Deck 17: Audit Sampling for Tests of Details and Balances

Question 1

Which of the following does not have to be considered in determining the initial sample size of a test of details?

A) tolerable misstatement
B) acceptable risk of incorrect rejection
C) estimate of misstatements in the population
D) acceptable audit risk

Answer 1

B

Question 2

If acceptable audit risk is increased, acceptable risk of incorrect acceptance should be:

A) increased.
B) reduced.
C) unaffected.
D) modified.

Answer 2

A

Question 3

The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is:

A) inverse.
B) direct.
C) proportional.
D) indeterminate.

Answer 3

A

Question 4

Tests for rates of occurrence are appropriately used in all but which of the following situations?

A)
B)
C)
D)

Question 5

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is:

A) the upper bound.
B) the tolerable risk.
C) the acceptable risk of incorrect acceptance.
D) the lower bound.

Question 6

What is the purpose of applying stratified sampling to a population?

A)
B)
C)
D)

Question 7

In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is:

A) direct.
B) inverse.
C) varied.
D) indeterminable.

Question 8

Both sampling and nonsampling risks are associated with:

A)
B)
C)
D)

Question 9

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will:

A) decrease.
B) increase.
C) vary based on characteristics of the population.
D) be unaffected.

Question 10

The final step in the evaluation of the audit results is the decision to:

A) accept the population as fairly stated or to require further action.
B) determine sampling error and calculate the estimated total population error.
C) project the point estimate.
D) determine the error in each sample.

Question 11

If an auditor concludes that internal controls are likely to be effective, the preliminary assessment of control risk can be reduced, leading to which of the following impacts on the acceptable risk of incorrect acceptance?

A) reduction in
B) increase in
C) elimination of
D) increase or decrease

Question 12

When selecting a sample size for substantive tests of balances which factor, other factors being equal, would result in a larger sample?

A) smaller tolerable misstatement
B) small expected misstatements
C) greater tolerable misstatement
D) greater expected misstatement

Question 13

If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance:

A) is reduced.
B) is increased.
C) is not changed.
D) may be reduced or increased depending upon other circumstances.

Question 14

The acceptable risk of incorrect acceptance is most related to:

A) audit efficiency.
B) audit results.
C) audit effectiveness.
D) audit estimation.

Question 15

The auditors principal objective when using a sample of tests of details of balances is whether the:

A) account balance being audited is fairly stated.
B) transactions being audited are free of misstatements.
C) controls being tested are operating effectively.
D) transactions and account balances being audited are fairly stated.

Question 16

You are auditing Raji and Company. You discover an item of inventory with an audited value of $5,000 with a recorded amount of $3,000. If this is the only error you discover the projected misstatement for the sample would be:

A) $5,000
B) $2,000
C) $3,000
D) $4,000

Question 17

In estimating the population misstatement, the first step in projecting from the sample to the population is to:

A) make a point estimate.
B) revise the upper error bound.
C) calculate the precision interval.
D) determine the population mean.

Question 18

An auditor using nonstatistical sampling cannot formally measure sampling error and therefore must subjectively consider the possibility that the true population misstatement exceeds a tolerable amount. Which of the following factors should be considered by the auditor in making this assessment?

A)
B)
C)
D)

Question 19

Tolerable misstatement is used to:

A)
B)
C)
D)

Question 20

The most important difference among tests of controls, substantive tests of transactions, and tests of details of balances lies in what the auditor wants to measure. Explain what each type of test attempts to measure.

Question 21

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was not materially misstated. It was, in fact, materially misstated. This situation illustrates the risk of:

A) incorrect rejection.
B) incorrect acceptance.
C) assessing control risk too low.
D) assessing control risk too high.

Question 22

Based on the information presented above, you are to indicate for the specified case from the table the required sample size to be selected from population 1 relative to the sample from population 2. In case 1, the required sample from population 1 is:

A) larger than the required sample size from population 2.
B) equal to the required sample size from population 2.
C) smaller than the required sample size from population 2.
D) indeterminate relative to the required sample size from population 2.

