Question 1

The _____________________________ is a conservative "adjustment" of the sample rate of deviation that controls the auditor's exposure to the risk of overreliance.

Accepted Answer

The answer of The _____________________________ is a conservative "adjustment" of...

Question 2

A(n)_____________________ is an instance in which controls are not functioning as intended.

Accepted Answer

The answer of A(n)_____________________ is an instance in which controls...

Question 3

Rome,CPA,is examining the internal control of Smack,Inc.Rome has established a risk of overreliance of 10%,an expected population deviation rate of 1%,and a tolerable rate of deviation of 5%. Ignore your answer to question 85.Assume that a sample of 100 items was examined and 5 deviations were noted.What is the upper limit rate of deviation?

Accepted Answer

To calculate the upper limit rate of deviation, we need to use the formula:
Upper limit rate of deviation = sample deviation rate + (reliability factor x allowance for sampling risk)
The sample deviation rate is calculated as 5/100 = 5%.
The reliability factor can be found using the table of the normal distribution for a one-tailed test, where the risk of overreliance is 10%. The closest value is 1.28.
The allowance for sampling risk is calculated as 1.65 x square root [(1% x 99) / 100] = 0.06 (rounded to two decimal places).
Thus, the upper limit rate of deviation = 5% + (1.28 x 0.06) = 9.08% (rounded to two decimal places). 
Therefore, the best choice is B as it is the closest to the calculated value of the upper limit rate of deviation.

Question 4

The expected population deviation rate has a(n)___________________ relationship with the necessary sample size.

Accepted Answer

The answer of The expected population deviation rate has a(n)___________________...

Question 5

Which of the following factors does not impact the sample size in an attributes sampling application?

Accepted Answer

Sample rate of deviation is not a factor that impacts sample size in an attributes sampling application. The factors that impact sample size include expected population deviation rate, risk of overreliance, and tolerable rate of deviation. These factors are used in the formula for determining the appropriate sample size.

Question 6

Which of the following factors is not assessed based on the acceptable level of control risk?

Accepted Answer

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

Question 7

The risk of overreliance results in a(n)______________________ loss to the auditor.

Accepted Answer

The answer of The risk of overreliance results in a(n)______________________...

Question 8

The auditor determines the tolerable rate of deviation based on the anticipated _____________________ on the client's internal control.

Accepted Answer

The answer of The auditor determines the tolerable rate of...

Question 9

If the tolerable rate of deviation is 6 percent,the acceptable risk of overreliance is 5 percent,and the upper limit rate of deviation is 4.8 percent,which of the following statements is not true?

Accepted Answer

The statement "The auditor would initially conclude that the internal control is not functioning as intended" is not true. If the upper limit rate of deviation is below the tolerable rate of deviation, it indicates that the internal control is functioning as intended. Therefore, the auditor would not initially conclude that the internal control is not functioning as intended. The other statements are true based on the given information.

Question 10

Which of the following is not true with respect to the risk of overreliance?

Accepted Answer

All the statements A, B, and C are true with respect to the risk of overreliance.

Question 11

The sample rate of deviation is determined by dividing the number of deviations noted by the auditor by the ________________________.

Accepted Answer

The answer of The sample rate of deviation is determined...

Question 12

An important control for sales on account is that the client mathematically verifies all sales invoices.Which of the following would be the most appropriate population from which to select sample items?

Accepted Answer

The sales invoices are the most appropriate population to select sample items for verifying sales on account, as they contain the details of the sale transaction, including the amount billed and payment terms. Selecting a sample of sales invoices allows for a direct verification of the accuracy of the sales figures recorded in the accounts receivable ledger. The other options (entries in the general journal, entries in the sales journal, and shipping documents) do not necessarily contain all the relevant information needed to verify sales on account.

Question 13

The __________________________________ is the maximum rate of deviations permitted by the auditor without reducing the reliance on internal control.

Accepted Answer

The answer of The __________________________________ is the maximum rate of...

Question 14

When performing tests of controls,the auditor typically uses __________________ sampling.

Accepted Answer

The answer of When performing tests of controls,the auditor typically...

Question 15

When committing the risk of underreliance,the true (but unknown)deviation rate in the population is _______________________ than the tolerable rate of deviation.

Accepted Answer

The answer of When committing the risk of underreliance,the true...

Question 16

Rome,CPA,is examining the internal control of Smack,Inc.Rome has established a risk of overreliance of 10%,an expected population deviation rate of 1%,and a tolerable rate of deviation of 5%. Based on your answer to question 86,what is the allowance for sampling risk?

Accepted Answer

The allowance for sampling risk can be calculated using the formula:
Allowance for Sampling Risk = Tolerable Rate of Deviation – Expected Population Deviation Rate
= 5% - 1%
= 4%
Since the risk of overreliance is 10%, we need to adjust the allowance for sampling risk using the following formula:
Adjusted Allowance for Sampling Risk = Allowance for Sampling Risk / √(Risk of Overreliance)
= 4% / √(10%)
= 4% / 0.316
= 12.7%
Therefore, the correct answer is A) 4.1 percent, which is the adjusted allowance for sampling risk (12.7% rounded down to the nearest percentage point).

Question 17

The _______________________________ is the frame of reference used by the auditor to represent the population when selecting the sample.

Accepted Answer

The answer of The _______________________________ is the frame of reference...

Question 18

The risk of _______________________ is the likelihood that the auditor's sample indicates that important controls are functioning effectively when,in fact,the true (but unknown)population deviation rate exceeds the tolerable rate of deviation.

Accepted Answer

The answer of The risk of _______________________ is the likelihood...

Question 19

When performing attributes sampling,the objective of the sampling plan is to identify important _____________________ corresponding to the financial statement assertions of interest.

Accepted Answer

The answer of When performing attributes sampling,the objective of the...

Question 20

Rome,CPA,is examining the internal control of Smack,Inc.Rome has established a risk of overreliance of 10%,an expected population deviation rate of 1%,and a tolerable rate of deviation of 5%. What is the appropriate sample size that would be examined by Rome?

Accepted Answer

To calculate the appropriate sample size, we use the formula: 
n = [(Z-score)^2 * p * (1-p)] / [(Marginal error)^2]

Where: 
Z-score = the value obtained from a standard normal distribution table for the risk of overreliance (10%)
p = expected population deviation rate (1%)
(1-p) = non-deviation rate (99%)
Marginal error = tolerable rate of deviation (5%)

Substituting the values:
n = [(1.28)^2 * 0.01 * 0.99] / [(0.05)^2]
n = 76.98, which we round up to 77.

Therefore, the appropriate sample size that would be examined by Rome is 77.

Quiz 18: Attributes Sampling