Question 1

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...

Question 2

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

Accepted Answer

Tolerable exception rate (TER) is the maximum percentage of errors that can be tolerated in a population without rejecting it. TER is generally calculated using statistical methods, and it depends on the level of confidence desired and the sample size used. As the sample size increases, the accuracy of the results increases, resulting in a decrease in the tolerable exception rate. Therefore, TER is inversely related to sample size.

Question 3

You are determining the appropriate sample size to test accounts receivable. What three factors are the most important to consider?

Accepted Answer

The answer of You are determining the appropriate sample size...

Question 4

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 5

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 the auditor to make probability statements about the likely representativeness of any sample that is in the distribution. The other statements are not accurate - A is describing a sample, not a sampling distribution; C is incorrect because each population exception rate and sample size will have a different sampling distribution; and D is incorrect as auditors can use sampling distributions to draw statistical conclusions about the unknown population being sampled.

Question 6

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

Accepted Answer

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

Question 7

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 8

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 is not appropriate for reviewing sales transactions for large and unusual amounts because this procedure typically involves a targeted review of specific, significant items rather than a random or statistical sampling of many items.

Question 9

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

Attributes sampling is the most appropriate choice for auditing client invoices because it is used to test for deviation from a specific control (in this case the billing error rate), which is what Rodgers CPA is concerned about. Stratified sampling, classical sampling, and proportional sampling are all methods of selecting a sample but do not specifically address testing for the occurrence of a particular attribute or control.

Question 10

Audit sampling can be applied for reviewing sales transactions for large and/or unusual amounts, and also for observing whether the duties and responsibilities of the receivables clerk are separate from the handling of cash (a test of control).

Accepted Answer

The answer of Audit sampling can be applied for reviewing...

Question 11

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, as it deals with samples that have one of two possible outcomes (usually yes or no). The binomial distribution is used to model this type of situation, making B the correct choice.

Question 12

Audit sampling can be applied to manual controls when application of the control produces documentary evidence of performance.

Accepted Answer

Audit sampling can be applied to manual controls if there is documentary evidence of performance, as this provides a basis for selecting a sample for testing. Without such evidence, it may not be possible to select a sample and perform audit procedures to test the control.

Question 13

Auditors base their statistical inferences on sampling distributions.

Accepted Answer

Auditors use statistical sampling to select a sample of transactions from an entire population of transactions. The sample is used to make inferences about the entire population. Based on the sample, auditors construct a sampling distribution, which is used to estimate the range of possible values for the population parameter of interest (e.g. the error rate in a population of transactions).

Question 14

The auditor finds material weaknesses in internal controls before year end. In these situations, the auditor must issue an adverse opinion in the audit report on internal controls, even if the auditor is able to test management's corrected controls before year-end.

Accepted Answer

If the auditor is able to test management's corrected controls before year-end and concludes that the material weaknesses have been remediated, the auditor may not need to issue an adverse opinion on internal controls.

Question 15

When audit evidence is in electronic format, the auditor can use data analytics to test the entire population, rather than testing a sample of the population.

Accepted Answer

When audit evidence is in electronic format, data analytics tools can be used to analyze the entire population of data which makes it easier to test the entire population rather than relying on a small sample size.

Question 16

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 used when the auditor wants to draw a conclusion about the presence or absence of a specific attribute in a population. Examining a sample of duplicate sales invoices for credit approval by the credit manager involves checking for the presence of a specific attribute (i.e. credit approval) and therefore, attributes sampling is an appropriate method to use for this procedure. A) is an example of substantive testing, B) involves observing a control, and D) involves testing for completeness, which may be better suited for other sampling methods.

Question 17

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 main differences between attributes sampling and nonstatistical sampling is the calculation of the initial sample sizes. Attributes sampling uses statistical formulas to determine the sample size based on certain risk factors, while nonstatistical sampling does not rely on statistical formulas and allows the auditor to use professional judgment to determine the sample size. The other answer choices do not accurately represent a main difference between the two sampling methods.

Question 18

The auditor uses professional judgment in establishing the tolerable exception rate for an attribute being tested in a population.

Accepted Answer

The auditor does use professional judgment in establishing the tolerable exception rate for an attribute being tested in a population. This means that the auditor determines the acceptable level of errors or exceptions that may exist within the population being tested, and this level is used to assess the results of the testing. The auditor must consider various factors when establishing the tolerable exception rate, such as the level of risk associated with the attribute being tested, the size of the population, and the reliability of the data being used to perform the testing. Ultimately, the auditor's professional judgment is a critical component of ensuring the accuracy and reliability of audit results.

Question 19

Explain the effect on sample size of increasing each of the following: (1) tolerable exception rate, (2) estimated population exception rate, (3) acceptable risk of overreliance, and
(4) population size.

Accepted Answer

The answer of Explain the effect on sample size of...

Question 20

As the auditor performs statistical procedures and finds material weaknesses in internal controls, it is important to communicate in writing to those at the audit client charged with governance.

Accepted Answer

It is important for the auditor to communicate any material weaknesses in internal controls to those charged with governance in writing, as it provides formal documentation of the issue and ensures that all parties are aware of the problem and can take the necessary steps to address it.

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

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.

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

You are determining the appropriate sample size to test accounts receivable. What three factors are the most important to consider?

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

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

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.

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

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

Audit sampling can be applied for reviewing sales transactions for large and/or unusual amounts, and also for observing whether the duties and responsibilities of the receivables clerk are separate from the handling of cash (a test of control).

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.

Audit sampling can be applied to manual controls when application of the control produces documentary evidence of performance.

Auditors base their statistical inferences on sampling distributions.

The auditor finds material weaknesses in internal controls before year end. In these situations, the auditor must issue an adverse opinion in the audit report on internal controls, even if the auditor is able to test management's corrected controls before year-end.

When audit evidence is in electronic format, the auditor can use data analytics to test the entire population, rather than testing a sample of the population.

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

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

The auditor uses professional judgment in establishing the tolerable exception rate for an attribute being tested in a population.

Explain the effect on sample size of increasing each of the following: (1) tolerable exception rate, (2) estimated population exception rate, (3) acceptable risk of overreliance, and (4) population size.

As the auditor performs statistical procedures and finds material weaknesses in internal controls, it is important to communicate in writing to those at the audit client charged with governance.