Question 1

When planning the audit sample,
A) one objective of the tests of controls is to test the effectiveness of the controls.
B) audit sampling applies to analytical procedures.
C) audit sampling generally applies to automated controls.
D) the auditor must generalize from the sample to the population.

Accepted Answer

D  Tests of controls aim to assess the effectiveness of controls, and when sampling, auditors generalize findings from the sample to the entire population.

Question 2

Which of the following must be set prior to testing a sample?
A) sample exception rate
B) achieved upper precision limit
C) computed exception rate
D) tolerable exception rate

Accepted Answer

The tolerable exception rate must be set prior to testing a sample. This is the maximum rate of exceptions that the auditor will allow before concluding the account balance is materially misstated. The other options (sample exception rate, achieved upper precision limit, computed exception rate) are all calculated or determined during or after testing the sample.

Question 3

The auditor focuses on the lower limit of the interval estimate, which is called the estimated computed lower exception rate (CLER) in tests of controls and substantive tests of transactions.

Accepted Answer

The answer of The auditor focuses on the lower limit...

Question 4

Auditors often use the ________ to determine the estimated population exception rate.
A) current year's audit results
B) tolerable exception rate
C) preceding year's audit results
D) estimated computed by management

Accepted Answer

Auditors often use the preceding year's audit results to estimate the population exception rate, as it provides historical data that can be indicative of current conditions.

Question 5

Which of the following is the exception rate that the auditor expects to find before testing?
A) sample exception rate
B) estimated population exception rate
C) computed exception rate
D) tolerable exception rate

Accepted Answer

The estimated population exception rate is the rate of exceptions that the auditor expects to find in the population before starting any testing. This rate is based on the auditor's prior experience and other relevant information.

Question 6

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the
A) tolerable exception rate.
B) estimated population exception rate.
C) acceptable risk of overreliance.
D) sample exception rate.

Accepted Answer

The tolerable exception rate is the maximum rate of deviation from the control that the auditor is prepared to accept and still be willing to rely on the control. It is the highest exception rate that the auditor deems acceptable. Therefore, A is the correct choice as it defines the level of exception rate that the auditor finds tolerable.

Question 7

If the auditor decides to assess control risk at the moderate level in a private company audit, when in previous years the auditor set control risk at the maximum level, then tests of controls for the current year would be
A) increased in number.
B) reduced in number.
C) not performed.
D) unchanged from prior planned settings.

Accepted Answer

When an auditor decides to assess control risk at a lower level than previously (in this case, moving from maximum to moderate), it implies that the auditor has gained or expects to gain a higher level of confidence in the effectiveness of the company's internal controls. To justify this lower assessment of control risk, the auditor would need to perform more tests of controls to obtain evidence that the controls are operating effectively.

Question 8

The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the
A) acceptable exception rate.
B) estimated population exception rate.
C) sample exception rate.
D) tolerable exception rate.

Accepted Answer

The tolerable exception rate is the maximum exception rate that the auditor is willing to accept in the population while still being willing to rely on the preliminary control risk assessment. This is the rate at which the auditor believes the control is effective enough to prevent material misstatements in the financial statements. Therefore, the answer is D – tolerable exception rate. The other options, acceptable exception rate, estimated population exception rate, and sample exception rate, may be relevant to audit procedures but are not specifically related to the auditor's decision-making regarding the control risk assessment.

Question 9

Which of the following would have the least impact in determining sample size?
A) acceptable risk of overreliance
B) risk of assessing control risk too low
C) tolerable exception rate
D) population size

Accepted Answer

Population size would have the least impact on determining sample size because it does not affect the risk of overreliance or assessing control risk too low, nor does it affect the tolerable exception rate. Therefore, the sample size determination is not affected by population size.

Question 10

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions, the auditor
A) can conclude that the sample exception rate is 2%.
B) can conclude that the population exception rate is 2%.
C) can calculate the highest exception rate expected in the population.
D) cannot make any conclusions about either the sample or the population.

Accepted Answer

The sample exception rate is calculated by dividing the number of exceptions by the sample size, which in this case is 2 exceptions out of 100 items, resulting in a 2% sample exception rate.

Question 11

Place the following steps in their proper order: 1. Analyze exceptions.
2) Select the sample.
3) Define attributes and exception conditions.
4) State the objectives of the audit test.
5) Specify the tolerable exception rate.
A) 1, 3, 2, 4, 5
B) 4, 3, 1, 2, 5
C) 4, 3, 5, 2, 1
D) 1, 2, 3, 4, 5

Accepted Answer

The correct sequence for conducting an audit test starts with stating the objectives (4), then defining attributes and exception conditions (3), specifying the tolerable exception rate (5), selecting the sample (2), and finally analyzing exceptions (1). This logical progression ensures a structured approach to auditing, from planning through execution and analysis.

Question 12

What types of exceptions are auditors most concerned with when evaluating populations of accounting data?

Accepted Answer

The answer of What types of exceptions are auditors most...

Question 13

When analyzing exceptions, the auditor should keep in mind that
A) all exceptions must be reported to management.
B) they should determine the breakdown in the internal controls that allowed the exceptions to occur.
C) the nature of an exception and its causes have no effect on the qualitative evaluation of the system.
D) exceptions do not need to be analyzed if it is too costly.

