Question 1

Which of the following would be the most likely situation in which an auditor would use variables sampling?

Accepted Answer

Variables sampling is typically used when the auditor wants to estimate a value, such as a dollar amount or percentage, rather than simply testing for the presence or absence of a specific attribute. Selecting customer balances in accounts receivable for confirmation would likely involve selecting a sample of balances and estimating the overall accuracy of the account using variables sampling techniques.

Question 2

Jeter,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Big Apple Company and estimated the account balance based on the ratio of audited value to recorded balances.He audited 200 items from a sample and found an audited value of $36,000.The sample had a recorded balance of $40,000.If the entire inventory contained 3,000 items and the total recorded balance of the inventory was $500,000,the estimated account balance using nonstatistical estimation and projecting the error based on number of items examined is:

Accepted Answer

To calculate the estimated account balance using nonstatistical estimation and projecting the error based on the number of items examined, we will use the following formula:

Estimated Account Balance = (Recorded Balance / Sample Size) x Audited Value

Where,
Recorded Balance = $500,000
Sample Size = (200 / 3,000) x 100% = 6.67% of total inventory items
Audited Value = $36,000

Substituting the values in the formula, we get:

Estimated Account Balance = ($500,000 / 6.67%) x ($36,000 / 200) = $7,500,000 x 0.18 = $1,350,000

Therefore, the estimated account balance using nonstatistical estimation and projecting the error based on the number of items examined is $450,000 (Option C).

Question 3

_____ sampling methods use normal distribution theory and the central limit theorem to provide a range estimate of the account balance or class of transactions or the misstatement in the account balance or class of transactions.

Accepted Answer

Classical variables sampling methods use normal distribution theory and the central limit theorem to provide a range estimate of the account balance or class of transactions or the misstatement in the account balance or class of transactions. Attributes sampling methods focus on the proportion of items in a population that possess a given attribute, while nonstatistical sampling methods do not use statistical theory to evaluate results. Monetary unit sampling (MUS) is a type of classical variables sampling method that is used to estimate the dollar amount of misstatements in an account balance or class of transactions.

Question 4

Summitt,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Hero,Inc.Which of the following methods of sample selection are available to her?

Accepted Answer

In nonstatistical sampling, the auditor can use any method they believe will result in a representative sample, as it does not require probabilistic estimation.

Question 5

The process of subdividing a population into more homogeneous subgroups is known as:

Accepted Answer

The process of subdividing a population into more homogeneous subgroups is known as stratification. This allows for a more specific sampling technique to be used in each subgroup, resulting in greater accuracy in research findings. Option A, classification, refers to the grouping of objects or individuals based on defined characteristics. Option B, identification, refers to the process of recognizing an individual or object by their unique characteristics. Option C, sampling, refers to the selection of a portion of the population for research purposes.

Question 6

In a classical variables sampling application,if the _____ exceeds the maximum difference between the recorded balance and any point within the precision interval,the auditor would decide to _____ the account balance as fairly stated.

Accepted Answer

If the tolerable misstatement exceeds the maximum difference between the recorded balance and any point within the precision interval, the auditor would accept the account balance as fairly stated because the potential misstatement is within acceptable limits.

Question 7

Which of the following is the least likely outcome when the upper limit on misstatements exceeds the tolerable misstatement?

Accepted Answer

If the upper limit on misstatements exceeds the tolerable misstatement, it means that the auditor has found misstatements that are greater than what they consider to be acceptable. Therefore, it is unlikely that the auditor would conclude that the account balance is fairly stated. They would need to take further action to address the misstatements found. Choices A-C are all possible outcomes when the upper limit on misstatements exceeds the tolerable misstatement.

Question 8

When conducting variables sampling,auditors typically examine

Accepted Answer

When conducting variables sampling, auditors typically examine transactions of components of the account balance or class of transactions. This is because variables sampling involves selecting a sample of items and measuring the value of some characteristic of those items, such as the dollar amount of a transaction. Therefore, the auditor needs to examine the individual transactions that comprise the balance or class of transactions being sampled. The other options listed are not relevant to variables sampling.

Question 9

What is one of the primary benefits of stratifying a population?

Accepted Answer

Stratifying the population allows the auditor to reduce the necessary sample size. By stratifying the population into smaller groups, the auditor can select a smaller sample size from each group, which can save time and resources while still providing a representative sample for testing.

