Question 1

Tolerable misstatement is used to:
A) 
B) 
C) 
D)

Accepted Answer

D

Question 2

If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance:
A)is reduced.
B)is increased.
C)is not changed.
D)may be reduced or increased depending upon other circumstances.

Accepted Answer

If the auditor desires a greater level of assurance, they will want to reduce the acceptable risk of incorrect acceptance, which is the risk of accepting a balance as materially correct when it is actually materially misstated. This means the auditor wants to decrease the likelihood of making this type of error.

Question 3

In estimating the population misstatement, the first step in projecting from the sample to the population is to:
A)make a point estimate.
B)revise the upper error bound.
C)calculate the precision interval.
D)determine the population mean.

Accepted Answer

The first step in projecting from the sample to the population is to make a point estimate. This is typically done by calculating the sample mean or proportion and using it as an estimate of the population mean or proportion.

Question 4

If acceptable audit risk is increased, acceptable risk of incorrect acceptance should be:
A)increased.
B)reduced.
C)unaffected.
D)modified.

Accepted Answer

Acceptable audit risk is the risk that the auditor is willing to accept that the financial statements may be materially misstated and still issue an unqualified opinion. Increasing the acceptable audit risk means that the auditor is willing to accept a higher risk of material misstatements going undetected. Since the risk of incorrect acceptance is the risk that the auditor incorrectly accepts the financial statements as materially correct, increasing the acceptable audit risk will increase the risk of incorrect acceptance.

Question 5

When selecting a sample size for substantive tests of balances which factor, other factors being equal, would result in a larger sample?
A)A decrease in the tolerable misstatement
B)Small expected misstatements
C)An increase in the tolerable misstatement
D)An increase in the acceptable risk of incorrect acceptance

Accepted Answer

When the tolerable misstatement decreases, it means that the auditor is willing to accept a smaller amount of material misstatement in the financial statements. As a result, a larger sample size would be needed to provide sufficient evidence that the financial statements are free from material misstatement. This is because a smaller tolerable misstatement means that the auditor needs to be more certain that there is no material misstatement in the account balance or transaction being tested, hence a larger sample size is needed to achieve this level of assurance.

Question 6

Tests for rates of occurrence are appropriately used in all but which of the following situations?
A) 
B) 
C) 
D)

Accepted Answer

Tests for rates of occurrence are not appropriate for situations involving unique events or occurrences, which is the case in option C where the ID is different from others. The other options involve repeated events, making them suitable for tests for rates of occurrence.

Question 7

The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is:
A)inverse.
B)direct.
C)proportional.
D)indeterminate.

Accepted Answer

The relationship between required sample size and acceptable risk of incorrect acceptance is inverse. As the acceptable risk of incorrect acceptance decreases, the required sample size increases.

Question 8

If an auditor concludes that internal controls are likely to be effective, the preliminary assessment of control risk can be reduced, leading to which of the following impacts on the acceptable risk of incorrect acceptance?
A)The acceptable risk of incorrect acceptance will be reduced.
B)The acceptable risk of incorrect acceptance will be increased.
C)The acceptable risk of incorrect acceptance will be eliminated.
D)The acceptable risk of incorrect acceptance will not be impacted.

Accepted Answer

When an auditor assesses internal controls as likely to be effective, they may rely more on these controls and thus accept a higher risk of incorrect acceptance, as they believe the controls reduce the likelihood of material misstatements going undetected.

Question 9

The appropriate assumption to make regarding the overall percent of error in those population items containing an error is:
A)determined using random number tables.
B)set after a quantitative analysis of client's internal control system.
C)based on the auditor's personal judgment in the circumstances.
D)based on statistical analysis using confidence limits.

Accepted Answer

The overall percent of error in population items containing an error is typically based on the auditor's personal judgment, considering the specific circumstances and understanding of the client's internal control system.

Question 10

The auditors principal objective when using a sample of tests of details of balances is whether the:
A)account balance being audited is fairly stated.
B)transactions being audited are free of misstatements.
C)controls being tested are operating effectively.
D)transactions and account balances being audited are fairly stated.

Accepted Answer

The principal objective of using a sample of test of details of balances is to determine whether the account balance being audited is fairly stated. The auditor selects a sample of transactions and checks whether the individual items in the sample support the balance in question. This provides the auditor with evidence about the accuracy and completeness of the balance being audited. Therefore, option A is the correct answer. Option B relates to the objective of testing transactions for existence and occurrence, which is different from the objective of testing details of balances. Option C is related to testing controls rather than testing details of balances. Option D is too broad and does not specifically state the primary objective of testing details of balances.

Question 11

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will:
A)decrease.
B)increase.
C)vary based on characteristics of the population.
D)be unaffected.

