine additional components or transactions of the account balance.
C)More detailed audit procedures are performed on sample items already examined by the auditor.
D)The auditor typically extends the study of internal control to attempt to obtain a reduction in the level of risk of material misstatement.

Question 48

Which of the following situations is true with respect to sampling?

A)Sampling results in a tradeoff of efficiency for greater effectiveness.
B)Sampling is most useful when the need for exact information is very important.
C)A well-designed sample can appropriately limit the exposure to nonsampling risk.
D)Sampling is more appropriate when the number of items comprising the population is relatively large.

Question 49

Which of the following is not correct with respect to sample size?

A)In a statistical sampling application,the determination of sample size is used to control the auditor's exposure to sampling risk.
B)As the desired level of sampling risk decreases,the necessary sample size decreases.
C)Auditors determine sample size after defining the characteristic of interest and the population of interest.
D)As the expected misstatement (or expected rate of deviation)increases,the necessary sample size increases.

Question 50

Assume that the audit team wishes to determine the extent to which a particular control policy was functioning as intended.Identifying applications of the control throughout the period under audit would be most closely related to which of the following steps in sampling?

A)Determining the objective of sampling.
B)Defining the characteristic of interest.
C)Defining the population.
D)Determining the sample size.

Question 51

When examining the client's internal control,what is the relationship of each of the following with sample size?

Question 52

Which of the following is the least likely outcome when the upper limit on misstatement exceeds the tolerable misstatement?

A)The auditor would be exposed to the risk of incorrect rejection.
B)The auditor would be exposed to an efficiency loss.
C)The auditor would consider expanding the sample to evaluate additional transactions or components of the account balance.
D)The auditor would conclude that the account balance is fairly stated.

Question 53

In which of the following circumstances would the auditor most likely use variables sampling?

A)Identifying the susceptibility of the account balance to misstatement.
B)Evaluating the operating effectiveness of specific control procedures.
C)Evaluating the operating design of specific control procedures.
D)Determining whether the client's accounts receivable balance is correctly recorded.

Question 54

Why is appropriately defining the population so important in a sampling application?

A)To permit the appropriate number of sample items to be selected.
B)To ensure that the appropriate audit procedures can be applied to sample items.
C)To enhance the likelihood of obtaining a representative sample and meet the objective of the sampling application.
D)To reduce the likelihood of failing to identify material misstatements in an account balance or class of transactions.

Question 55

Which of the following is the most likely outcome when the upper limit rate of deviation is less than the tolerable rate of deviation?

A)The auditor would be exposed to the risk of overreliance.
B)The auditor would decide to reduce the planned degree of reliance on internal control.
C)The auditor would increase the extent of further audit procedures.
D)The auditor would be exposed to a potential efficiency loss.

Question 56

The maximum rate of deviation that may exist in the operation of a control policy or procedure before the auditors would reduce reliance on internal control is referred to as:

A)Acceptable rate of deviation.
B)Control risk.
C)Tolerable rate of deviation.
D)Upper limit rate of deviation.

Question 57

Which of the following has a direct relationship with sample size in a variables sampling application?

A)Tolerable misstatement: Yes; Expected error: Yes
B)Tolerable misstatement: Yes; Expected error: No
C)Tolerable misstatement: No; Expected error: Yes
D)Tolerable misstatement: No; Expected error: No

Question 58

Which of the following actions can be used to control the audit team's exposure to sampling risk?

Question 59

Which of the following is not true with respect to the risk of incorrect acceptance?

A)It results in an efficiency loss to the auditor.
B)It occurs when the auditor's sample indicates that the account balance is fairly stated.
C)It occurs when the true misstatement in the account balance exceeds tolerable misstatement.
D)The auditor can measure the exposure to this risk when using statistical sampling applications.

Question 60

When considering the results of an attributes sampling application,the auditor compares which of the following two measures?

A)Upper limit rate of deviation; sample rate of deviation.
B)Tolerable rate of deviation; sample rate of deviation.
C)Expected rate of deviation; upper limit rate of deviation.
D)Upper limit rate of deviation; tolerable rate of deviation.

Question 61

All of the following are advantages of statistical sampling except:

A)Statistical sampling eliminates the auditors' exposure to nonsampling risk.
B)Statistical sampling allows the probability of selecting sample items to be determined.
C)Statistical sampling allows the sample selection process to be replicated.
D)Statistical sampling increases the likelihood of selecting a representative sample.

Question 62

All of the following are correct regarding variables sampling,except:

A)Variables sampling is used to examine a population when auditors want to estimate the amount (or value)of some characteristic of that population.
B)The risk of incorrect rejection is of more concern to auditors than the risk of incorrect acceptance.
C)Auditors can use either statistical or nonstatistical sampling approaches to variables sampling.
D)To determine if an account balance is fairly stated,auditors compare the adjusted sample estimate of the misstatement to the tolerable misstatement.

Question 63

Documentation is required during which of the following stages of the sampling process?

Question 64

Which of the following sampling activities is not performed during the planning stage of the audit?

A)Define the population.
B)Determine the sample size.
C)Determine the objective of sampling.
D)Define the characteristic of interest.

Question 65

An auditor using variables sampling to perform substantive procedures concludes that the account balance is misstated.This conclusion is the result of which of the following?

