Question 1

What is the auditor's normal course of action if a "logical unit" is selected twice in MUS sampling?

Accepted Answer

The answer of What is the auditor's normal course of...

Question 2

Which of the following is not considered in establishing the sample size in a monetary unit sampling (MUS)application?

Accepted Answer

All of the options listed (expected error, population size, and risk of incorrect acceptance) are considered when establishing the sample size in a monetary unit sampling application.

Question 3

Which of the following factors is most likely established based on the results of prior audit examinations?

Accepted Answer

Expected error is often established based on the results of prior audit examinations, as it reflects the auditor's anticipation of the level of errors in the population based on past findings.

Question 4

Bama's accounts receivable were recorded at $600,000.Assume that the auditor determined a sample size of 20 customer accounts and prepared confirmations to those customers.One misstatement was determined; an account recorded at $10,000 was confirmed to have a balance of $5,000. What is the projected misstatement?

Accepted Answer

The answer of Bama's accounts receivable were recorded at $600,000.Assume...

Question 5

Under MUS sampling,the sampling interval is determined by dividing the _______________________ by the ______________________.

Accepted Answer

The answer of Under MUS sampling,the sampling interval is determined...

Question 6

A number of factors influence the sample size for a variables sampling application.All other factors held constant,which of the following would lead to a larger sample size?

Accepted Answer

Lower levels of tolerable misstatement mean that the auditor is willing to accept a lower amount of error in the financial statements. This means that the auditor will need to increase the sample size in order to have a higher level of confidence in the results and ensure that the tolerable misstatement limit is not exceeded.

Question 7

Bama's accounts receivable were recorded at $600,000.Assume that the auditor determined a sample size of 20 customer accounts and prepared confirmations to those customers.One misstatement was determined; an account recorded at $10,000 was confirmed to have a balance of $5,000. Using an incremental reliability factor of 1.58 (corresponding to the risk of incorrect acceptance of 5 percent),what is the incremental allowance for sampling risk?

Accepted Answer

The incremental allowance for sampling risk is calculated by multiplying the misstatement ($5,000) by the incremental reliability factor (1.58), resulting in $7,900. Adding the misstatement itself ($5,000) gives a total of $8,700.

Question 8

Which of the following expresses the relationship between changes in the factors and changes in sample size in variables sampling?

Accepted Answer

The relationship between changes in the factors and changes in sample size in variables sampling is such that as the tolerable misstatement decreases (inverse relationship), the sample size increases (direct relationship) because a smaller tolerable misstatement means the auditor must test more to ensure the desired level of assurance. Similarly, as the expected error increases (direct relationship), the sample size increases (direct relationship) because more testing is necessary to detect errors. Finally, as the risk of incorrect rejection decreases (inverse relationship), the sample size increases (inverse relationship) because a lower risk of incorrect rejection means that the auditor can be more confident in accepting the results of the sample without the need for additional testing. Therefore, B is the best choice as it correctly expresses these relationships.

Question 9

Which of the following factors has a direct relationship with sample size in a variables sampling application?

Accepted Answer

Sample size in a variables sampling application has a direct relationship with the expected error but not with the tolerable misstatement. Therefore, the correct option is B: Tolerable misstatement, no; expected error, yes.

Question 10

How does the auditor establish the level of tolerable misstatement in a variables sampling application?

Accepted Answer

In variables sampling, the auditor establishes the level of tolerable misstatement based on the recorded amount of the account balance as well as the relationship of the account balance with important financial statement subtotals. The auditor performs substantive testing on a sample of transactions or account balances, and the results of the sample are used to project the probable misstatement in the entire population. The tolerable misstatement is the maximum amount of misstatement that the auditor is willing to accept in the account balance or financial statement subtotal before concluding that the account balance or subtotal is materially misstated.

Question 11

Which of the following factors that affect sample size can be determined by considering the recorded account balance of the account or class of transactions as well as the relationship between the recorded account balance or class of transactions with important financial statement subtotals?

Accepted Answer

Tolerable misstatement is determined by considering the recorded account balance or class of transactions and its relationship with important financial statement subtotals, as it represents the maximum error in a financial statement that an auditor is willing to accept.

Question 12

Which of the following is found by dividing the amount of misstatement noted in a logical unit by the recorded amount of that logical unit?

Accepted Answer

The answer of Which of the following is found by...

Question 13

In a classical variables sampling application,the sample size will be smaller when the

Accepted Answer

In classical variables sampling, the sample size is based on the population variability, so the lower the population variability, the smaller the sample size can be to achieve the desired level of precision. Therefore, option D is the correct choice. A, B, and C are not directly related to determining the sample size in classical variables sampling.

Question 14

Which of the following components of the upper limit on misstatement is determined by multiplying the sampling interval by the reliability factor for the acceptable risk of incorrect acceptance?

Accepted Answer

The basic allowance for sampling risk is calculated by multiplying the sampling interval by the reliability factor for the acceptable risk of incorrect acceptance.

Question 15

Which of the following set of conditions would provide the auditor the smallest sample size under monetary unit sampling (MUS)(RIA = risk of incorrect acceptance,TM = tolerable misstatement,PS = population size)?

Accepted Answer

A smaller RIA leads to a larger sample size, a smaller TM leads to a smaller sample size, and a smaller PS leads to a smaller sample size. Among the given options, option C has the smallest population size. Therefore, option C provides the auditor with the smallest sample size.

Question 16

Which of the following components of the upper limit on misstatement will exist in all MUS sampling applications,including those for which no misstatements are found?

Accepted Answer

The basic allowance for sampling risk is an inherent component of the upper limit on misstatement in MUS sampling applications and is calculated regardless of whether misstatements are found or not. The computed and incremental allowances for sampling risk and projected misstatement are dependent on the presence and magnitude of misstatements detected in the sample.

Question 17

Bama's accounts receivable were recorded at $600,000.Assume that the auditor determined a sample size of 20 customer accounts and prepared confirmations to those customers.One misstatement was determined; an account recorded at $10,000 was confirmed to have a balance of $5,000. What is the appropriate sampling interval?

Accepted Answer

The sampling interval is calculated by dividing the total recorded amount by the sample size: $600,000 / 20 = $30,000.

Question 18

K.Brown,CPA,was using monetary unit sampling (MUS)to audit an inventory of $3,000,000 composed of 6,000 items.A sample size of 500 was determined and a tolerable misstatement of $20,000 was established.The sampling interval would be

Accepted Answer

The answer of K.Brown,CPA,was using monetary unit sampling (MUS)to audit...

Question 19

The amount by which a projected misstatement in an account balance or class of transactions differs from an actual misstatement as a result of the sample not being representative of the population would typically arise from

Accepted Answer

The scenario described relates to sampling risk, which is the risk that the sample taken may not be representative of the population being tested. This can result in the projected misstatement being significantly different from the actual misstatement. Choice A (misunderstanding of accounting principles) is not relevant to this scenario, and choice C (management override of internal control policy or procedure) and choice D (risk of incorrect acceptance) are not directly related to sampling risk.

Question 20

All other factors being equal,as the risk of incorrect acceptance and tolerable misstatement increase,the sample size will

Accepted Answer

The answer of All other factors being equal,as the risk...

Quiz 19: Variables Sampling