Ch 8: Audit Sampling

Question 1

1. In designing audit procedures, the auditor is required to determine appropriate
   means of selecting items for testing to gather audit. Which of the following means
   is/are available to the auditor?
   I. Selecting all items (100% examination)
   II Selecting specific items
   III Audit sampling.
   a. I and II only
   b. III only
   c. I and III only
   d. I, II and III
2. It will be appropriate to audit all the items that make up a class of transactions or
   account balance (100% examination), except
   a. When the class of transactions or account balance consists of a large number of
   small value items.
   b. When the class of transactions or account balance consists of small number of
   large value items.
   c. When there is a significant risk of misstatement and other selection methods do
   not provide sufficient appropriate audit evidence.
   d. When the repetitive nature of the calculation or other process performed
   automatically by the client’s computer incformation system (CIS) makes a 100%
   examination cost effective.
3. PSA 500 states that the auditor may decide to select specific items from a population
   based on such factors as the auditor’s understanding of the entity, the assessed risk of
   material misstatement, and the characteristics of the population being tested. Specific
   items may be selected for testing usually include the following, except
   a. Items that are of high value.
   b. Items that are suspicious, unusual, risk-prone, or have a history of error.
   c. All items whose values do not exceed a certain amount.
   d. Items that provide information about matters such as the nature of the entity, the
   nature of transactions, and internal control.
4. Audit sampling involves the
   a. Selection of all items over a certain amount.
   b. Application of audit procedures to less than 100% of items within a class of
   transactions or an account balance such that all items have a chance of
   selection.
   c. Application of audit procedures to all items that comprise a class of transactions
   or an account balance.
   d. Application of audit procedures to all items over a certain amount and those that
   are unusual or have a history of error.
5. Population as defined in PSA 530 (Audit Sampling), means the entire set of data from
   which a sample is selected and about which the auditor wishes to draw conclusions. It is
   important for the auditor to ensure that the population is
   I.
   Appropriate to the objective of the auditor.
   II.
   Complete
   a. I only
   b. II only
   c. Both I and II
   d. Neither I and II

Answer 1

1. D
2. A
3. C
4. B
   5.C

Question 2

6. The two general approaches to audit sampling are:
   a. Stratification and value-weighted
   b. Random and nonrandom
   c. Statistical and nonstatistical
   d. Precision and reliability
7. The principal methods of selecting samples are the use of
   I. Random number tables or CAATs.
   II. Systematic selection
   III Haphazard Selection
   a. I and II only
   b. II and III only
   c. I and III only
   d. I, II, III
8. An advantage of statistical sampling over nonstatistical sampling is that statistical
   sampling helps the auditor to
   a. Minimize the failure to detect fraud and errors.
   b. Measure the sufficiency of the evidential matter obtained.
   c. Eliminate the risk of nonsampling errors.
   d. Reduce the level of audit risk and materiality to a relatively low amount.
9. The likelihood of assessing control risk too high is the risk that the sample selected to
   test controls
   a. Does not support the tolerable error for some or all of management’s assertions
   b. Contains proportionately fewer deviations from prescribed internal controls than
   exist in the balance or class as a whole.
   c. Does not support the auditor’s planned assessed level of control risk when the
   true operating effectiveness of internal control justifies such an assessment.
   d. Contains misstatements that could be material to the financial statements when
   aggregated with misstatements in other account balances or transactions
   classes.
10. While performing a test of details during an audit, the auditor determined that the
    sample results supported the conclusion that the recorded account balance was
    materially misstated. It was, in fact, not materially misstated. This situation illustrates the
    risk of
    a. Assessing control risk too low
    b. Assessing control risk too high
    c. Incorrect acceptance
    d. Incorrect rejection

Answer 2

6. C
7. D
8. B
9. C
10. D

Question 3

11. The risk of incorrect acceptance and the likelihood of assessing control risk too low
    relate to the
    a. Effectiveness of the audit
    b. Efficiency of the audit
    c. Tolerable misstatement
    d. Preliminary estimates of materiality levels
12. Which of the following statement is true?
    a. Statistical sampling is more convenient to use than non-statistical sampling.
    b. Statistical sampling aids the auditor in evaluating results.
    c. Statistical sampling requires the auditor to make fewer judgmental decisions.
    d. Statistical sampling will be looked upon by the courts as providing superior audit
    evidence.
13. The following are examples of nonsampling risk, except
    a. Failure to recognize an error
    b. Obtaining an unrepresentative sample
    c. Use of an audit procedure inappropriate to achieve a given objective.
    d. Failing to evaluate results properly.
14. The following are advantages of using statistical sampling, except
    a. Statistical sampling provides a means for mathematically measuring the degree
    of risk that results from examining only part of a population.
    b. Statistical sampling allows the auditor to greatly reduce the substantive testing.
    c. Statistical sampling allows the auditor to measure the sufficiency of the evidential
    matter obtained.
    d. Statistical sampling aids in the design of an efficient sample.
15. Which of the following methods is most appropriate when performing test of
    controls?
    a. Stratified random sampling
    b. Unrestricted random sampling with replacement
    c. Variable sampling
    d. Attribute sampling