Question 23

Based on the information presented above, you are to indicate for the specified case from the table the required sample size to be selected from population 1 relative to the sample from population 2. In case 3, the required sample from population 1 is:

A) larger than the required sample size from population 2.
B) equal to the required sample size from population 2.
C) smaller than the required sample size from population 2.
D) indeterminate relative to the required sample size from population 2.

Question 24

Based on the information presented above, you are to indicate for the specified case from the table the required sample size to be selected from population 1 relative to the sample from population 2. In case 5, the required sample from population 1 is:

A) larger than the required sample size from population 2.
B) equal to the required sample size from population 2.
C) smaller than the required sample size from population 2.
D) indeterminate relative to the required sample size from population 2.

Question 25

There are 14 steps to audit sampling for details of balances, divided into three sections: plan the sample, select the sample and perform the audit procedures, and evaluate the results. Discuss each of the steps included in the "evaluate the results" section for nonstatistical sampling.

Question 26

The appropriate assumption to make regarding the overall percent of error in those population items containing an error is:

A) determined using random number tables.
B) set after a quantitative analysis of client's internal control system.
C) based on the auditor's personal judgment in the circumstances.
D) based on statistical analysis using confidence limits.

Question 27

When selecting a stratified sample, the sample size is:

A) determined for the unstratified population and then apportioned to each stratum.
B) determined for each stratum and selected from that stratum.
C) determined for each stratum and selected randomly from the entire unstratified population.
D) always larger than if unstratified sampling had been used.

Question 28

When errors are found in a sample, auditors in practice generally make the assumption:

A) of a 100% assumption for all errors.
B) that the population errors are larger than the sample errors.
C) that the population errors are smaller than the sample errors.
D) that the actual sample errors are representative of the population errors.

Question 29

Identify each of the seven factors that influence sample size for nonstatistical tests of details of balances, and state whether each factor is directly or inversely related to sample size.

Question 30

The client's trial balance has a balance of $410,000 for merchandise inventory. As the auditor you are willing to accept a balance that is within $20,000 of either side of the recorded balance. You compute a 95% confidence interval of $395,000 to $425,000. You could therefore:

A) reject the trial balance amount.
B) accept the trial balance amount.
C) increase the sample size to assure more precision.
D) use alternative audit procedures to satisfy yourself as to the correct balance.

Question 31

There are 14 steps to audit sampling for details of balances, divided into three sections: plan the sample, select the sample and perform the audit procedures, and evaluate the results. Discuss 5 of the 9 steps included in the "plan the sample" section for nonstatistical sampling.

Question 32

Which of the following does not need to be considered when the auditor generalizes from the sample to the population?

A)
B)
C)
D)

Question 33

Based on the information presented above, you are to indicate for the specified case from the table the required sample size to be selected from population 1 relative to the sample from population 2. In case 4, the required sample from population 1 is:

A) larger than the required sample size from population 2.
B) equal to the required sample size from population 2.
C) smaller than the required sample size from population 2.
D) indeterminate relative to the required sample size from population 2.

Question 34

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. Which of the following is the least likely auditor reaction to this discovery?

A) Perform expanded audit tests in the relevant areas
B) Increase detection risk in the relevant areas
C) Increase the sample size
D) Take no action until tests of other audit areas are completed

Question 35

Consider the steps in sampling for tests of details and for tests of controls. Explain the differences in applying sampling to these two types of tests.

Question 36

Based on the information presented above, you are to indicate for the specified case from the table the required sample size to be selected from population 1 relative to the sample from population 2. In case 2, the required sample from population 1 is:

A) larger than the required sample size from population 2.
B) equal to the required sample size from population 2.
C) smaller than the required sample size from population 2.
D) indeterminate relative to the required sample size from population 2.

Question 37

What is the primary objective of using stratified sampling in auditing?

A) To increase the confidence level at which a decision will be reached from the results of the sample selected.
B) To determine the occurrence rate for a given characteristic in the population being studied.
C) To decrease the effect of variance in the total population.
D) To determine the precision range of the sample selected.

