Question 1

As a result of sampling procedures applied as tests of controls,an auditor incorrectly assesses control risk lower than appropriate.The most likely explanation for this situation is that
A) the deviation rates of both the auditor's sample and the population exceed the tolerable rate of deviation.
B) the deviation rates of both the auditor's sample and the population are less than the tolerable rate of deviation.
C) the deviation rate in the auditor's sample is less than the tolerable rate of deviation, but the deviation rate in the population exceeds the tolerable rate of deviation.
D) the deviation rate in the auditor's sample exceeds the tolerable rate of deviation, but the deviation rate in the population is less than the tolerable rate of deviation.

Accepted Answer

If the auditor incorrectly assesses control risk lower than appropriate, it means that the auditor is assuming that the controls are effective when they are actually not. This situation can occur when the deviation rate in the auditor's sample is less than the tolerable rate of deviation, but the deviation rate in the population (as a whole) exceeds the tolerable rate of deviation. Therefore, the correct answer is C.

Question 2

Which of the following would not be an example of nonsampling risk in an attributes sampling application?
A) Failure to perform the appropriate type of test of controls procedure
B) Failure to notice a deviation from prescribed control procedures
C) Incorrectly estimating the expected population deviation rate
D) Incorrectly accumulating the number of deviations

Accepted Answer

C

Question 3

An erroneous decision to assess control risk at excessively high levels can have an adverse effect on
A) the efficiency of an audit engagement.
B) the effectiveness of an audit engagement.
C) the validity of an audit.
D) the type of report the auditor decides to render.

Accepted Answer

Assessing control risk too high leads to more substantive testing than necessary, affecting audit efficiency.

Question 4

Which of the following components of the audit risk model is most closely associated with attributes sampling?
A) Audit risk
B) Control risk
C) Detection risk
D) Inherent risk

Accepted Answer

The answer of Which of the following components of the...

Question 5

Which of the following sampling risks is associated with the use of attributes sampling?
A) Risk of underreliance: Yes; Risk of incorrect rejection: Yes
B) Risk of underreliance: Yes; Risk of incorrect rejection: No
C) Risk of underreliance: No; Risk of incorrect rejection: Yes
D) Risk of underreliance: No; Risk of incorrect rejection: No

Accepted Answer

The answer of Which of the following sampling risks is...

Question 6

For which of the following audit tests would an auditor most likely use attributes sampling?
A) Making an independent estimate of the amount of a LIFO inventory
B) Examining invoices in support of the valuation of fixed asset additions
C) Selecting accounts receivable for confirmation of account balances
D) Inspecting employee time cards for proper approval by supervisors

Accepted Answer

The answer of For which of the following audit tests...

Question 7

Which of the following statements is correct concerning statistical sampling in tests of controls?
A) As the population increases, the sample size should increase proportionally.
B) The expected population deviation rate can either be based on prior audits or a small sample of controls examined in the current year.
C) There is an inverse relationship between the expected population deviation rate and sample size.
D) In determining the tolerable rate of deviation, an auditor considers the desired level of detection risk.

Accepted Answer

The answer of Which of the following statements is correct...

Question 8

The auditor tested a sample of recorded sales invoices for evidence of credit approval.Based on the results of the sample,the auditor concluded that there was a satisfactory rate of approvals.Unknown to the auditor,credit approvals in the population were not satisfactory.This would be an example of
A) risk of overreliance.
B) risk of underreliance.
C) risk of incorrect acceptance.
D) risk of incorrect rejection.

Accepted Answer

The situation described is an example of the risk of overreliance, where the auditor incorrectly concludes that controls are effective based on the sample, while in reality, they are not effective in the population.

Question 9

If the auditor were interested in ensuring that all sales have been recorded,the population would be defined as
A) entries in the cash receipts journal.
B) entries in the general journal.
C) remittance advices.
D) shipping documents.

Accepted Answer

Shipping documents are used to verify that all sales have been recorded, as they provide evidence of goods being shipped to customers.

