Question 1

Which of the following results in a larger sample size?
A) Decrease the estimated population exception rate and decrease the tolerable exception rate.
B) Increase the estimated population exception rate and decrease the tolerable exception rate.
C) Decrease the estimated population exception rate and increase the tolerable exception rate.
D) Increase the estimated population exception rate and increase the tolerable exception rate.

Accepted Answer

Increasing the estimated population exception rate means you expect more errors, which requires a larger sample to accurately assess the population. Decreasing the tolerable exception rate means you are less tolerant of errors, which also necessitates a larger sample size to ensure the population meets this stricter criterion.

Question 2

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, one way to improve the reliability of the results is to increase the sample size, which can help reduce the margin of error and provide more accurate estimates of the population parameters. This is because larger sample sizes tend to yield more representative samples and can help mitigate the effects of sampling variability. However, increasing the sample size is not the only option, and other factors such as the cause of the exceptions and the costs and benefits of different sampling strategies should also be considered before making a decision.

Question 3

The auditor must use the same TER and ARO levels for all attributes of an audit test.

Accepted Answer

The auditor may use different TER and ARO levels for different attributes of an audit test based on their assessment of the risks associated with each attribute.

Question 4

When defining the population,
A) it may be necessary to define separate populations for different audit procedures.
B) the auditor may generalize only about the population that has been sampled.
C) auditors can define the population to include any items they want.
D) all of the above

Accepted Answer

Each statement is correct regarding defining the population in an audit context. Auditors may need to define separate populations for different procedures, can only generalize about the sampled population, and have the flexibility to define the population to include any items relevant to the audit objectives.

Question 5

The only way to know with certainty whether a sample is representative is to subsequently audit the entire population.

Accepted Answer

This is true because a sample is a smaller subset of a larger population, and there is always the possibility of sampling error or biases. The only way to confirm whether the sample is truly representative is to verify it against the entire population.

Question 6

The sample exception rate equals
A) the number of exceptions in the population divided by the sample size.
B) the number of items in the population multiplied by the number of exceptions in the sample.
C) the number of exceptions in the sample divided by the sample size.
D) the number of exceptions in the population divided by the population size.

Accepted Answer

The sample exception rate is the proportion of exceptions in the sample. Hence, it is calculated by dividing the number of exceptions in the sample by the sample size. Option A is incorrect as it refers to the population exception rate. Option B is incorrect as it does not consider the sample size. Option D is incorrect as it calculates the population exception rate instead of the sample exception rate.

Question 7

One way to evaluate sampling risk when nonstatistical sampling is used is to
A) subtract the sample exception rate from the tolerable exception rate.
B) add the sample exception rate and the tolerable exception rate.
C) subtract the sample exception rate from the acceptable risk of overreliance.
D) add the sample exception rate and the acceptable risk of overreliance.

Accepted Answer

When evaluating sampling risk with nonstatistical sampling, subtracting the sample exception rate from the tolerable exception rate helps in assessing how much the observed sample results (exceptions) deviate from what is considered acceptable (tolerable exception rate). This calculation aids in understanding the margin within which the actual results can vary from the expected results without causing significant concern.

Question 8

There is a(n) ________ relationship between acceptable risk of overreliance and planned sample size.
A) direct
B) inverse
C) proportional
D) exponential

Accepted Answer

As the acceptable risk of overreliance decreases, the planned sample size must increase to mitigate that risk. Therefore, there is an inverse relationship between the two variables.

Question 9

When using statistical sampling, the auditor would most likely require a smaller sample if the
A) population increases.
B) desired reliability decreases.
C) desired precision interval narrows.
D) expected exception rate increases.

Accepted Answer

A smaller sample size is required if the desired level of reliability (confidence level) decreases, because lower reliability means the auditor is willing to accept a higher risk that the sample may not accurately represent the population.

Question 10

The acceptable risk of overreliance
A) is normally assessed at a high level when auditing an accelerated filer public company.
B) and the extent of tests of controls depend on assessed control risk for accelerated filer public companies.
C) and the control risk will be assessed as low for audits where there is extensive reliance on internal controls.
D) does not impact the effectiveness of the audit.

Accepted Answer

The answer of The acceptable risk of overreliance
A) is normally...

Question 11

The tolerable exception rate is the rate that the auditor will permit in the population and still be willing to conclude a control is effective.

Accepted Answer

The tolerable exception rate is the maximum rate of deviations from a control that the auditor is willing to accept while still concluding that the control is operating effectively. Therefore, option A is correct.

Question 12

If the result obtained from a particular sample for control and substantive tests of transactions is critical to the formation of an audit opinion, which of the following is the most important to the auditor in concluding of the appropriateness and sufficiency of evidence gathered?
A) acceptable risk of overreliance
B) estimated population exception rate
C) tolerable exception rate
D) size of the population

Accepted Answer

The answer of If the result obtained from a particular...