Question 38

When using nonstatistical sampling, the auditor must subjectively consider whether the true population misstatement exceeds a tolerable amount. This is done by considering five factors. One factor is the difference between the point estimate and tolerable misstatement. State the other four factors the auditor must consider.

Question 39

An auditor using nonstatistical sampling cannot:

A)
B)
C)
D)

Question 40

In the application of statistical techniques to the estimation of dollar amounts, a preliminary sample is usually taken primarily for the purpose of estimating the population:

A) mode.
B) range.
C) median.
D) variability.

Question 41

Monetary-unit sampling is not particularly effective at detecting:

A) overstatements.
B) understatements.
C) errors in current assets.
D) errors in noncurrent assets.

Question 42

In evaluating sample results for tests of details, auditors must evaluate exceptions identified by the performance of audit procedures.

Question 43

Attributes sampling tables can be used to evaluate results of tests of details with Acceptable risk of assessing control risk too low (ARACR) being replaced with acceptable risk of incorrect acceptance (ARIA).

Question 44

Tolerable misstatement is inversely related to sample size.

Question 45

The primary factor affecting the auditor's acceptable risk of incorrect acceptance is assessed as inherent risk when quantifying audit risk.

Question 46

Required sample size increases as the auditor's tolerable misstatement for an account balance or class of transactions decreases.

Question 47

Acceptable risk of incorrect acceptance (ARIA) and sample size are inversely related; that is, as ARIA increases, sample size decreases.

Question 48

In monetary unit sampling, a sampling interval of 900 means that:

A) every 900th item will be selected.
B) every 900th dollar in the account will be sampled.
C) expected misstatement is 900.
D) tolerable misstatement is 900.

Question 49

The primary factor affecting the auditor's decision about acceptable risk of incorrect acceptance (ARIA) is assessed inherent risk.

Question 50

Acceptable risk of assessing control risk too low (ARACR) and acceptable risk of incorrect acceptance (ARIA) are inversely related; that is, a decrease in ARACR is accompanied by an increase in ARIA.

Question 51

Acceptable risk of incorrect acceptance is directly affected by acceptable audit risk.

Question 52

An auditor using nonstatistical sampling cannot formally measure sampling error.

Question 53

Sampling used for tests of details of balances provides results in terms of:

A) exception rates.
B) percentages.
C) dollars.
D) expectation rates.

Question 54

When using nonstatistical sampling, the larger the sample size, the greater the auditor's confidence that the point estimate is close to the true population value.

Question 55

The purpose of stratified sampling is to achieve a greater confidence level (lower risk of incorrect acceptance) for a given sample size.

Question 56

The purpose of stratification is to permit auditors to emphasize certain aspects of a population and deemphasize others.

Question 57

Discuss each of the six possible courses of action the auditor can take when he or she has concluded that the population is misstated by more than a tolerable amount.

Question 58

Acceptable audit risk (AAR) and acceptable risk of incorrect acceptance (ARIA) are inversely related; that is, as AAR increases, ARIA decreases.

Question 59

Estimated misstatement in the population and sample size are inversely related; that is, as estimated misstatement increases, sample size decreases.

Question 60

Acceptable risk of incorrect acceptance (ARIA) is directly related to the computed precision interval in difference estimation; that is, as ARIA increases, the computed precision interval decreases.

Question 61

Your audit sampling program states: the upper misstatement limit is $13,200 and the risk of incorrect acceptance is at the 95% confidence level. This means:

A) there is a 95% chance the actual misstatement is greater than $13,200.
B) there is a 5% chance the actual misstatement is less than $13,200.
C) there is a 95% chance the actual misstatement is less than $13.200.
D) there is a 5% chance the actual misstatement is greater than $13,200.

Question 62

The statistical methods used to evaluate monetary-unit samples:

A) neither exclude nor include units twice.
B) may permit the inclusion of a unit in the sample more than once.
C) do not permit a unit to be included in the sample more than once.
D) ignore the possibility that a unit may be included in a sample more than once.

