Question 1

All of the following are advantages of statistical sampling except:

Accepted Answer

Statistical sampling does not eliminate all forms of audit risk, including nonsampling risk. Nonsampling risk arises from factors such as inadequate audit procedures, misinterpretation of audit evidence, or intentional misrepresentation by the client. Statistical sampling can help to mitigate sampling risk, which arises from the possibility that the sample is not representative of the population.

Question 2

All of the following are correct regarding variables sampling,except:

Accepted Answer

The risk of incorrect acceptance is of more concern to auditors than the risk of incorrect rejection because it means that a material misstatement might go undetected.

Question 3

Documentation is required during which of the following stages of the sampling process? $$\begin{array} { c c c } 
& \text { Measuring Sample } & \text { Avalueting Sample } \
&\text { Items } & \text { Results } \
A. &\text { Yes } & \text { No } \
B.&\text {  No } & \text { No }  \
C.&\text {  No } & \text { Yes }  \
D. &\text { Yes } & \text { Yes }
\end{array}$$

Accepted Answer

The answer of Documentation is required during which of the...

Question 4

Which of the following sampling activities is not performed during the planning stage of the audit?

Accepted Answer

Determining the sample size is typically performed during the execution stage of the audit, once the auditor has a better understanding of the population and the objectives of sampling. During the planning stage, the auditor would typically focus on defining the population, determining the objective of sampling, and defining the characteristic of interest.

Question 5

An auditor using variables sampling to perform substantive procedures concludes that the account balance is misstated.This conclusion is the result of which of the following?

Accepted Answer

The auditor concludes that the account balance is misstated when the upper limit on misstatement exceeds the tolerable misstatement, indicating that the potential misstatement is beyond what is acceptable.

Question 6

The audit team decided to reduce planned reliance on internal controls based on the results of attributes sampling.However,the actual rate of deviation in the population is lower than the tolerable rate of deviation.Which type of risk and loss is the audit team exposed to?

Accepted Answer

The audit team is exposed to the risk of underreliance and efficiency loss because they reduced reliance on controls despite the actual deviation rate being acceptable, leading to unnecessary additional testing.

Question 7

Tests performed by auditors that examine evidence for both control attributes and monetary misstatements are known as:

Accepted Answer

Dual-purpose tests are tests that serve both control attributes and monetary misstatements. These tests are efficient and effective as they allow auditors to evaluate both aspects simultaneously.

Question 8

Auditors use attributes sampling in assessing the effectiveness of a client's internal controls to determine:

Accepted Answer

Attributes sampling is used to evaluate the effectiveness of internal controls in preventing or detecting misstatements, as opposed to assessing the inherent risk or accuracy of account balances or transactions.

Question 9

Which of the following statements about audit sampling risks is correct?

Accepted Answer

Nonsampling risk relates to risks that arise from factors other than sample selection, such as the failure to recognize misstatements. Sampling risk is the risk that an incorrect conclusion may be drawn because the sample is not representative of the population. The statement in option A is not accurate, as it describes the risk of sampling error rather than nonsampling risk. Lastly, option D refers to the risk of incorrect audit procedures rather than sampling risk.

Question 10

When evaluating the effectiveness of a client's internal controls with a tolerable rate of deviation of 5 percent,the audit team determined the upper limit rate of deviation to be 4 percent.Based on this information,which of the following decisions would the audit team most likely make?

Accepted Answer

The upper limit rate of deviation (4%) is below the tolerable rate of deviation (5%), indicating that the internal controls are effective as planned, so the audit team can rely on them.

Question 11

An auditor is determining the appropriate sample size for a variables sampling application.Compared to prior engagements,the auditor concludes that the population variability has increased.In addition,the partner on the engagement is requiring lower levels of the risk of incorrect acceptance than those used in previous audits.What effect will these changes have on the auditor's determination of sample size?