Accepted Answer

When analyzing exceptions, the auditor should determine the breakdown in the internal controls that allowed the exceptions to occur. This will help the auditor identify the root cause of the exception and provide recommendations for improving the control environment. Option A is incorrect as not all exceptions may need to be reported to management, depending on their significance. Option C is incorrect as the nature and causes of the exception do have an effect on the qualitative evaluation of the system. Option D is incorrect as exceptions should be analyzed regardless of cost.

Question 14

When the computed upper exception rate (CUER) is greater than the tolerable exception rate (TER), it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to justify?
A) Reduce the tolerable exception rate so as to accept the sample results.
B) Expand the sample size and perform more tests.
C) Revise the assessed control risk upward.
D) Write a letter to management which outlines the control deficiencies.

Accepted Answer

It would be difficult to justify reducing the tolerable exception rate because this would lower the expectation for the control and increase the risk of material misstatement. The auditor has to ensure that the control risk is at an appropriate level, and manipulating the tolerable exception rate would not achieve that. Instead, the auditor may consider performing additional tests, increasing the sample size, revising the assessed control risk upward, or communicating control deficiencies to management.

Question 15

The acceptable risk of overreliance
A) is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are.
B) is less of a concern to the auditors than the risk of underreliance.
C) represents the auditor's measure of sampling risk.
D) is determined by a statistical formula, and not by professional judgment.

Accepted Answer

The acceptable risk of overreliance represents the auditor's measure of sampling risk, which is the risk that the auditor's conclusion based on a sample may be different from the conclusion they would reach if they examined every item in the population. This is a key concept in audit sampling and risk assessment.

Question 16

An auditor might conclude that the computed upper exception rate (CUER) for missing shipping documents is 4 percent at a 5 percent sampling risk, meaning the auditor concludes that the exception rate in the population is no greater than 5 percent with a 4 percent risk of the exception rate exceeding 5 percent.

Accepted Answer

The statement incorrectly describes the relationship between the computed upper exception rate (CUER) and sampling risk. The CUER is the highest estimated exception rate in the population at a given confidence level (or sampling risk). If the CUER is 4 percent at a 5 percent sampling risk, it means the auditor concludes there is a 95 percent confidence that the exception rate in the population does not exceed 4 percent, not 5 percent.

Question 17

The relationship of tolerable exception rate (TER) to sample size is
A) direct (larger TER = larger sample).
B) inverse (larger TER = smaller sample).
C) variable (sometimes larger, sometimes smaller).
D) not determinable.

Accepted Answer

As the tolerable exception rate (TER) increases, the sample size required to achieve the desired level of precision decreases. Therefore, there is an inverse relationship between TER and sample size.

Question 18

The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the
A) finite correction factor.
B) tolerable exception rate.
C) acceptable risk of overreliance.
D) estimated population exception rate.

Accepted Answer

The acceptable risk of overreliance represents the level of risk that the auditor is willing to take in accepting a control as effective when it's not actually effective. It is determined by considering the tolerable exception rate and the estimated population exception rate. The finite correction factor adjusts the sample size for known problems with the population, while the tolerable exception rate is the maximum rate of deviation that the auditor is willing to accept. The estimated population exception rate is the auditor's best estimate of the population deviation rate.

Question 19

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated?
A) sample exception rate
B) estimated population exception rate
C) computed upper exception rate
D) exception

Accepted Answer

The answer of Which of the following is not a...

Question 20

Which of the following represents the best description of the tolerable exception rate?
A) the highest exception rate the auditor will permit in the control being tested and still conclude it is operating effectively
B) the highest exception rate the auditor expects to find in the population
C) the number of exceptions found in the sample divided by the sample size
D) the highest estimated exception rate in a population at a given estimated population exception rate.

Accepted Answer

The tolerable exception rate is the highest exception rate the auditor will allow in the control being tested and still conclude that it is operating effectively. This rate is determined based on the level of risk that the control failure would pose to the financial statements. The auditor aims to keep the tolerable exception rate as low as possible to reduce the risk of material misstatement.

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

When planning the audit sample,

Which of the following must be set prior to testing a sample?

The auditor focuses on the lower limit of the interval estimate, which is called the estimated computed lower exception rate (CLER) in tests of controls and substantive tests of transactions.

Auditors often use the ________ to determine the estimated population exception rate.

Which of the following is the exception rate that the auditor expects to find before testing?

The exception rate the auditor will permit in the population and still be willing to conclude that the control is operating effectively is the

If the auditor decides to assess control risk at the moderate level in a private company audit, when in previous years the auditor set control risk at the maximum level, then tests of controls for the current year would be

The exception rate that the auditor will permit in the population and still be willing to use the preliminary control risk assessment is called the

Which of the following would have the least impact in determining sample size?

If an auditor judgmentally selects a sample of one hundred items from a population and finds two exceptions, the auditor

Place the following steps in their proper order: 1. Analyze exceptions. 2) Select the sample. 3) Define attributes and exception conditions. 4) State the objectives of the audit test. 5) Specify the tolerable exception rate.

What types of exceptions are auditors most concerned with when evaluating populations of accounting data?

When analyzing exceptions, the auditor should keep in mind that

When the computed upper exception rate (CUER) is greater than the tolerable exception rate (TER) , it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to justify?

The acceptable risk of overreliance

The relationship of tolerable exception rate (TER) to sample size is

The risk which the auditor is willing to take in accepting a control as being effective when the true population exception rate is greater than a tolerable rate is the

Which of the following is not a term related to evaluating results in audit sampling until after a sample is tested and evaluated?

Which of the following represents the best description of the tolerable exception rate?