Question 10

Pujols,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Wieserbud Brewing,Inc.and estimated the account balance based on the ratio of audited value to recorded balances.He audited 120 items from a sample and found an audited value of $24,600.The sample had a recorded balance of $30,000.If the entire inventory contained 2,400 items and the total recorded balance of the inventory was $480,000,the estimated account balance using nonstatistical methods is:

Accepted Answer

Pujols estimated the account balance based on the ratio of audited value to recorded balances. So, he found that the audited value of $24,600 is 82% ($24,600/$30,000) of the recorded balance of $30,000 in the sample. Thus, the estimated value of the entire inventory will also be 82% of the recorded balance of the inventory.

Recorded balance of the inventory = $480,000
So, the estimated account balance using nonstatistical methods can be calculated as:
Estimated account balance = Recorded balance of the inventory × Ratio of audited value to recorded balances
Estimated account balance = $480,000 × 82%
Estimated account balance = $393,600

Therefore, the best choice is A) $393,600 because it is the estimated account balance using the nonstatistical method based on Pujols' sample.

Question 11

Which of the following is considered in determining the sample size in a classical variables sampling application but not in a monetary unit sampling application?

Accepted Answer

In classical variables sampling, the standard deviation is considered to determine sample size, whereas in monetary unit sampling, it is not.

Question 12

Which of the following statements is not true regarding variables sampling?

Accepted Answer

Variables sampling is not appropriate when the distribution of the population is binary in nature. Variables sampling is used when the population being sampled has a continuous distribution. Binary distributions require attribute sampling.

Question 13

If a customer's account was recorded at $45,000,the audited value was $30,000,and the sampling interval was $30,000,the projected misstatement would be:

Accepted Answer

The projected misstatement is calculated as the difference between the recorded amount and the audited amount. Here, $45,000 - $30,000 = $15,000.

Question 14

In which of the following situations would the auditor be more likely to use monetary unit sampling as opposed to classical variables sampling?

Accepted Answer

Monetary unit sampling is more effective when there is a concern with overstatements and when the expected misstatement is not large, as it is designed to detect overstatements in account balances.

Question 15

Solo,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Hope,Inc.and estimated the account balance by projecting the misstatement based on the number of items examined.In selecting her sample of 70 items,she used an expected misstatement of $40,000 and a tolerable misstatement of $65,000.The account balance consisted of 1,050 items totaling $1,200,000.The sample recorded balance was $80,000,and the audited value was $76,000.What conclusion did Solo draw regarding the account balance?

Accepted Answer

The answer of Solo,CPA,performed a nonstatistical sampling plan to examine...

Question 16

Samantha,CPA decided to stratify the population in her statistical sampling plan.Which of the following is the most likely reason she used this approach?

Accepted Answer

Stratification can reduce the sample size needed by grouping similar items, allowing for more efficient and effective sampling.

Question 17

In which of the following circumstances would the auditor most likely use variables sampling?

Accepted Answer

Variables sampling is typically used to estimate the dollar amount of misstatement in an account balance or class of transactions. Therefore, determining whether the client's accounts receivable balance is correctly recorded represents a circumstance in which an auditor would most likely use variables sampling. The other answer choices would be better suited for either attributes sampling or substantive testing.

Question 18

An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance.This is an example of which of the following types of sampling risks?

Accepted Answer

This is an example of incorrect acceptance, where the auditor mistakenly accepts the account balance as not materially misstated based on the sample, but it turns out to be materially misstated when the entire population is considered.

Question 19

The upper limit on misstatements is:

Accepted Answer

The upper limit on misstatements is an adjustment of the sample estimate of misstatement to reflect the desired level of sampling risk, ensuring that the auditor accounts for the possibility of sampling error.

Question 20

Green,CPA,performed a mean-per-unit sampling plan to examine the inventory balances of ABC Company.Green audited 120 items from a sample and found an audited value of $24,600.The sample had a recorded balance of $30,000.If the entire inventory contained 2,400 items and the total recorded balance of the inventory was $480,000,the estimated account balance using mean per unit estimation is:

Accepted Answer

The mean-per-unit estimation formula is:

Estimated account balance = Total audited value / Total number of items audited x Total number of items in the inventory

Using the given values:

Estimated account balance = 24,600 / 120 x 2,400
Estimated account balance = $492,000

Therefore, the best choice is D: $492,000.

Quiz 19: Variables Sampling