Accepted Answer

As the amount of misstatements expected in the population approaches the tolerable misstatement, auditors perceive a higher risk of material misstatement. To mitigate this risk and gain more assurance, they will plan for a larger sample size to perform a more thorough examination.

Question 12

An auditor using nonstatistical sampling cannot formally measure sampling error and therefore must subjectively consider the possibility that the true population misstatement exceeds a tolerable amount.Which of the following factors should be considered by the auditor in making this assessment?
A) 
B) 
C) 
D)

Accepted Answer

The answer of An auditor using nonstatistical sampling cannot formally...

Question 13

You are auditing Raji and Company.You discover an item of inventory with an audited value of $5,000 with a recorded amount of $3,000.If this is the only error you discover the projected misstatement for the sample would be:
A)$5,000.
B)$2,000.
C)$3,000.
D)$4,000.

Accepted Answer

The projected misstatement would be equal to the audited value minus the recorded amount, which is $5,000 - $3,000 = $2,000. Therefore, the best choice is B.

Question 14

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is:
A)the upper bound.
B)the tolerable risk.
C)the acceptable risk of incorrect acceptance.
D)the lower bound.

Accepted Answer

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is known as the acceptable risk of incorrect acceptance. This risk is also referred to as the audit risk. Therefore, option C is the correct answer. Option A (upper bound) and D (lower bound) are incorrect and do not have any relevance to this scenario. Option B (tolerable risk) is similar but not the same as the acceptable risk of incorrect acceptance. The tolerable risk refers to the maximum amount of error or misstatement that is acceptable in a balance under audit.

Question 15

One of the steps involved in planning the sample for the tests of details of balances is to:
A)select the sample.
B)perform the audit procedures.
C)define a misstatement.
D)analyze the misstatements.

Accepted Answer

The answer of One of the steps involved in planning...

Question 16

The final step in the evaluation of the audit results is the decision to:
A)accept the population as fairly stated or to require further action.
B)determine sampling error and calculate the estimated total population error.
C)project the point estimate.
D)determine the error in each sample.

Accepted Answer

The final step in the evaluation of the audit results is to decide whether to accept the population as fairly stated or to require further action. This decision is based on the auditor's evaluation of the audit evidence gathered during the audit, including the results of any tests of controls and substantive procedures. Therefore, option A is the best choice. Options B, C, and D are not the final step in the evaluation of the audit results.

Question 17

Which of the following does not have to be considered in determining the initial sample size of a test of details?
A)Tolerable misstatement
B)Acceptable risk of incorrect rejection
C)Estimate of misstatements in the population
D)Acceptable audit risk

Accepted Answer

The answer of Which of the following does not have...

Question 18

Both sampling and nonsampling risks are associated with:
A) 
B) 
C) 
D)

Accepted Answer

The answer of Both sampling and nonsampling risks are associated...

Question 19

What is the purpose of applying stratified sampling to a population?
A) 
B) 
C) 
D)

Accepted Answer

The answer of What is the purpose of applying stratified...

Question 20

The most important difference among tests of controls, substantive tests of transactions, and tests of details of balances lies in what the auditor wants to measure.Explain what each type of test attempts to measure.

Accepted Answer

The answer of The most important difference among tests of...

Quiz 17: Audit Sampling for Tests of Details of Balances

Tolerable misstatement is used to:

If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance:

In estimating the population misstatement, the first step in projecting from the sample to the population is to:

If acceptable audit risk is increased, acceptable risk of incorrect acceptance should be:

When selecting a sample size for substantive tests of balances which factor, other factors being equal, would result in a larger sample?

Tests for rates of occurrence are appropriately used in all but which of the following situations?

The word below that best explains the relationship between required sample size and the acceptable risk of incorrect acceptance is:

If an auditor concludes that internal controls are likely to be effective, the preliminary assessment of control risk can be reduced, leading to which of the following impacts on the acceptable risk of incorrect acceptance?

The appropriate assumption to make regarding the overall percent of error in those population items containing an error is:

The auditors principal objective when using a sample of tests of details of balances is whether the:

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will:

An auditor using nonstatistical sampling cannot formally measure sampling error and therefore must subjectively consider the possibility that the true population misstatement exceeds a tolerable amount.Which of the following factors should be considered by the auditor in making this assessment?

You are auditing Raji and Company.You discover an item of inventory with an audited value of $5,000 with a recorded amount of $3,000.If this is the only error you discover the projected misstatement for the sample would be:

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is:

One of the steps involved in planning the sample for the tests of details of balances is to:

The final step in the evaluation of the audit results is the decision to:

Which of the following does not have to be considered in determining the initial sample size of a test of details?

Both sampling and nonsampling risks are associated with:

What is the purpose of applying stratified sampling to a population?

The most important difference among tests of controls, substantive tests of transactions, and tests of details of balances lies in what the auditor wants to measure.Explain what each type of test attempts to measure.