Question 1

In performing tests of controls over authorization of cash disbursements,which of the following statistical sampling methods would be most appropriate?

Accepted Answer

The most appropriate statistical sampling method for testing controls over authorization of cash disbursements would be attributes sampling. This method is used to determine the rate of occurrence of a particular attribute in a population, and is commonly used in tests of controls. In this case, the auditor would be looking to determine the rate of occurrence of proper authorization of cash disbursements, and attributes sampling is the best method for this.

Question 2

The following are steps in attributes sampling: 1 = Define the population
2 = Determine the objective of sampling
3 = Determine the sample size
4 = Select the sample
What is the general order in which the steps are performed?

Accepted Answer

The general order is to first determine the objective of sampling, then define the population, determine the sample size, and finally select the sample.

Question 3

An auditor interested in ensuring that all sales have been recorded would define the population as:

Accepted Answer

Shipping documents are used to verify that goods have been shipped and thus sales should be recorded.

Question 4

Which of the following statements is correct concerning statistical sampling in tests of controls?

Accepted Answer

The expected population deviation rate can be estimated using prior audit results or a small sample from the current year, which helps in determining the sample size needed for tests of controls.

Question 5

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

Accepted Answer

The answer of For which of the following audit tests...

Question 6

The risk of underreliance is the probability that the evidence in the sample indicates

Accepted Answer

The risk of underreliance occurs when the sample suggests a higher control risk than is actually warranted by the control's effectiveness, leading to unnecessary additional substantive testing.

Question 7

As a result of sampling procedures applied as tests of controls,an auditor incorrectly assesses control risk lower than appropriate.The most likely explanation for this situation is that

Accepted Answer

If the deviation rate in the auditor's sample is less than the tolerable rate of deviation, it may lead the auditor to incorrectly assess control risk lower than appropriate, even if the deviation rate in the population exceeds the tolerable rate of deviation. This is because the auditor may assume that the low deviation rate in the sample is representative of the overall population, when in fact it may not be.

Question 8

The ultimate purpose of control risk assessment is to:

Accepted Answer

The ultimate purpose of control risk assessment is to help the auditor make decisions regarding the nature, timing, and extent of substantive procedures. This involves evaluating the effectiveness of a company's internal controls and determining the level of risk associated with material misstatement. The overall goal is to design an audit plan that ensures all material misstatements are detected, while minimizing the risk of incorrect acceptance. Control risk assessment does not directly determine the probability of errors entering the accounts.

Question 9

As part of the assessment of control risk,the auditor decided to use audit sampling.After specifying the audit objectives,what would the auditor most likely do next?

Accepted Answer

The answer of As part of the assessment of control...

Question 10

Which of the following sampling risks is associated with the use of attributes sampling?

Accepted Answer

The answer of Which of the following sampling risks is...

Question 11

The purpose of tests of controls is to determine that:

Accepted Answer

The purpose of tests of controls is to determine whether the internal control policies and procedures are functioning as prescribed. This is important because effective internal controls reduce the risk of errors and irregularities occurring in financial statements. By testing internal controls, the auditor can gain assurance that the internal control system is adequate and provides the basis for the auditor to rely on internal controls when planning the audit. Thus, Option A is the correct choice. Option B is incorrect because tests of controls do not determine the nature, timing, and extent of substantive procedures. Option C is incorrect because the detection of errors and irregularities is only one of many purposes of tests of controls. Option D is incorrect because tests of controls are used to assess the effectiveness of internal control, not to gain an understanding of internal control.

Question 12

Which of the following would not be an example of nonsampling risk in an attributes sampling application?

Accepted Answer

Nonsampling risk refers to human errors or mistakes that are not related to the sample size or selection. Incorrect estimation of the expected population deviation rate is related to sampling risk, as it involves errors in the estimation process rather than execution or observation errors.

Question 13

An auditor who concludes that a control is functioning properly when,in fact,it is not has committed the

Accepted Answer

The auditor who concludes that a control is functioning properly when it is not has committed the risk of overreliance. Overreliance occurs when the auditor places too much faith in the effectiveness of the client's internal controls and therefore fails to detect material misstatements in the financial statements.

Question 14

An erroneous decision to assess control risk too high can have an adverse effect on

Accepted Answer

Assessing control risk too high leads to more substantive testing than necessary, reducing audit efficiency.

Question 15

The auditor tested a sample of recorded sales invoices for evidence of credit approval.Based on the results of the sample,the auditor concluded that there was a satisfactory rate of approvals.Unknown to the auditor,credit approvals in the population were not satisfactory.This would be an example of the risk of

Accepted Answer

The answer of The auditor tested a sample of recorded...

Question 16

Which of the following components of the audit risk model is most closely associated with attributes sampling?

Accepted Answer

The answer of Which of the following components of the...

Question 17

Why is the auditor more concerned with the risk of overreliance rather than the risk of underreliance?

Accepted Answer

The risk of overreliance, also known as the risk of incorrect acceptance, refers to the risk of the auditor relying too heavily on the results of the audit sample and failing to detect a material misstatement. This risk is a concern because it may result in the auditor's failing to perform sufficient substantive procedures, which may lead to a material misstatement going undetected. In contrast, the risk of underreliance, also known as the risk of incorrect rejection, refers to the risk of the auditor concluding that a material misstatement exists when, in fact, it does not. This risk is less of a concern because it is easier for the auditor to address by performing additional procedures.

Question 18

Samples to test internal control procedures are intended to provide a basis for an auditor to conclude whether

Accepted Answer

Samples to test internal control procedures are intended to provide an auditor with evidence of whether the control procedures are operating effectively. The auditor will then use this evidence to conclude whether or not the control procedures are sufficient to prevent or detect material misstatements in the financial statements.

Question 19

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

Accepted Answer

The auditor assessed control risk too low because the deviation rate in the sample was less than the true deviation rate in the population, leading to an incorrect conclusion about the effectiveness of controls.

Question 20

The likelihood of assessing control risk too high is the risk that the sample selected to test controls

Accepted Answer

Assessing control risk too high means the auditor believes the controls are less effective than they actually are. If the sample selected to test controls does not support the auditor's planned level of control risk and the true operating effectiveness of the control justifies such an assessment, then control risk may be assessed too high.

Quiz 18: Attributes Sampling