Question 1

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

Accepted Answer

The auditor assessed control risk too low because the true deviation rate in the population was more than the deviation rate observed in the auditor's sample. This led to an underestimation of the risk and a decrease in substantive testing.

Question 2

If the association of population items with random numbers is difficult and expensive, but the auditor does not have sufficient knowledge about the population, the auditor should ________.

Accepted Answer

D

Question 3

Which of the following audit procedures is NOT typically used in audit sampling applications?

Accepted Answer

Observation of personnel and procedures is not typically used in audit sampling applications because audit sampling involves the selection and evaluation of a sample from a population to make a conclusion about that population. Observation is more about assessing the process or controls in place rather than evaluating the accuracy or existence of recorded amounts or transactions.

Question 4

Which of the following courses of action is an auditor most likely to follow in designing a sampling plan for cash disbursements if the auditor is aware of several unusually large cash disbursements?

Accepted Answer

Stratifying the cash disbursements population would ensure that all of the unusually large disbursements are selected, rather than relying on chance to include them in the sample. This would increase the likelihood of detecting any errors or fraud related to those disbursements. Increasing the sample size, continuing to draw new samples, or setting a lower tolerable deviation rate would not specifically address the issue of unusually large disbursements.

Question 5

An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to ________.

Accepted Answer

Statistical sampling allows an auditor to use mathematical techniques to determine an appropriate sample size based on desired confidence levels and tolerances for error, thus making a preliminary estimate of the sample size more systematic and grounded in statistical theory.

Question 6

Which of the following is used in attribute sampling to determine the sample size?

Accepted Answer

The answer of Which of the following is used in...

Question 7

The risk of assessing control risk too high is the risk that the evidence of compliance with control procedures in the sample indicates ________.

Accepted Answer

Assessing control risk too high means the auditor believes the internal controls are less effective than they actually are, leading to unnecessary additional testing. Option C correctly describes this scenario, where the evidence suggests a higher control risk than warranted by the actual compliance level.

Question 8

The probability that an auditor's conclusion based on a sample might differ from the auditor's conclusion based on an audit of the entire population identifies the concept of ________.

Accepted Answer

Sampling risk is the risk that the auditor's conclusion based on a sample may be different from the conclusion they would reach if they audited the entire population. Sampling risk is inherent in any type of statistical sampling and can never be completely eliminated.

Question 9

The set of all of the elements that comprise an account balance or a class of transactions is referred to as a ________.

Accepted Answer

The set of all elements that comprise an account balance or a class of transactions is referred to as a population. A sampling unit is a single item or element that is selected from the population for inclusion in a sample. A sample is a subset of the population that is selected for analysis or study. A population unit is not a commonly used term in statistics.

Question 10

Detection risk is the risk that the auditor will not detect material misstatements in the accounts. To limit detection risk to an acceptable level, the auditor ________.

Accepted Answer

Performing substantive tests is a direct method for auditors to detect material misstatements, thereby limiting detection risk to an acceptable level.

Question 11

In a sample-based audit of an account balance, which of the following combinations properly expresses the relationship between changes in the factors indicated and changes in sample size?

Accepted Answer

According to professional auditing standards, sample size can be affected by factors such as materiality, risk of misstatement, and the quality of the internal control environment. Therefore, only option B presents the appropriate changes in those factors that would impact the sample size, with an increase in materiality and risk leading to a larger sample size, while a stronger control environment would allow for a smaller sample size. Options A, C, and D do not show a consistent or appropriate relationship between the mentioned factors and the sample size.

Question 12

The purpose of tests of controls is to determine whether ________.

Accepted Answer

Tests of controls are performed to determine whether the internal controls designed and implemented by an entity are functioning effectively as prescribed. This helps the auditor in assessing the risk of misstatements, planning subsequent audit procedures, and issuing an audit opinion. The purpose is not to prevent or detect errors and irregularities (which is the role of substantive testing) or simply to gain an understanding of the control system.

Question 13

In testing controls over invoices, an auditor discovers that in 10% of her statistical sample invoices were sent for full shipments, even if shipping documents suggested partial shipments. In this case, she would likely ________.

Accepted Answer

The auditor is likely to increase her sample size to determine the extent of the control weakness since the high incidence of full shipments even though shipping documents suggested partial shipments is indicative of a control weakness. Increasing the sample size will enable her to have a better understanding of the control weakness and determine if it is pervasive.

Question 14

Which of the following is an advantage of statistical sampling?

Accepted Answer

The answer of Which of the following is an advantage...

Question 15

Which of the following is a term used to describe a departure from a prescribed internal control procedure?

Accepted Answer

An exception is a term used to describe a departure from a prescribed internal control procedure. An exception is an instance where a control is not properly followed or has failed, leading to a deviation from normal procedures. This can indicate a potential weakness in the internal control system and requires investigation and remediation. Option B, Event, is too broad and not specific to internal controls. Option C, Misstatement, is a term used in financial reporting to describe a material error or omission in financial statements. Option D, Known error, is a term used in IT and refers to an error or defect in a software application that is known and has been documented.

Question 16

For which of the following audit tests is an auditor most likely to use attribute sampling?

Accepted Answer

Attribute sampling is used to test for the presence or absence of certain qualities or attributes in a sample of items. Inspecting employee time cards for proper approval by supervisors is an example of testing for a specific attribute (proper approval), making it the most likely scenario where attribute sampling would be used.

Question 17

When performing the substantive tests on an account balance, the auditor is concerned about two aspects of sampling-based decision errors: (1) the risk of incorrect rejection (RIR) and (2) the risk of incorrect acceptance (RIA). Which of the following is true about RIR and RIA?

Accepted Answer

RIA is of greater concern because it relates to the risk that the auditor concludes that a material misstatement does not exist when, in fact, it does. This could lead to the auditor issuing an incorrect opinion on the financial statements, which is a significant concern.

Question 18

Which description best illustrates sampling risk?

Accepted Answer

Sampling risk is the risk that the sample chosen by an auditor is not representative of the population being tested, therefore, option D best illustrates the concept of sampling risk. Option A is related to the risk of audit strategy, B is related to detection risk, and C is related to statistical risk.

Question 19

The risk model is defined as AR = IR × CR × DR. The risk of assessing control risk too low can lead to ________.

Accepted Answer

Assessing control risk too low means the auditor believes controls are more effective than they actually are, leading to a potential failure to detect material misstatements. This may lead to the auditor failing to do additional work that should be done, putting the audit at risk for not being completely reliable.

Question 20

Non-statistical sampling may be better to use than statistical sampling when ________.

Accepted Answer

The answer of Non-statistical sampling may be better to use...

Quiz 10: Audit Sampling