Question 10

In performing tests of controls over authorization of cash disbursements,which of the following statistical sampling methods would be most appropriate?
A) Variables
B) Stratified
C) Ratio
D) Attributes

Accepted Answer

The most appropriate statistical sampling method for tests of controls over authorization of cash disbursements would be attributes sampling. This is because the objective is to determine whether specific control procedures are being followed or not. Attributes sampling is the best choice when we want to determine the rate of occurrence of a specific characteristic, such as the presence of authorization for cash disbursements. Variables sampling is not appropriate because we are not interested in measuring a numerical value. Stratified and ratio sampling are useful for estimating values of interest, which is not the objective in this scenario.

Question 11

The risk of underreliance is the risk that the sample selected to test controls
A) does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment.
B) contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes.
C) contains proportionally fewer monetary errors or deviations from prescribed control procedures than exist in the balance or class as a whole.
D) does not support the tolerable misstatement for some or all of management's assertions.

Accepted Answer

Underreliance risk refers to the risk of assessing control risk lower than what should have been assigned based on the true operating effectiveness of the control. This can happen when the sample size selected to test controls is not sufficient or does not contain enough exceptions to support the planned level of control risk. In other words, the sample selected does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment. Option A correctly describes this risk. Options B, C, and D are unrelated risks. Option B describes the risk of sampling error, option C describes the risk of overreliance, and option D describes the risk of incorrect materiality assessment.

Question 12

When the auditor concludes that a control is functioning properly when,in fact,it is not,the auditor has committed the
A) risk of underreliance.
B) risk of overreliance.
C) risk of incorrect acceptance.
D) risk of incorrect rejection.

Accepted Answer

When the auditor concludes that a control is functioning properly when, in fact, it is not, the auditor has committed the risk of overreliance. This occurs when an auditor relies too much on the operating effectiveness of internal controls and does not perform enough substantive testing. As a result, the auditor may not identify material misstatements in the financial statements.

Question 13

The purpose of tests of controls is to determine that
A) internal control policies and procedures are functioning as prescribed.
B) the extent of further audit procedures can be reduced.
C) errors and irregularities are prevented or detected in a timely manner.
D) the auditor has an understanding of internal control.

Accepted Answer

Tests of controls are conducted to evaluate whether internal control policies and procedures are operating effectively as intended.

Question 14

What is the general order in which the following steps in attributes sampling are performed? 1 = Define the population
2 = Determine the objective of sampling
3 = Determine the sample size
4 = Select the sample
A) 1, 2, 3, 4
B) 2, 1, 3, 4
C) 1, 2, 4, 3
D) 2, 1, 4, 3

Accepted Answer

In attributes sampling, the first step is to determine the objective of sampling (2) and then define the population (1). Once these steps are completed, the sample size (3) can be determined and the sample can be selected (4). Therefore, the correct order is 2, 1, 3, 4, which is option B.

Question 15

The ultimate purpose of control risk assessment is to
A) estimate the overall risk of failing to detect material misstatements.
B) decide the nature, timing, and extent of further audit procedures.
C) determine the risk of incorrect acceptance.
D) determine the probability that errors entered the accounts.

Accepted Answer

The ultimate purpose of control risk assessment is to decide the nature, timing, and extent of further audit procedures based on the level of control risk identified. The other options are not the ultimate purpose of control risk assessment.

Question 16

Samples to test internal control procedures are intended to provide a basis for an auditor to conclude whether
A) the control procedures are operating effectively.
B) the financial statements are materially misstated.
C) the risk of incorrect acceptance is too high.
D) overall materiality for planning purposes is at a sufficiently low level.

Accepted Answer

Samples are taken to determine whether the control procedures are operating effectively. If they are not, there is an increased risk of material misstatement, which would lead to concern regarding the accuracy of the financial statements. However, the purpose of testing internal control procedures is not to determine whether the financial statements are materially misstated, nor to assess overall materiality for planning purposes.