Answer 3

11. A
12. B
13. B
14. B
    15.D

Question 4

16. In the audit of inventory, attribute sampling may be applied to estimate the
    a. Average price of inventory items
    b. Physical quantity of inventory items
    c. Percentage of slow-moving inventory items
    d. Peso value of inventory
17. The risk that the assessed level of control risk based on the sample is less than the
    true operating effectiveness of the control policy or procedure is the risk of
    a. Assessing control risk too low
    b. Assessing control risk too high
    c. Incorrect acceptance
    d. Incorrect rejection
18. An element of sampling risk
    a. Choosing a sample size that is too small to achieve the sampling objective.
    b. Choosing an audit procedure that is inconsistent with the audit objective.
    c. Failing to perform audit procedures that are required by the sampling plan.
    d. Failing to detect a deviation on a document inspected by the auditor.
19. Statistical sampling provides a technique for
    a. Exactly defining materiality.
    b. Greatly reducing the extent of substantive testing.
    c. Eliminating judgment in testing.
    d. Measuring the sufficiency of evidential matter.
20. The distinguishing feature of statistical sampling is that it
    a. Reduces the problems associated with the auditor’s judgment concerning
    materiality.
    b. Requires the examination of a smaller number of supporting documents.
    c. Is evaluated in terms of two parameters: statistical mean and random selection
    d. Provides a means for measuring mathematically the degree of uncertainty that
    results from examining only part of a population.

Answer 4

16. C
17. A
18. A
19. D
    20.D

Question 5

21. Which of the following is true if certain are not consecutively numbered?
    a. Systematic sampling may be appropriate.
    b. Selection of a random sample probably is not possible.
    c. Random number tables cannot be used.
    d. Stratified sampling should be used.
22. In examining cash disbursements, an auditor plans to choose a sample using
    systematic selection with a random start. The primary advantage of this selection
    technique is that population items
    a. May occur more than once in the sample.
    b. May occur in a systematic pattern, thus making the sample more representative.
    c. That are indicative of fraud will be included in the sample.
    d. Do not have to be prenumbered in order for the auditor to use the technique.
23. In attributing sampling, a 5% change in which of the following factors normally will
    have the least effect on the size of a statistical sample?
    a. Expected deviation rate.
    b. Risk of assessing control risk too low.
    c. Population size.
    d. Tolerable deviation rate.
24. If the size of the sample to be used in particular test of attributes has not been
    determined by utilizing statistical concepts, but the sample has been randomly chosen
    a. The auditor will have to evaluate the results by reference to the principles of
    discovery sampling.
    b. May not use statistical evaluation.
    c. The auditor has committed a nonsampling error.
    d. No inferences ca be drawn from the sample.
25. In determining the number of items to be selected in a sample for a particular
    substantive test of details, the auditor should consider all of the following, except
    a. Tolerable misstatement
    b. Characteristics of the population
    c. Deviation rate
    d. Allowable risk of incorrect acceptance

Answer 5

21. A
22. D
23. C
24. B
    25.C

Question 6

26. Which of the following statements best describes the concept of sampling risk?
    a. A randomly chosen sample may not be representative of the population as a
    whole on the characteristics of interest.
    b. The documents related to the chosen sample may not be available for inspection.
    c. An auditor may fail to recognize errors in the documents examined for the
    chosen sample.
    d. An auditor may select audit procedures that are not appropriate to achieve the
    specific objective.
27. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing
    control risk too hiign relate to the
    a. Effectiveness of the audit
    b. Efficiency of the audit
    c. Audit quality controls
    d. Selection of the sample
28. An underlying feature of random-based selection of items is that each
    a. Item mjst be systematically selected using replacement.
    b. Item in the accounting population should have an opportunity to be selected.
    c. Stratum of the accounting population be given equal representation in the
    sample.
    d. Item in the accounting population be randomly ordered
29. If certain forms are not consecutively numbered
    a. Selection of a random sample probably is not possible.
    b. Systematic sampling may be appropriate.
    c. Random number tables cannot be used.
    d. Stratified sampling should be used.
30. When performing a test of a control with respect to control over cash receipts, an
    auditor may use a systematic sampling technique, with a start at any randomly selected
    item. The biggest disadvantage of this type of sampling is that the items in the
    population
    a. Must be systematically replaced in the population after sampling.
    b. Must be recorded in a systematic pattern before the sample can be drawn.
    c. May occur in a systematic pattern, thus destroying the sample randomness.
    d. May systematically occur more than once in the sample.

