Question 1

Explain why monetary unit sampling, or probability proportional to size sampling, is not useful for detecting understatements.

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Question 2

Discuss the advantages and disadvantages of monetary unit sampling over other sampling methods.

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Question 3

Which of the following sampling plans would be designed to estimate a numerical measurement of a population, such as a dollar value?

Accepted Answer

Variables sampling is designed to estimate a numerical measurement of a population, such as a dollar value. Numerical sampling focuses on estimating the proportion of a population that has a certain characteristic or attribute, while discovery sampling is a non-statistical sampling method used to identify potential problems or opportunities. Attributes sampling is used to estimate the proportion of a population that has a certain characteristic or attribute.

Question 4

Stratified sampling is applicable to difference, mean-per-unit, and ratio estimation, but it is most commonly used with

Accepted Answer

Stratified sampling is most commonly used with mean-per-unit estimation, where the population is first divided into homogeneous subgroups (strata) and then a sample is taken from each stratum. This method is particularly useful when there is a significant variation among the strata.

Question 5

Auditors can state the conclusions drawn from a confidence interval using statistical inference in different ways.

Accepted Answer

Auditors can use different phrases to state the conclusions drawn from a confidence interval, such as "there is a 95% likelihood that the true value falls within the interval," or "based on the sample, we can be 95% confident that the true value falls within the interval."

Question 6

If the auditor believes that there will be more than just a few exceptions discovered, and desires an accurate estimate of the dollar value of the exceptions, he or she will use

Accepted Answer

Variables sampling is used to estimate the dollar value of exceptions when the auditor expects more than a few exceptions.

Question 7

When dealing with variables sampling and sampling risk, it is important to understand that

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Question 8

Acceptable risk of incorrect rejection is the statistical risk that the auditor has concluded that a population is materially misstated when it is not.

Accepted Answer

Acceptable risk of incorrect rejection is also known as Type I Error or alpha risk. It refers to the risk that the auditor may wrongly assess the population as materially misstated when in reality it is not. An auditor sets a benchmark for acceptable risk of incorrect rejection, which helps in determining the sample size and the extent of testing.

Question 9

The method used to measure the estimated total misstatement amount in a population when there is both a recorded value and an audited value for each item in the sample is

Accepted Answer

Difference estimation is used when there is a recorded value and an audited value for each item in the sample, allowing the auditor to estimate the total misstatement in the population by analyzing the differences observed in the sample.

Question 10

Which of the following is not a type of statistical method that provides results in dollar terms?

Accepted Answer

Attributes sampling, variables sampling, and monetary unit sampling are all types of statistical methods that provide results in dollar terms. Sampling with probability proportional to size is also a statistical method, but it does not provide results in dollar terms.

Question 11

Acceptable risk of incorrect rejection affects auditors' action only when they conclude that a population is

Accepted Answer

The acceptable risk of incorrect rejection only affects auditors' action when they conclude that a population is not fairly stated. This is because in such a case, auditors may need to increase the sample size or apply more rigorous audit procedures to reduce the risk of overlooking material misstatements. If the population is fairly stated, auditors do not need to take additional action related to the acceptable risk of incorrect rejection.

Question 12

When working with the different variables methods,

Accepted Answer

The statement "the difference between the mean-per-unit estimate and the difference estimate is the definition of what is being measured" is true and relevant to the topic of working with different variables methods. Options A, B, and D are incorrect as they have either false statements or irrelevant statements to the topic.

Question 13

Difference estimation frequently results in smaller sample sizes than any other variables sampling method.

Accepted Answer

Difference estimation takes advantage of the correlation between two related variables, resulting in a decrease in the required sample size compared to other variable sampling methods.

Question 14

Explain the decision rule used in monetary unit sampling to determine whether the population is acceptable.

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Question 15

When drawing statistical inferences about the population when using variables sampling,

Accepted Answer

Variables sampling involves estimating characteristics of the population based on sample data. However, there is always a possibility that the sample is not representative of the population, resulting in estimates that are not close to actual population values. While confidence intervals can be calculated in variables sampling, they are affected by the sample size and the variability in the population. Therefore, option A is not correct. Option C is also not correct because the reliability of the statistical inference process can be assessed by evaluating the sampling plan and the sampling results.

Question 16

You are auditing Nelson and Company and determined that the sample results support a conclusion that the account is materially misstated, when in fact it was not misstated. This illustrates the risk of

Accepted Answer

When the auditor incorrectly rejects the account as materially misstated, it is known as incorrect rejection or Type I error. This can happen if the sample results are not representative of the entire population or if the auditor places too much reliance on the sample results. It is a risk that the auditor should aim to minimize.

Question 17

The acceptable risk of incorrect rejection is important only when there is a ________ cost to increasing the sample size.

Accepted Answer

The acceptable risk of incorrect rejection (Type I error) becomes particularly important when there is a high cost associated with increasing the sample size. This is because, as the cost of adding more samples to the audit or study increases, auditors or researchers must carefully consider the risk of rejecting a true hypothesis (e.g., concluding a control is ineffective when it is actually effective) versus the cost implications of expanding the sample size for more conclusive results.

Question 18

The auditor is concerned with the audited value rather than the misstatement amount of each item in the sample when using

Accepted Answer

Mean-per-unit estimation focuses on the average value of items in the sample, which is then extrapolated to the entire population, making the auditor concerned with the audited value of each item rather than the specific misstatement amount.

Question 19

When making statistical inferences, the auditor must remember that

Accepted Answer

When making statistical inferences, auditors can state the conclusions drawn from a confidence interval in different ways. This is because there are different levels of confidence that can be used to construct the interval, and different ways of interpreting the results depending on the context of the study. It is also important to remember that statistical inferences are based on probabilities and therefore there is always a chance for error, and that the sample may not perfectly represent the population.

Question 20

How might auditors include negative balances when using monetary unit sampling to evaluate a population?

Accepted Answer

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Quiz 17: Audit Sampling for Tests of Details of Balances