Question 1

Auditors base their statistical inferences on sampling distributions.

Accepted Answer

Auditors use sampling distributions to make statistical inferences about a population based on a sample.

Question 2

When planning the sample,
A)auditors using attributes sampling assign a low,medium,or high acceptable risk of overreliance.
B)tables are used by the auditor in statistical sampling to determine initial sample size.
C)most auditors use attributes sampling for medium to small populations.
D)the tolerable exception rate does not need to be specified for statistical sampling.

Accepted Answer

Tables are used in statistical sampling to determine the appropriate initial sample size. Auditors using attributes sampling assign a tolerable exception rate, not an acceptable risk of overreliance. Attributes sampling is commonly used for testing internal controls, while statistical sampling is used for substantive testing. The tolerable exception rate is a critical component of both sampling methods.

Question 3

In nonstatistical sampling,the calculated sampling error is the difference between the tolerable exception rate and the sample exception rate.

Accepted Answer

This statement is true. In nonstatistical sampling, the sampling error is calculated by subtracting the sample exception rate from the tolerable exception rate.

Question 4

The sampling unit is the physical unit that corresponds to the random numbers the auditor generates.

Accepted Answer

The sampling unit is the individual item, element, or member of a population that is subject to selection in a sample. It is important to ensure that the sampling unit corresponds to the random numbers generated to achieve a representative sample.

Question 5

Tolerable exception rate (TER)is inversely related to sample size.

Accepted Answer

Tolerable exception rate (TER) decreases as sample size increases. This is because as the sample size increases, there is a higher likelihood of detecting exceptions and errors in the population being sampled.

Question 6

Acceptable risk of overreliance is normally lower for a public company audit than a private company audit.

Accepted Answer

Public companies are subject to more scrutiny and regulations, and there is a greater expectation of accuracy and transparency in their financial reporting. As a result, the acceptable risk of overreliance on audit evidence is generally lower for a public company audit compared to a private company audit.

Question 7

For which of the following audit procedures would audit sampling not be appropriate?
A)Review sales transactions for large and unusual amounts.
B)Examine a sample of duplicate sales invoices for credit approval.
C)Compare the quantity on duplicate sales invoices with the quantity on related shipping documents.
D)Audit sampling is appropriate for each of the above procedures.

Accepted Answer

Audit sampling would not be appropriate for reviewing sales transactions for large and unusual amounts as these types of transactions may have a higher risk of material misstatement and require a more thorough examination of all relevant transactions. Sampling may not be sufficient to detect such material misstatements.

Question 8

Which of the following is an accurate statement regarding sampling distribution?
A)A sampling distribution is a sample with characteristics the same as those of the population.
B)Sampling distributions allow the auditor to make probability statements about the likely representativeness of any sample that is in the distribution.
C)Each population exception rate and sample size has the same sampling distribution.
D)Auditors cannot use sampling distributions to draw statistical conclusions about the unknown population being sampled.

Accepted Answer

Sampling distributions allow auditors to make probability statements about the likely representativeness of any sample that is in the distribution. Option A is incorrect because a sampling distribution is not a sample with characteristics the same as those of the population. Option C is incorrect because each population exception rate and sample size does not have the same sampling distribution. Option D is also incorrect because auditors can use sampling distributions to draw statistical conclusions about the unknown population being sampled.

Question 9

When evaluating the results of attributes sampling,
A)the acceptable risk of overreliance (ARO)is set at high or low.
B)tables are used to compute the computed upper exception rate (CUER).
C)if the sample size is not equal to those provided for in the attributes sampling evaluation tables,the tables cannot be used.
D)the True exception rate is computed from various tables.

Accepted Answer

Tables are used to compute the computed upper exception rate (CUER) when evaluating the results of attributes sampling. The acceptable risk of overreliance (ARO) is set before the sampling process begins and is not evaluated during the evaluation of the results. The sample size provided in the attributes sampling evaluation tables serves as a guide, but if a different sample size is used, the appropriate adjustment must be made. The true exception rate is not computed from various tables.

Question 10

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

Accepted Answer

When the sample exception rate is greater than the tolerable exception rate in attributes sampling, increasing the sample size can help to increase the precision of the estimation and reduce the risk of making a Type II error (failing to detect a real difference). This can provide more reliable results and allow for more accurate decision-making. However, increasing the sample size may also require additional resources and can be costly, so the decision to do so should be carefully considered.

Question 11

When deciding the acceptability of the population,
A)the methodology for deciding the acceptability of the population for attributes differs from determining the acceptability for nonstatistical sampling.
B)before the population can be considered acceptable,the CUER determined on the basis of the actual sample results must be less than or equal to TER when both are based on the same ARO.
C)when the CUER is greater than the TER,the auditor must increase the sample size.
D)the CUER is compared with the TER in total,not for each attribute.

Accepted Answer

Before a population can be considered acceptable, the computed upper exception rate (CUER) based on the actual sample results must be less than or equal to the tolerable exception rate (TER) when both are based on the same attribute risk objective (ARO). This is true for both statistical and non-statistical sampling. If the CUER is greater than the TER, the auditor must consider increasing the sample size. The comparison between CUER and TER is done for each attribute separately.

