Deck 8: Audit Sampling: An Overview and Application to Tests of Controls

Question 1

An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the entity's internal control procedures.One of the checks in the chosen sample of 20 cannot be found.The auditor should consider the reasons for this limitation and

A) evaluate the results as if the sample size had been 19.
B) treat the missing check as a deviation for the purpose of evaluating the sample.
C) treat the missing check in the same manner as the majority of the other 19 checks (i.e., countersigned or not).
D) choose another check to replace the missing check in the sample.

Answer 1

B

Question 2

Audit sampling is commonly used to gather scanning audit evidence.

Answer 2

False

Question 3

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

A) Making an independent estimate of the amount of LIFO inventory.
B) Examining invoices in support of the valuation of fixed asset additions.
C) Selecting accounts receivable balances for confirmation.
D) Inspecting employee time cards for proper approval by supervisors.

Answer 3

D

Question 4

The larger the sample,the lower the confidence level and the lower the sampling risk.

Question 5

Harvey Jones,CPA,uses statistical sampling to test control procedures.What is a benefit of using statistical sampling?

A) It provides a means of mathematically measuring the sampling risk that result from examining only a part of the data.
B) It eliminates the use of judgment required of Jones because the AICPA has established numerical criteria for this type of testing.
C) It increases Jones' knowledge of the entity's prescribed procedures and their limitations.
D) It is required by generally accepted auditing standards.

Question 6

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

A) does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment.
B) contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes.
C) contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole.
D) does not support the tolerable misstatement for some or all of management's assertions.

Question 7

Jones,CPA,believes the industry-wide deviation rate of client billing errors is 3% and has established a tolerable deviation rate of 5%.In the review of client invoices,Jones should use

A) discovery sampling.
B) attributes sampling.
C) stratified sampling.
D) variables sampling.

Question 8

Confidence level is the complement of sampling risk.

Question 9

Auditing standards permit both statistical and nonstatistical methods of audit sampling.

Question 10

Audit sampling is commonly used to gather confirmation audit evidence.

Question 11

With a nonstatistical sampling application,the auditor relies on professional judgment rather than the laws of probability to reach a conclusion about the audit test.

Question 12

In addition to evaluating the frequency of deviations in tests of controls,an auditor should also consider certain qualitative aspects of the deviations.The auditor most likely would give broader consideration to the implications of a deviation if it was

A) the only deviation discovered in the sample.
B) identical to a deviation discovered during the prior year's audit.
C) caused by an employee's oversight.
D) initially concealed by a forged document.

Question 13

The tolerable deviation rate for a test of controls is generally

A) lower than the expected rate of deviations in the related accounting records.
B) higher than the expected rate of deviations in the related accounting records.
C) identical to the expected rate of deviations in the related accounting records.
D) unrelated to the expected rate of deviations in the related accounting records.

Question 14

Confidence level and sampling risk are related to sample size.

Question 15

A Type I error is the risk of incorrect acceptance.

Question 16

A Type II error is the risk of incorrect acceptance.

Question 17

An underlying feature of random-based selection of items is that each

A) stratum of the accounting population be given equal representation in the sample.
B) item in the accounting population be randomly ordered.
C) item in the accounting population should have an opportunity to be selected.
D) item must be systematically selected using replacement.

Question 18

Which of the following best illustrates the concept of sampling risk?

A) A randomly chosen sample may not be representative of the population as a whole (regarding the characteristic being tested).
B) An auditor may select audit procedures that are not appropriate to achieve the specific objective.
C) An auditor may fail to recognize errors in the documents examined for the chosen sample.
D) The documents related to the chosen sample may not be available for inspection.

Question 19

Attribute sampling is used to estimate the proportion of a population that possesses a specified characteristic.

Question 20

The risk of incorrect acceptance relates to the

A) effectiveness of the audit.
B) efficiency of the audit.
C) preliminary estimates of materiality levels.
D) tolerable misstatement.

Question 21

If the expected deviation rate exceeds the tolerable deviation rate,the auditor is most likely to

A) have a large sample size.
B) set control risk at the maximum without sampling.
C) set control risk at the minimum without sampling.
D) pick a lower risk of assessing control risk too low to increase sample size.