Question 13

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

Accepted Answer

The acceptable risk of overreliance is lower for a public company audit than a private company audit because public companies have a larger number of stakeholders who rely on the accuracy of the financial statements, and there is a higher level of regulatory oversight for public companies. Additionally, the potential consequences of financial misstatements at a public company, such as shareholder lawsuits and damage to the company's reputation, are typically more severe than those for a private company.

Question 14

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 15

When determining tolerable exception rate (TER),
A) the auditor considers the degree of reliance to be placed on the control and the significance of the control to the audit.
B) if only one internal control is used to support a low control risk assessment for an objective, TER will be higher for the attribute than if multiple controls are used to support a low control risk assessment for the same objective.
C) control deviations increase both the risk of material misstatements in the accounting record, and will always result in misstatements.
D) a smaller sample size is needed for a low TER than for a high TER.

Accepted Answer

The tolerable exception rate (TER) is influenced by the degree of reliance placed on the control and the significance of the control to the audit. TER is the maximum deviation from a control that the auditor is willing to accept and still rely on the control in assessing control risk. Choice B is incorrect because if multiple controls are used to support a low control risk assessment for the same objective, TER will be lower for the attribute. Choice C is incorrect because control deviations do not always result in misstatements, but increase the risk of material misstatement in the accounting records. Choice D is incorrect because a larger sample size is needed for a low TER than for a high TER.

Question 16

Whenever auditors use sampling, they risk making incorrect conclusions about the population. The risk that the auditor concludes that controls are more effective than they actually are is known as the
A) risk of overreliance.
B) risk of underreliance.
C) risk that the sample is not representative of the population.
D) risk that the sample conclusions cannot be useful because of nonprobability sampling.

Accepted Answer

The risk that the auditor concludes that controls are more effective than they actually are is known as the risk of overreliance. This can occur when the sample selected is not representative of the entire population, which causes auditors to draw incorrect conclusions.

Question 17

A danger in setting the acceptable risk of overreliance too low is
A) 
B) 
C) 
D)

Accepted Answer

The answer of A danger in setting the acceptable risk...

Question 18

When planning the audit sample, the ________ is (are) those items about which the auditor wishes to generalize.
A) attributes
B) sampling unit
C) population
D) sample

Accepted Answer

The population is the group of items or transactions that the auditor wants to test and make conclusions about. The audit sample is selected from this population. Therefore, the population is the group about which the auditor wishes to generalize.

Question 19

When choosing the appropriate acceptable risk of overreliance, the auditor needs to
A) rely on his/her professional judgment.
B) err on the side of conservatism.
C) consult the professional standards.
D) follow SEC guidelines.

Accepted Answer

The appropriate acceptable risk of overreliance is a matter of professional judgment for the auditor. The auditor needs to assess the risk factors and use their professional judgment to determine the level of acceptable risk. Therefore, the best choice is to rely on his/her professional judgment. The other options may provide some guidance, but they do not dictate the appropriate level of acceptable risk.

Question 20

Acceptable risk of overreliance is the risk that the auditor is willing to take in accepting a control as effective when the true population exception rate is greater than the estimated population exception rate.

Accepted Answer

The answer of Acceptable risk of overreliance is the risk...

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

Which of the following results in a larger sample size?

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.

The auditor must use the same TER and ARO levels for all attributes of an audit test.

When defining the population,

The only way to know with certainty whether a sample is representative is to subsequently audit the entire population.

The sample exception rate equals

One way to evaluate sampling risk when nonstatistical sampling is used is to

There is a(n) ________ relationship between acceptable risk of overreliance and planned sample size.

When using statistical sampling, the auditor would most likely require a smaller sample if the

The acceptable risk of overreliance

The tolerable exception rate is the rate that the auditor will permit in the population and still be willing to conclude a control is effective.

If the result obtained from a particular sample for control and substantive tests of transactions is critical to the formation of an audit opinion, which of the following is the most important to the auditor in concluding of the appropriateness and sufficiency of evidence gathered?

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

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 determining tolerable exception rate (TER) ,

Whenever auditors use sampling, they risk making incorrect conclusions about the population. The risk that the auditor concludes that controls are more effective than they actually are is known as the

A danger in setting the acceptable risk of overreliance too low is

When planning the audit sample, the ________ is (are) those items about which the auditor wishes to generalize.

When choosing the appropriate acceptable risk of overreliance, the auditor needs to

Acceptable risk of overreliance is the risk that the auditor is willing to take in accepting a control as effective when the true population exception rate is greater than the estimated population exception rate.