Question 12

In using sampling distribution for attributes,which one of the following must be known to evaluate the sample results?
A)estimated dollar value of the population
B)standard exception of the values in the population
C)actual exception rate of the attribute in the population
D)sample size

Accepted Answer

The answer of In using sampling distribution for attributes,which one...

Question 13

Which of the following is one of the main differences between attributes sampling and nonstatistical sampling?
A)the number of steps involved
B)the calculation of the initial sample sizes
C)determining the objectives of the audit test
D)defining the population

Accepted Answer

One of the key differences between attributes sampling and nonstatistical sampling is the way in which the initial sample size is determined. In attributes sampling, the sample size is calculated based on statistical methods, whereas in nonstatistical sampling, the auditor determines the sample size based on their professional judgment and experience. The other answer choices are not accurate descriptions of the main differences between these two methods of sampling.

Question 14

Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program?
A)Review sales transactions for large and unreasonable amounts.
B)Observe whether the duties of the accounts receivable clerk are separate from handling cash.
C)Examine a sample of duplicate sales invoices for credit approval by the credit manager.
D)Review the aged schedule of accounts receivable to determine if receivables from officers are included.

Accepted Answer

Attributes sampling is a method used to test whether a characteristic exists or not in a population. In this case, auditing a sample of duplicate sales invoices for credit approval by the credit manager is an appropriate procedure to use attributes sampling on, as the characteristic being tested is the presence or absence of credit approval by the credit manager. The other procedures listed would require different sampling methods, such as substantive sampling or test of controls.

Question 15

When the estimated population exception rate exceeds the sample exception rate,the auditor can conclude that the sample results do not support the preliminary assessed control risk.

Accepted Answer

The answer of When the estimated population exception rate exceeds...

Question 16

When the sample exception rate (SER)exceeds the tolerable exception rate (TER),the auditor should decide whether to increase sample size or to revise assessed control risk on the basis of cost versus benefit.

Accepted Answer

The answer of When the sample exception rate (SER)exceeds the...

Question 17

Attributes sampling is based on the ________ distribution,in which each possible sample in the population has one of two possible values,such as yes or no.
A)random
B)binomial
C)statistical
D)nonstatistical

Accepted Answer

Attributes sampling is based on the binomial distribution, which has two possible outcomes (e.g. pass/fail, yes/no).

Question 18

The sum of the tolerable exception rate and the estimated population exception rate is the precision of the initial sample estimate.

Accepted Answer

Precision in audit sampling is the allowance for sampling risk, which is the difference between the expected population exception rate and the tolerable exception rate, not the sum of the tolerable exception rate and the estimated population exception rate.

Question 19

Rodgers CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%.In auditing client invoices Rodgers should use
A)stratified sampling.
B)classical sampling.
C)proportional sampling.
D)attributes sampling.

Accepted Answer

Since the scenario involves auditing for billing errors, which is an attribute, the appropriate sampling technique to use is attributes sampling. This involves testing a sample of transactions to determine the proportion of items that contain the attribute in question (in this case, billing errors). Stratified sampling, classical sampling, and proportional sampling are all forms of sampling that can be used in auditing, but they are not specific to attributes sampling.

Question 20

A principal advantage of statistical methods of attributes sampling over nonstatistical methods is that they provide a quantifiable basis for establishing the
A)risk of assessing control risk too low.
B)tolerable exception rate.
C)expected population exception rate.
D)sample size.

Accepted Answer

The answer of A principal advantage of statistical methods of...

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

Auditors base their statistical inferences on sampling distributions.

When planning the sample,

In nonstatistical sampling,the calculated sampling error is the difference between the tolerable exception rate and the sample exception rate.

The sampling unit is the physical unit that corresponds to the random numbers the auditor generates.

Tolerable exception rate (TER)is inversely related to sample size.

Acceptable risk of overreliance is normally lower for a public company audit than a private company audit.

For which of the following audit procedures would audit sampling not be appropriate?

Which of the following is an accurate statement regarding sampling distribution?

When evaluating the results of attributes sampling,

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

When deciding the acceptability of the population,

In using sampling distribution for attributes,which one of the following must be known to evaluate the sample results?

Which of the following is one of the main differences between attributes sampling and nonstatistical sampling?

Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program?

When the estimated population exception rate exceeds the sample exception rate,the auditor can conclude that the sample results do not support the preliminary assessed control risk.

When the sample exception rate (SER)exceeds the tolerable exception rate (TER),the auditor should decide whether to increase sample size or to revise assessed control risk on the basis of cost versus benefit.

Attributes sampling is based on the ________ distribution,in which each possible sample in the population has one of two possible values,such as yes or no.

The sum of the tolerable exception rate and the estimated population exception rate is the precision of the initial sample estimate.

Rodgers CPA believes that the rate of client billing errors is 4% and has established a tolerable deviation rate of 6%.In auditing client invoices Rodgers should use

A principal advantage of statistical methods of attributes sampling over nonstatistical methods is that they provide a quantifiable basis for establishing the