Question 22

In determining the sample size for a test of controls,an auditor should consider the expected deviation rate,desired confidence level,and the

A) tolerable deviation rate.
B) risk of incorrect acceptance.
C) nature and cause of deviations.
D) population size.

Question 23

As a result of tests of controls,an auditor over relied on internal control and decreased substantive testing.This overreliance occurred because the true deviation rate in the population was

A) less than the risk of assessing control risk too low on the auditor's sample.
B) less than the deviation rate in the auditor's sample.
C) more than the risk of assessing control risk too low on the auditor's sample.
D) more than the deviation rate in the auditor's sample.

Question 24

In which of the following cases would the auditor be most likely to conclude that all of the items in an account under consideration should be examined rather than tested on a sample basis?

A) Tolerable deviation is large and expected deviation is low.
B) Tolerable deviation is small and expected deviation is high.
C) Tolerable deviation is large and expected deviation is high.
D) Tolerable deviation is small and expected deviation is low.

Question 25

Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of controls?

A) Number of items in the population.
B) Total dollar amount of the items to be sampled.
C) Desired confidence level.
D) Risk of assessing control risk too high.

Question 26

A control is deemed to be more important than thought at the time that attributes sampling parameters were set.The auditor is most likely to respond by

A) decreasing the risk of assessing control risk too high.
B) increasing population size.
C) decreasing the tolerable deviation rate.
D) decreasing the expected deviation rate.

Question 27

For an attributes sampling plan,the tolerable deviation rate is 4.5%,the computed upper deviation rate is 7%,the sample deviation rate is 3%,and the desired confidence level is 95%.What is the allowance for sampling risk included in the computed upper deviation rate?

A) 1.5%.
B) 3%.
C) 4%.
D) 5%.
The computed upper deviation rate includes the sample deviation rate and the allowance for sampling risk. Therefore, if we subtract the sample deviation rate from the computed upper deviation rate, the difference is the achieved allowance for sampling risk, or 4% (7% - 3%).

Question 28

Auditors who prefer statistical sampling to nonstatistical sampling may do so because statistical sampling helps the auditor

A) measure the sufficiency of the evidential matter obtained.
B) eliminate subjectivity in the evaluation of sampling results.
C) reduce the level of tolerable misstatement to a relatively low amount.
D) minimize the failure to detect a material misstatement due to nonsampling risk.

Question 29

Which of the following statements is correct concerning statistical sampling in compliance testing?

A) The population size has little or no effect on determining sample size except for very small populations.
B) The expected population deviation rate has little or no effect on determining sample size except for very small populations.
C) As the population size doubles, the sample size also should double.
D) For a given tolerable deviation rate, a larger sample size should be selected as the expected population deviation rate decreases.

Question 30

If auditors conducting attributes sampling found that the entity deviated from a prescribed control in nine of the first 10 items examined,the auditor is most likely to

A) increase sample size.
B) increase the computed upper deviation rate.
C) decrease the tolerable deviation rate.
D) stop the test and increase control risk.

Question 31

When testing automated IT controls,the auditor is most likely to do all of the following except:

A) examine the IT software.
B) increase sample size because the tolerable deviation rate tends to be higher for automated IT controls.
C) test one or a few of each type of transaction.
D) test general controls over system and program changes.

Question 32

An auditor is testing internal control procedures that are evidenced on an entity's vouchers.To select the vouchers for testing,the auditor obtains random numbers between the first and last voucher number in the period.If a random number matches the number of avoided voucher,that voucher ordinarily should be replaced by another voucher in the random sample if the voucher

A) constitutes a deviation.
B) has been properly voided.
C) cannot be located.
D) represents an immaterial dollar amount.

Question 33

Statistical sampling provides a technique for

A) exactly defining materiality.
B) greatly reducing the amount of substantive testing.
C) eliminating judgment in testing.
D) measuring the sufficiency of evidential matter.

Question 34

In attributes sampling,a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample?

A) Population size.
B) Tolerable deviation rate.
C) Expected population deviation rate.
D) Standard deviation.

Question 35

As a result of tests of controls,an auditor incorrectly assessed control risk too low and decreased substantive testing.This assessment occurred because the true deviation rate in the population was

A) more than the risk of assessing control risk too low based on the auditor's sample.
B) more than the deviation rate in the auditor's sample.
C) less than the risk of assessing control risk too low based on the auditor's sample.
D) less than the deviation rate in the auditor's sample.