Accepted Answer

The increase in population variability will lead to increased sample size as more samples are needed to obtain a representative sample. Additionally, reducing the risk of incorrect acceptance will require a larger sample size to ensure a higher level of confidence in the results. Therefore, both changes will increase the auditor's determination of sample size.

Question 12

Selecting the first five sales orders processed each month for examination is an example of which of the following types of selection method?

Accepted Answer

Block selection involves selecting a contiguous group of items, such as the first five sales orders each month.

Question 13

An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance.This is an example of which of the following types of sampling risks?

Accepted Answer

This is an example of incorrect acceptance, which occurs when the auditor concludes that a population is not materially misstated when, in fact, it is. The auditor incorrectly accepted the account balance as not materially misstated based on the audit sample, leading to the material misstatement being missed.

Question 14

While performing an audit of accounts payable,Clayton,CPA,is using variables sampling to determine the audited value of the account based on selected purchase orders.Which of the following options is most likely to reduce the necessary sample size?

Accepted Answer

An increase in the necessary risk of incorrect acceptance allows for a larger margin of error, thus reducing the required sample size.

Question 15

Which of the following appropriately describes the effect of sample size on sampling risk?

Accepted Answer

Selecting a smaller sample increases sampling risk because there is a higher chance that the sample may not accurately represent the population, leading to incorrect conclusions.

Question 16

In a sampling application to determine the average age of employees in management positions,the sample estimate was 50 years,reliability was 80 percent,and precision was 10 years.Which of the following would most likely result from an increase in the desired level of reliability to 90 percent?

Accepted Answer

Increasing the desired level of reliability to 90 percent would require a larger sample size, which in turn would decrease the precision interval. This means that the new precision interval would be wider, and therefore cover a larger range of ages. Based on the given information, the precision interval is currently 40 to 60 years (10 years of precision around the sample estimate of 50 years). Increasing the reliability to 90 percent would likely result in a new precision interval of 35 to 65 years. This is because the precision of 10 years needs to be maintained, but the reliability needs to be increased, requiring a larger sample size and wider interval. The sample estimate may or may not change, depending on the actual distribution of ages in the population, so it is not possible to determine this from the given information. Therefore, options A and D are unlikely. Option B is incorrect because a precision interval of 40 to 60 years is already given, so it does not reflect the impact of increasing reliability.

Question 17

An auditor is reviewing a sample of cash disbursements to ensure that the appropriate supporting documents were received prior to payment.Which type of sampling approach would the auditor use to perform this test?

Accepted Answer

Attributes sampling is commonly used to test the occurrence of a specific characteristic within a population. In this case, the auditor is testing whether the appropriate supporting documents were received, which is a specific characteristic. Therefore, attributes sampling is the best choice for this test. Collective sampling involves analyzing a group of items as a whole, rather than selecting individual items for testing. Variables sampling is used to test a numerical quantity, such as the accuracy of the amount recorded on a document. Quality sampling is not a recognized sampling approach in auditing.

Question 18

Which of the following statements is true about haphazard selection?

Accepted Answer

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

Question 19

Based on the results of attributes sampling,the audit team assessed control risk too low and did not modify the nature,timing,and extent of its further audit procedures to reduce detection risk.This situation would most likely result in a(n):

Accepted Answer

If the audit team assessed control risk too low and did not modify the nature, timing, and extent of further audit procedures, then they have not tested the controls sufficiently to reduce the risk of not detecting material misstatements. This would increase the risk of issuing an unqualified audit opinion when there are material misstatements present, resulting in a higher level of audit risk than planned.

Question 20

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

Accepted Answer

Attributes sampling is used to determine the proportion of a population that possesses a certain characteristic. In option A, the auditor is testing for the presence or absence of proper approval by supervisors on purchase orders, making it a suitable scenario for attributes sampling. Option B involves estimation, while options C and D involve testing for monetary misstatements, which would be better suited for variables sampling.

Quiz 17: Overview of Sampling