Question 17

As a result of tests of controls,an auditor assessed control risk too low and decreased substantive procedures.This assessment occurred because the true deviation rate in the population was
A) more than the risk of overreliance based on the auditor's sample.
B) more than the deviation rate in the auditor's sample.
C) less than the risk of overreliance based on the auditor's sample.
D) less than the deviation rate in the auditor's sample.

Accepted Answer

The auditor assessed control risk too low because the deviation rate in the sample was less than the true deviation rate in the population, leading to an incorrect conclusion that controls were more effective than they actually were.

Question 18

The risk of underreliance is the probability that the evidence in the sample indicates:
A) Low control risk when the actual operating effectiveness of the control does not justify a low control risk assessment.
B) Low control risk when the actual operating effectiveness of the control justifies a low control risk assessment.
C) High control risk when the actual operating effectiveness of the control would justify a lower control risk assessment.
D) High control risk when the actual operating effectiveness of the control would justify a higher control risk assessment.

Accepted Answer

The answer of The risk of underreliance is the probability...

Question 19

Why is the auditor more concerned with the risk of overreliance than the risk of underreliance?
A) The risk of underreliance is not a type of sampling risk.
B) The risk of overreliance exposes the auditor to an efficiency loss.
C) The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures.
D) The risk of overreliance cannot be controlled by the auditor during the sampling process.

Accepted Answer

The risk of overreliance may result in the auditor failing to perform sufficient substantive procedures, which could result in a material misstatement in the financial statements going undetected. Therefore, the auditor is more concerned with this risk than the risk of underreliance, which can be addressed by the auditor performing additional testing if needed. Additionally, the risk of overreliance can be reduced through the use of statistical sampling methods, whereas the risk of underreliance cannot be controlled by the auditor during the sampling process.

Question 20

As part of the assessment of control risk,the auditor decided to use audit sampling.After specifying the audit objectives,what would the auditor most likely do next?
A) Determine the sample size.
B) Select the sample.
C) Perform tests of control procedures.
D) Define the deviation conditions.

Accepted Answer

The answer of As part of the assessment of control...

Quiz 18: Attributes Sampling

As a result of sampling procedures applied as tests of controls,an auditor incorrectly assesses control risk lower than appropriate.The most likely explanation for this situation is that

Which of the following would not be an example of nonsampling risk in an attributes sampling application?

An erroneous decision to assess control risk at excessively high levels can have an adverse effect on

Which of the following components of the audit risk model is most closely associated with attributes sampling?

Which of the following sampling risks is associated with the use of attributes sampling?

For which of the following audit tests would an auditor most likely use attributes sampling?

Which of the following statements is correct concerning statistical sampling in tests of controls?

The auditor tested a sample of recorded sales invoices for evidence of credit approval.Based on the results of the sample,the auditor concluded that there was a satisfactory rate of approvals.Unknown to the auditor,credit approvals in the population were not satisfactory.This would be an example of

If the auditor were interested in ensuring that all sales have been recorded,the population would be defined as

In performing tests of controls over authorization of cash disbursements,which of the following statistical sampling methods would be most appropriate?

The risk of underreliance is the risk that the sample selected to test controls

When the auditor concludes that a control is functioning properly when,in fact,it is not,the auditor has committed the

The purpose of tests of controls is to determine that

What is the general order in which the following steps in attributes sampling are performed? 1 = Define the population 2 = Determine the objective of sampling 3 = Determine the sample size 4 = Select the sample

The ultimate purpose of control risk assessment is to

Samples to test internal control procedures are intended to provide a basis for an auditor to conclude whether

As a result of tests of controls,an auditor assessed control risk too low and decreased substantive procedures.This assessment occurred because the true deviation rate in the population was

The risk of underreliance is the probability that the evidence in the sample indicates:

Why is the auditor more concerned with the risk of overreliance than the risk of underreliance?

As part of the assessment of control risk,the auditor decided to use audit sampling.After specifying the audit objectives,what would the auditor most likely do next?