Question 36

In attributes sampling,population size has little or no effect on sample size once the population exceeds approximately

A) 1,000.
B) 5,000.
C) 100,000.
D) 1,000,000.

Question 37

Which of the following best describes the distinguishing feature of statistical sampling?

A) It requires the examination of a smaller number of supporting documents.
B) It provides a means for measuring mathematically the degree of uncertainty that results from examining only part of a population.
C) It reduces the problems associated with the auditor's judgment concerning materiality.
D) It is evaluated in terms of two parameters: statistical mean and random selection.

Question 38

The computed upper deviation rate is

A) the maximum rate of deviations that the auditor is willing to accept before deciding not to rely on the control.
B) the rate of deviations that the auditor expects to occur in the population.
C) a point estimate of the population deviation rate.
D) the sum of the sample deviation rate and an appropriate allowance for sampling risk.

Question 39

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

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

Question 40

Based on a 5% risk of assessing control risk too low,how would an auditor interpret a computed upper deviation rate of 7%?

A) The auditor is willing to accept a deviation rate of 7% before deciding not to rely on the control.
B) There is a 5% chance that the deviation rate in the population is less than 7%.
C) There is a 5% chance that the deviation rate in the population exceeds 7%.
D) There is a 95% chance that the deviation rate in the population equals 7%.

Question 41

"Computer assisted audit techniques and big data analysis have steadily reduced the number of situations in which audit sampling is necessary and,in the future,will probably eliminate the need for auditors to rely on sampling." Defend or refute the preceding statement.

Question 42

The term precision relates to

A) the difference between confidence level and estimated error.
B) the difference between confidence level and tolerable error.
C) the difference between expected and tolerable deviation rate.
D) the difference between expected and sample deviation rate.

Question 43

If the size of the sample to be used in a particular test of controls has not been determined by utilizing statistical concepts,but the sample has been chosen in accordance with random selection procedures

A) no inferences can be drawn from the sample.
B) the auditor has committed a nonsampling error.
C) depending on the size of the sample chosen, the auditor may actually achieve desired precision.
D) the auditor will have to evaluate the results by reference to the principles of discovery sampling.

Question 44

Which of the following risks is related to effectiveness of testing?

A) The risk of incorrect rejection.
B) Inherent risk.
C) The risk of incorrect acceptance.
D) None of these.

Question 45

For attributes sampling,of the three factors that enter into sample size determination,which two factors can the auditor adjust to reflect the importance of the control?

A) Tolerable deviation rate and confidence level.
B) Expected deviation rate and confidence level.
C) Population size and tolerable deviation rate.
D) Tolerable deviation rate and expected deviation rate.

Question 46

An auditor who uses statistical sampling for attributes in testing internal controls is most likely to reduce the planned reliance on a prescribed control when the

A) sample deviation rate plus the allowance for sampling risk equals the tolerable deviation rate.
B) sample deviation rate is less than the expected population deviation rate used in planning the sample.
C) tolerable deviation rate less the allowance for sampling risk exceeds the sample deviation rate.
D) sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

Question 47

An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

A) afford greater assurance than a nonstatistical sample of equal size.
B) provide an objective basis for quantitatively evaluating sample risks.
C) can more easily convert the sample into a dual-purpose test useful for substantive testing.
D) eliminate the need to use judgment in determining appropriate sample sizes.

Question 48

Audit sampling is commonly used for which type of audit evidence?

A) Reperformance.
B) Analytical procedures.
C) Inquiry.
D) Observation.

Question 49

Define Type I and Type II errors.

Question 50

In nonstatistical sampling for tests of controls,increasing the desired confidence level results in a

A) higher tolerable deviation rate.
B) lower expected deviation rate.
C) larger sample size.
D) smaller sample size.

Question 51

Which of the following risks is related to efficiency of testing?

A) The risk of incorrect rejection.
B) Inherent risk.
C) The risk of incorrect acceptance.
D) None of these.

Question 52

Why must an auditor use sampling? What tradeoffs occur when an auditor uses sampling?

Question 53

Which of the following statements is correct concerning statistical sampling in tests of controls?

A) As the population size increases, the sample size should increase proportionately.
B) Deviations from specific internal control procedures at a given rate ordinarily result in misstatements at a lower rate.
C) There is an inverse relationship between the expected population deviation rate and the sample size.
D) In determining tolerable deviation rate, an auditor considers detection risk and the sample size.

