Question 1

An increase in the number of sampling units in the population will result in a decrease in the sample size.

Accepted Answer

An increase in the number of sampling units in the population may actually increase the sample size required to achieve a certain level of precision and accuracy in statistical inference.

Question 2

Projected error refers to the extrapolation of the errors detected when testing a sample to the population from which the sample was drawn.

Accepted Answer

Projected error is the estimate of the error rate in the population based on the error rate found in a sample. Therefore, it refers to the extrapolation of errors from a sample to the population.

Question 3

Stratification is when an auditor selects a sample for testing by dividing the number of population items by the sample size, resulting in the sampling interval.

Accepted Answer

Stratification in auditing is a technique where the auditor divides a population into smaller groups or strata based on certain characteristics, not by dividing the number of population items by the sample size. The method described in the question refers to interval sampling or systematic sampling.

Question 4

When conducting substantive testing, an increase in the auditor's assessment of the risk of material misstatement will result in an increase in the size of the sample.

Accepted Answer

An increase in the assessed risk of material misstatement would lead to an increase in the sample size in order to obtain more adequate evidence to reduce audit risk to an acceptable low level.

Question 5

Henrietta Lombardi assessed control risk to be low. What is the appropriate audit strategy she should adopt?
A) predominantly substantive audit approach
B) control testing strategy
C) combined audit strategy
D) substantive year end testing

Accepted Answer

The answer of Henrietta Lombardi assessed control risk to be...

Question 6

Michael Fernandez has decided to perform substantive procedurat a major retailer. Which one of the following is not a substantive procedure?
A) re-performing control procedures to test their effectiveness
B) inspecting documents to verify the dates of the transactions
C) bank confirmations regarding interest rates on borrowings by client
D) recalculating an interest expense using confirmed interest rates

Accepted Answer

Re-performing control procedures to test their effectiveness is a test of controls, not a substantive procedure. Substantive procedures are designed to detect material misstatements in the financial statements, while tests of controls assess the effectiveness of internal controls.

Question 7

Block selection involvthe selection of items that are grouped together within the population of items available.

Accepted Answer

Block selection involves selecting items that are grouped together within the population of items available. For example, a retailer may choose to select certain brands or products from a larger inventory to feature in a specific section or display in their store, creating a block of related items for customers to consider.

Question 8

When auditors conclude that an internal control is effective, they will rely on the control to prevent and detect a material misstatement and reduce their detailed substantive procedures.

Accepted Answer

When auditors conclude that an internal control is effective, they can rely on the control to prevent and detect a material misstatement and reduce their detailed substantive procedures, leading to a more efficient and effective audit process. However, it's important to note that the auditor's reliance on internal controls and the extent of their substantive procedures will depend on the assessed level of control risk and the overall risk of material misstatement for the financial statements as a whole.

Question 9

Tests of controls are audit procedurdesigned to detect material misstatements at the assertion level.

Accepted Answer

Tests of controls are designed to evaluate the effectiveness of an entity's internal controls, not to detect material misstatements directly.

Question 10

The risk that the auditor concludthat a material misstatement exists when it donot is likely to result in an increase in audit effort when it is not required.

Accepted Answer

If the auditor concludes that a material misstatement exists when it does not, they will likely perform additional audit procedures or request additional evidence, which will increase audit effort and time. This is a precautionary measure to ensure that the financial statements are free from any misstatement. However, if the auditor later discovers that their initial conclusion was incorrect, it may lead to unnecessary additional work and cost for the auditor and the client.

Question 11

The timing of audit testing refers to the stage of the audit when procedurare performed and the date that audit evidence relatto.

Accepted Answer

The timing of audit testing is an important factor in determining the effectiveness of audit procedures and the relevance of audit evidence. It can vary depending on the nature of the audit test and the specific objectives of the auditor. For example, tests of controls may be performed during interim periods to reduce the risk of material misstatements or fraud, while substantive procedures may be conducted at year-end to obtain sufficient evidence about account balances or transactions. The date that audit evidence relates to is also important, as it determines the period or date to which the audit opinion relates.

Question 12

Sampling risk is the risk that the sample chosen by the auditor is not representative of the population available for testing.

Accepted Answer

Sampling risk is a real risk in auditing that auditor may select ineffective or inappropriate sampling methods or sample size, which may cause auditors to make wrong conclusions about the entire population. Therefore, the sample may not be representative of the population available for testing, leading to incorrect audit findings.

Question 13

Ricky Alfaro wanted to ensure that all the transactions at his client were recorded. For which assertion was he conducting these detailed substantive procedures?
A) occurrence
B) completeness
C) cut-off
D) none of the above

Accepted Answer

Ricky Alfaro was conducting detailed substantive procedures to ensure that all transactions were recorded, which falls under the completeness assertion.

Question 14

Non-statistical sampling involvrandom selection and probability theory to evaluate the results.

Accepted Answer

Non-statistical sampling does not involve random selection and probability theory. It typically relies on judgment and convenience sampling methods.

Question 15

Sampling is required when an audit procedure is tested on an entire group of transactions or all items within an account balance.

Accepted Answer

Sampling is not always required in an audit. It depends on the objective of the audit procedure and the level of assurance required. It may be necessary to test all transactions or account balances in certain circumstances, such as when a high level of materiality or risk is present. However, in many cases, sampling can provide sufficient evidence to support audit conclusions.

Question 16

Tolerable error is the minimum error an auditor is willing to accept within the population tested.

Accepted Answer

Tolerable error is the maximum error in the population that the auditor is willing to accept and still conclude that the audit objective has been achieved; it is not the minimum error they are willing to accept.

Question 17

Stratification of the population will result in less efficient sampling and increase the sample size required.

Accepted Answer

Stratification of the population, when done correctly, aims to ensure that the sample more accurately reflects the population structure, potentially leading to more efficient sampling and possibly reducing the sample size required for a given level of statistical precision.

Question 18

An audit plan includthe audit procedurto be used when testing controls and when conducting detailed substantive audit procedures.

Accepted Answer

An audit plan should provide detail on the audit procedures to be used when testing controls and when conducting detailed substantive audit procedures.

Question 19

Milushka Icaza, who was representing her CPA firm at a conference, made the following statement about assertions: When our auditors conduct substantive procedures, we search for evidence that recorded accounts exist and that all accounts that should have been recorded, indeed have been recorded. Which assertions was she talking about?
A) rights and obligations and recording
B) valuation and allocation and recording
C) occurrence and completeness
D) none of the above

Accepted Answer

Milushka Icaza is referring to the assertions of occurrence and completeness. The statement she made refers to the auditors' search for evidence that transactions and events that have been recorded actually occurred (occurrence assertion) and that all transactions and events that should have been recorded have been included (completeness assertion).

Question 20

Oliver DiPietro was testing the controls of Blue Coast Wholesale Fish Market. When testing controls, which one of the following evidence gathering proceduris used?
A) vouching of transactions
B) confirmations of accounts receivable
C) tracing of transactions to source documents
D) enquiry of client personnel

Accepted Answer

Enquiry of client personnel is a common procedure used when testing controls to understand and evaluate the effectiveness of the controls in place.

Quiz 6: Sampling and Overview of the Risk Response Phase of the Audit