Question 63

Which of the following items is not needed to apply MUS?

A)
B)
C)
D)

Question 64

The auditor must deal with layers of the computed upper deviation rate from the attributes table because there are different error assumptions for each error. Assume a sample of 100 had found one error, and the computed upper deviation rate is shown in the following table:

The precision limit for the layer with one error is:

A) 2.3%.
B) 3.8%
C) 6.1%.
D) 1.5%.

Question 65

Which balance-related audit objective cannot be assessed using monetary unit sampling?

A) Accuracy
B) Completeness
C) Existence
D) All of the above can be assessed using monetary unit sampling.

Question 66

PPS samples can be obtained in an efficient manner using all but which of the following?

A) hand selection by the auditor
B) computer software
C) random number tables
D) systematic sampling techniques

Question 67

An auditor uses monetary unit sampling with a sampling interval of $20,000 and detects an item with a recorded amount of $10,000 with an audited value of $4,000. The projected misstatement of the sample is:

A) $12,000.
B) $6,000.
C) $10,000.
D) $3,000.

Question 68

When using monetary-unit sampling, the recorded dollar population is a definition of all the items in the:

A) population.
B) population which the auditor has included in the sample.
C) population which contain errors.
D) sample which contain errors.

Question 69

Why do auditors find MUS appealing?

A) MUS increases the likelihood of selecting a balance of high and low dollar items.
B) MUS is easy to use in the audit environment.
C) MUS provides a nonstatistical, rather than a statistical, conclusion.
D) When misstatements are found, MUS rarely produces bounds in excess of materiality.

Question 70

When using monetary-unit sampling, evaluating the likelihood of unrecorded items in the population is:

A) unnecessary.
B) impossible.
C) possible but difficult.
D) an automatic outcome of the process.

Question 71

Which of the following is not a disadvantage of monetary-unit-sampling?

A) It may be difficult to select samples from large population without computer assistance.
B) The total misstatement bounds resulting when misstatements are found may be too low to be useful to the auditor.
C) The total misstatement bounds resulting when misstatements are found may be too high to be useful to the auditor.
D) Each of the above is a disadvantage.

Question 72

The auditor must consider the possibility that the true population misstatement is greater than the amount of misstatement that is tolerable when the auditor is performing:

A)
B)
C)
D)

Question 73

In monetary-unit sampling, the values of the estimated likely maximum misstatements are referred to as the:

A) point estimates.
B) precision intervals.
C) confidence intervals.
D) misstatement bounds.

Question 74

Using statistical sampling to assist in verifying the year-end accounts payable balance, an auditor has accumulated the following data:

Projecting the misstatement to the population, the auditor's estimate of year-end accounts payable balance would be:

A) $5,050,000.
B) $5,125,000.
C) $6,000,000.
D) $6,150,000.

Question 75

There are many kinds of statistical estimates that an auditor may find useful, but basically every accounting estimate is either of a quantity or of an error rate. The statistical terms that roughly correspond to "quantities" and "error rate," respectively, are:

A) attributes and variables.
B) variables and attributes.
C) constants and attributes.
D) constants and variables.

Question 76

An accounts receivable population contains a total of four customers. The accounts, the amounts, and the cumulative total are shown below. Monetary-unit sampling is to be used.

Based on the information above, the population size is:

A) 4.
B) 574.
C) 1,272.
D) $2,684.

Question 77

Explain the decision rule used in monetary-unit sampling to determine whether the population value (account balance) is acceptable.

Question 78

Which of the following is not a problem with monetary-unit selection?

A) Population items with a zero recorded balance.
B) Population items that should have a zero balance but do not.
C) Accounts with negative balances.
D) Accounts with small recorded balances that are significantly understated.

Question 79

The most commonly used method of statistical sampling for tests of details of balances is:

A) attributes sampling.
B) systematic sampling.
C) discovery sampling.
D) monetary-unit sampling.

Question 80

Calculating the sample size using monetary-unit-sampling depends on which of the following factors?

A)
B)
C)
D)