Answer 6

26. A
27. B
28. B
29. B
    30.C

Question 7

31. For which of the following audit tests would an auditor most likely use attributable
    sampling?
    a. Selecting accounts receivable for confirmation of account balances.
    b. Examining invoices in support of the valuation of property, plant, and equipment
    additions.
    c. Making an independent estimate of the amount of FIFO inventory.
    d. Inspecting employee time cards for proper approval by supervisors.
    Attribute sampling is designed to test the rate of deviation from a prescribed
    control procedure.
32. Which of the following sampling methos would be used to estimate a numerical
    measurement of a population, such as a peso value?
    a. Variable sampling
    b. Attribute sampling
    c. Random-number sampling
    d. Stop-or-go sampling
33. Which of the following combinations result in a decrease in sample size in an attributable sample?
    Allowable Risk of Assessing Control Risk Too Low | Tolerable Deviation Rate | Expected population deviation rate
    A. Increase Increase Increase
    B. Decrease Increase Decrease
    C. Increase Increase Decrease
    D. Increase Decrease Increase
34. In determining the number of documents to select for a test to obtain assurance that
    all sales returns have been properly authorized, an auditor should consider the tolerable
    rate of deviation from the control activity. The auditor should also consider the
    I. Likely rate of deviations.
    II. Allowable risk of assessing control risk too high.
    a. I only
    b. II only
    c. Both I and II
    d. Neither I and II
35. Which of the following factors is usually not considered in determining the sample
    size for a test of controls?
    a. Expected population deviation rate.
    b. Risk of assessing control risk too low
    c. Tolerable deviation rate
    d. Population size, when the population is large

Answer 7

31. D
32. A
33. C
34. A
    35.D

Question 8

36. The sample size of a test of control varies inversely with
    Tolerable Deviation Rate (TDR) | Expected Deviation Rate (EDR)
    A. No No
    B. Yes Yes
    C. No Yes
    D. Yes No
37. In planning a statistical sample for a test of controls, an auditor increased the
    expected population deviation rate (EDR) from the prior year’s rate because of the
    results of the prior year’s tests of controls and the overall control environment. The
    auditor most likely would then increase the planned
    a. Risk of assassin control risk too low
    b. Sample size
    c. Allowance for sampling risk
    d. Tolerable deviation rate
38. Which of the following factors does an auditor usually need to consider in planning a
    particular audit sample for a test of controls?
    a. Acceptable level of risk of assessing control risk too low.
    b. Tolerable misstatement.
    c. Number of sampling units in the population.
    d. Total peso amount of the items to be sampled.
39. Which of the following statements is true concerning statistical sampling in tests of
    controls?
    a. For a given tolerable rate, a larger sample size should be selected as the
    expected population deviation rate decreases.
    b. As the population size doubles, the sample size also should be double.
    c. The expected population deviation rate has little or no effect on determining the
    sample size except for very small populations.
    d. The population size has little or no effect on determining sample size except for
    very small populations.
40. Which of the following statements is correct concerning statistical sampling in tests
    of controls?
    a. In determining the tolerable rate, an auditor considers detection risk and the
    sample size.
    b. Deviations from specific control activities at a given rate ordinarily result in a
    misstatements at a lower rate.
    c. As the population size increases, the sample size should increase
    proportionately.
    d. There is an inverse relationship between the expected population deviation rate
    and the sample size.