A)The actual rate of deviation is greater than the tolerable rate of deviation.
B)The upper limit on misstatement is less than the tolerable misstatement.
C)The upper limit rate of deviation is less than the tolerable rate of deviation.
D)The upper limit on misstatement is greater than the tolerable misstatement.

Question 66

The audit team decided to reduce planned reliance on internal controls based on the results of attributes sampling.However,the actual rate of deviation in the population is lower than the tolerable rate of deviation.Which type of risk and loss is the audit team exposed to?

A)Risk of overreliance; efficiency loss.
B)Risk of underreliance; effectiveness loss.
C)Risk of overreliance; effectiveness loss.
D)Risk of underreliance; efficiency loss.

Question 67

Tests performed by auditors that examine evidence for both control attributes and monetary misstatements are known as:

A)Standard-purpose tests.
B)Multi-function tests.
C)Dual-purpose tests.
D)Substantive tests.

Question 68

Auditors use attributes sampling in assessing the effectiveness of a client's internal controls to determine:

A)The extent to which internal controls are operating as intended to prevent or detect misstatements.
B)The degree of inherent risk associated with various account balances or classes of transactions.
C)The degree of risk present in the client's business environment.
D)The accuracy of the client's account balances or classes of transactions.

Question 69

Which of the following statements about audit sampling risks is correct?

A)Nonsampling risk arises from the possibility that,when a substantive test is related to a sample of items,conclusions might be different than if the auditor had tested each item in the population.
B)Nonsampling risk can arise because an auditor failed to recognize misstatements.
C)Sampling risk is derived from the uncertainty in applying audit procedures to specific risks.
D)Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective.

Question 70

When evaluating the effectiveness of a client's internal controls with a tolerable rate of deviation of 5 percent,the audit team determined the upper limit rate of deviation to be 4 percent.Based on this information,which of the following decisions would the audit team most likely make?

A)Reduce the planned degree of reliance on internal controls.
B)Increase the extent of further audit procedures.
C)Rely on internal controls as planned.
D)Expand the sample to examine additional applications of the control.

Question 71

An auditor is determining the appropriate sample size for a variables sampling application.Compared to prior engagements,the auditor concludes that the population variability has increased.In addition,the partner on the engagement is requiring lower levels of the risk of incorrect acceptance than those used in previous audits.What effect will these changes have on the auditor's determination of sample size?

A)Both of these changes will decrease sample size.
B)The increase in population variability will increase sample size; reducing sampling risk will have no effect on sample size.
C)The increase in population variability will increase sample size; reducing sampling risk will decrease sample size.
D)Both of these changes will increase sample size.

Question 72

Selecting the first five sales orders processed each month for examination is an example of which of the following types of selection method?

A)Unrestricted random selection
B)Systematic random selection
C)Haphazard selection
D)Block selection

Question 73

An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance.This is an example of which of the following types of sampling risks?

A)Incorrect rejection.
B)Incorrect acceptance.
C)Overreliance.
D)Underreliance.

Question 74

While performing an audit of accounts payable,Clayton,CPA,is using variables sampling to determine the audited value of the account based on selected purchase orders.Which of the following options is most likely to reduce the necessary sample size?

A)A decrease in the level of tolerable misstatement.
B)An increase in the expected level of misstatement.
C)An increase in the variability of the size of accounts payable transactions.
D)An increase in the necessary risk of incorrect acceptance.

Question 75

Which of the following appropriately describes the effect of sample size on sampling risk?

A)Selecting a smaller sample decreases sampling risk.
B)Selecting a larger sample increases sampling risk.
C)Selecting a smaller sample increases sampling risk.
D)The size of a sample is unrelated to sampling risk.

Question 76

In a sampling application to determine the average age of employees in management positions,the sample estimate was 50 years,reliability was 80 percent,and precision was 10 years.Which of the following would most likely result from an increase in the desired level of reliability to 90 percent?

A)The sample estimate would increase to 55 years.
B)The precision interval would be 40 to 60 years.
C)The precision interval would be 35 to 65 years.
D)The precision interval would have a lower probability of including the true (unknown)population average.

Question 77

An auditor is reviewing a sample of cash disbursements to ensure that the appropriate supporting documents were received prior to payment.Which type of sampling approach would the auditor use to perform this test?

A)Collective sampling.
B)Attributes sampling.
C)Variables sampling.
D)Quality sampling.

Question 78

Which of the following statements is true about haphazard selection?

A)Under haphazard selection,bias in selecting items (either conscious or unconscious)often exists.
B)Haphazard selection can be described in sufficient detail to allow sample selection to be replicated by others.
C)Under haphazard selection,the items are selected in an unstructured and careless manner.
D)Haphazard selection allows individuals to measure the probability of selecting sample items.

Question 79

Based on the results of attributes sampling,the audit team assessed control risk too low and did not modify the nature,timing,and extent of its further audit procedures to reduce detection risk.This situation would most likely result in a(n):

A)Higher level of audit risk than planned.
B)Lower level of inherent risk.
C)Greater efficiency loss.
D)Lower effectiveness loss.

Question 80

For which of the following audit tests would an auditor most likely use attributes sampling?

A)Inspecting purchase orders for proper approval by supervisors.
B)Making an independent estimate of recorded payroll expense.
C)Determining that all payables are recorded at year end.
D)Selecting accounts receivable for confirmation of account balances.