Question 1

Explain the steps involved in systematic sample selection.

Accepted Answer

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Question 2

Sampling error and non- sampling error can each cause a sample result to be nonrepresentative.

Accepted Answer

Both sampling error and non-sampling error can lead to a sample result that is not representative of the population being studied. Sampling error refers to the natural variability that occurs when a sample is selected from a larger population, while non-sampling error can result from errors in data collection, processing, or analysis. Both types of error can lead to biased or inaccurate results.

Question 3

Explain the effect on sample size of increasing each of the following: (1) tolerable deviation rate, (2) estimated population deviation rate, (3) acceptable risk of assessing control risk too low and (4) population size.

Accepted Answer

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Question 4

When a small preliminary sample is used to estimate the population deviation rate, it (the preliminary sample) cannot be included in the ultimate sample.

Accepted Answer

The preliminary sample can be included in the ultimate sample as it provides initial insights and helps refine the estimation of the population deviation rate.

Question 5

Acceptable risk of incorrect acceptance is the risk that the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than the estimated misstatement in the population.

Accepted Answer

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Question 6

Non- sampling error occurs when audit tests do not uncover existing exceptions in the sample.

Accepted Answer

Non-sampling error refers to errors that occur in the audit process other than selecting an inappropriate sample, which is related to sampling error. Non-sampling errors may include errors in judgment, errors in gathering or interpreting data, or errors in the application of audit procedures that lead to missed exceptions in the sample.

Question 7

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

Accepted Answer

The statement is true. When the acceptable risk of assessing control risk too low (ARO) decreases, the auditor is more likely to detect material misstatements if they exist. However, if ARO is set too low, there is a greater risk of concluding that the controls are effective when they are not (incorrect acceptance). Therefore, the allowable risk of incorrect acceptance (ARIA) must increase to balance the decrease in ARO.

Question 8

The factor that has the least effect on sample size is the difference between the tolerable deviation rate and estimated population deviation rate.

Accepted Answer

The difference between the tolerable deviation rate and estimated population deviation rate is actually one of the factors that has a significant effect on sample size in statistical sampling. Other factors that affect sample size include the desired level of confidence, the variability of the population, and the size of the population.

Question 9

When the computed upper deviation rate is greater than the tolerable deviation rate in attributes sampling, one possible appropriate course of action is to increase sample size.

Accepted Answer

Increasing the sample size can provide more precise estimates of the population proportion and reduce the margin of error, leading to greater confidence in the results. This can help ensure that the actual deviation rate does not exceed the tolerable deviation rate.

Question 10

Stratification allows the auditor to emphasise particular population items.

Accepted Answer

Stratification involves dividing a population into subgroups based on specific characteristics. This enables the auditor to focus on certain items that are deemed more significant or pose a higher risk.

Question 11

When does allowable risk of incorrect rejection (ARIR) affect the auditor?

Accepted Answer

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Question 12

In monetary- unit sampling, the likelihood of high dollar items from the population being included in the sample is greater than the likelihood for small dollar items.

Accepted Answer

This is because in monetary-unit sampling, each dollar in the population has an equal chance of being selected, which means that high dollar items will have a higher probability of being selected compared to lower dollar items.

Question 13

Discuss the advantages and disadvantages of monetary- unit sampling over other sampling methods.

Accepted Answer

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Question 14

Discuss two causes of non- sampling error. Also discuss ways the auditor can control non- sampling risk.

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Question 15

Acceptable risk of assessing control risk too low is the risk that the auditor is willing to take of accepting a control as effective when the true population deviation rate is greater than the estimated population deviation rate.

Accepted Answer

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Question 16

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

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Question 17

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

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Question 18

Acceptable risk of incorrect acceptance is of greater concern to the auditor than acceptable risk of incorrect rejection.

Accepted Answer

Acceptable risk of incorrect acceptance means the auditor accepts that the financial statements are materially correct, but in reality, they are materially misstated. This is a greater concern for the auditor because it can lead to a loss of credibility and reputation if the misstatements are discovered later. Acceptable risk of incorrect rejection, on the other hand, means the auditor rejects the financial statements as materially misstated, but in reality, they are materially correct. This is a lesser concern for the auditor because the misstatements can be corrected and the financial statements can be reissued.

Question 19

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

Accepted Answer

Professional auditing standards allow for auditors to use either statistical or nonstatistical sampling methods, depending on the situation. Both methods have their advantages and disadvantages, and the choice between the two depends on factors such as the level of risk involved, the nature of the population being sampled, and the resources available to the auditor.

Question 20

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

Accepted Answer

Systematic sample selection is actually a probabilistic sampling method.

Quiz 14: Audit Sampling