Question 54

Audit sampling is not used for which type of audit evidence?

A) Inquiry.
B) Inspection of tangible assets.
C) Reperformance.
D) Confirmation.

Question 55

For a large population of cash disbursement transactions,Smith,CPA is testing controls by using attribute sampling techniques.Anticipating an expected deviation rate of 3 percent,Smith found from a table that the required sample size is 400 with a tolerable deviation rate of 5 percent and a desired confidence level of 95 percent.If Smith anticipated an expected deviation rate of only 2 percent but wanted to maintain the same tolerable deviation rate and confidence level,the sample size would be closest to

A) 200.
B) 400.
C) 533.
D) 800.

Question 56

When performing a test of controls with respect to control over cash receipts,an auditor may use a systematic sampling technique with a start at any randomly selected item.The biggest disadvantage of this type of sampling is that the items in the population

A) must be systematically replaced in the population after sampling.
B) may systematically occur more than once in the sample.
C) must be recorded in a systematic pattern before the sample can be drawn.
D) may occur in a systematic pattern, thus destroying the sample randomness.

Question 57

Define sampling risk and nonsampling risk.

Question 58

Which of the following combinations guarantees a larger sample size?

A) Decrease the desired confidence level and decrease the tolerable deviation rate.
B) Increase the desired confidence level and decrease the tolerable deviation rate.
C) Decrease the desired confidence level and increase the expected deviation rate.
D) Increase the tolerable deviation rate and increase the expected deviation rate.

Question 59

To determine the sample size for a test of controls,an auditor should consider the tolerable deviation rate,the desired confidence level,and the

A) expected population deviation rate.
B) computed upper precision limit.
C) risk of assessing control risk too high.
D) risk of incorrect rejection.

Question 60

For an attributes sampling plan,the tolerable deviation rate is 4%,the computed upper deviation rate is 7%,the sample deviation rate is 3%,and the risk of assessing control risk too low is 5%.Which of the following is true?

A) The auditor must increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate.
B) The auditor is likely to increase control risk because the risk of assessing control risk too low is greater than the tolerable deviation rate.
C) The auditor must increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate.
D) The auditor is likely to increase control risk because the computed upper deviation rate is greater than the tolerable deviation rate.

Question 61

Your manager,Sally,believes that nonstatistical sampling is the best method to use on the audit of YaYa Corporation.You,however,believe that statistical sampling is by far the better method.In addition,you have a great deal of training in the proper use of sampling techniques.Prepare an argument to convince Sally why statistical sampling should be used.

Question 62

Your uncle Bob,a CPA,has recently started auditing and he wants your advice on some tests of sales transactions he is conducting.Bob selected a haphazard sample of 15 sales with a total book value of $75,000.In his sample,he found a total of $500 in net overstatement errors.The total sales balance per book is $10,000,000.Overall materiality for the engagement is $300,000.Tolerable misstatement for sales is $70,000.If the sample results indicate that Bob's best estimate of total misstatement in sales is $35,000,can Bob safely conclude that no additional work is needed in this area? Include in your answer a clear discussion of how sample results are compared to tolerable misstatement.

Question 63

Indicate which of the following audit procedures,used as tests of controls,do not involve audit sampling.
1.Observing and evaluating segregation of duties.
2.Testing of whether sales invoices are supported by authorized customer orders and shipping documents.
3.Reviewing entity's procedures for accounting for the numerical sequence of shipping documents.
4.Examining sales orders for proper credit approval.
5.Recomputing the information on copies of sales invoices.
6.Comparing the average days outstanding in accounts receivable with industry averages.

Question 64

Identify the types of audit evidence that are tested using audit sampling techniques.

Question 65

For a particular audit,the sample size for testing controls over the revenue cycle is relatively large.What can you infer about the desired confidence level,the tolerable deviation rate,and the expected population deviation rate?

Question 66

Before performing sampling procedures in an audit of controls,Sue set the tolerable deviation rate at 4.0%.After the procedures,she computes a computed upper deviation rate of 5.4%.What can Sue conclude about the entity's controls?

Question 67

When determining the sample size of accounts receivable to test,what are three factors that are important for you to consider?