Answer 8

36. D
37. B
38. A
39. D
40. B

Question 9

41. An auditor plans to examine a sample of 20 purchase orders for proper approvals as
    prescribed by the client’s internal control. One of the purchase orders in the chosen
    sample of 20 cannot be found, and the auditor is unable to use alternative procedures to
    test whether the purchase order was properly approved. The auditor should
    a. Choose another purchase order to replace the missing purchase order in the
    sample.
    b. Select a completely new set of 20 purchase orders.
    c. Consider this test of controls invalid and proceed with substantive tests because
    internal control is ineffective.
    d. Treat the missing purchase order as a deviation for the purpose of evaluating the
    sample.
42. An attribute sampling plan may be used to test the effectiveness of controls, the
    auditor’s evaluation of the sampling ordinarily leads to a conclusion concerning
    a. The relation of the population deviation rate to the tolerable rate.
    b. Monetary precision exceeding a certain predetermined amount.
    c. The population value not being misstated by more than a predetermined amount.
    d. Population characteristics occurring at least once in the population.
43. As a result of sampling procedures applied as tests of controls, an auditor
    incorrectly assesses control risk lower than appropriate. Which of the following is the
    most likely explanation for this situation?
    a. The deviation rate in the auditor’s sample exceeds the tolerable rate, but the
    deviation rate in the population is less than the tolerable rate.
    b. The deviation rate in the auditor’s sample is less than the tolerable rate, but the
    deviation rate in the population exceeds the tolerable rate.
    c. The deviation rates of both the audirtor’s sample anf the population are less than
    the tolerable rate.
    d. The deviation rates of both the auditor’s sample and the population exceed the
    tolerable rate.
44. The diagram below depicts the auditor’s estimated maximum deviation rate compared with the tolerable rate and also depicts the true population deviation rate compared with the tolerable rate.
    Legend:
    MDR = Maximum Deviation Rate
    TR = Tolerable Rate
    Deviation Rate = Deviation Rate

Auditor’s Est. Based True State of Population
on Sample Results DR > TR DR < TR
MDR > TR I III
MDR < TR II IV
As a result of tests of controls, the auditor assesses control risk higher than necessary and thereby increases substantive testing. This is illustrated by
A. I C. III
B. II D. IV

45. In evaluating an attributable sample, the estimated range that is expected to contain
    the population characteristics is the
    a. Confidence level
    b. Expected deviation rate
    c. Precision
    d. Upper deviation limit

Answer 9

41. D
42. A
43. B
44. C
45. C

Question 10

46. Which of the following sample planning factors would influence the sample size for a
    substantive test of details for a specific account?
    Expected Amount of Misstatements | Measure of Tolerable Misstatement
    A YES YES
    B NO NO
    C YES NO
    D NO YES
47. Which of the following statements concerning factors that influence a sample size
    for tests of details is incorrect?
    a. The higher the auditor’s assessment of the risk of material misstatement, the
    smaller the sample size needs to be.
    b. The lower the tolerable misstatement, the larger the sample size needs to be.
    c. For large populations, the actual size of the population has little, if any, effect on
    sample size.
    d. The auditor may consider stratifying the population when there is a wide range
    (variability) in the monetary size of items in the population.
48. A misstatement or deviation that, accorning to the standard, is demonstrably not
    representative of misstatements or deviations in a population is a/an
    a. Anomaly
    b. Fraud
    c. Error
    d. Abnormality
49. In performing test of details, what is the auditor’s best estimate of misstatement in
    the population?
    a. The projected misstatement
    b. The projected misstatement, plus any anomalous misstatement
    c. The projected misstatement, less any anomalous misstatement
    d. The tolerable misstatement, if it exceeds the projected misstatement.
50. Which of the following statements concerning projection of errors found in the
    sample to the population is incorrect?
    a. For test of details, the auditor should project monetary errors found in the sample
    to the population, and should consider the effect of the projected error on the
    audit objective and on other areas of the audit.
    b. Anomalous errors found in the sample should be included in the projection of
    errors in the population.
    c. For test of controls, no explicit projection of errors is necessary since the sample
    deviation rate is also the projected deviation rate for the population as a whole.
    d. If a class of transactions or an account balance has been divided into strata, the
    error is projected for each stratum separately.

Answer 10

46. A
47. A
48. A
49. B
50. B

Question 11

51. In estimation sampling for variables, which of the following must be known to
    estimate the appropriate sample size required to meet the auditor’s needs in a given
    situation?
    a. The estimated deviation rate in the population.
    b. The qualitative aspects of misstatements.
    c. The estimated population value.
    d. The accepted level of risk.
52. In applying variables sampling, an auditor attempts to
    a. Predict the monetary population value within range of precision
    b. Estimate a qualitative characteristic of interest.
    c. Determine various rates of occurrence for specified attributes.
    d. Discover at least one instance of critical deviation.
53. When planning a sample for a substantive test of details, an auditor should consider
    tolerable misstatement for the sample. This consideration should
    a. Not be changed during the audit process.
    b. Be related to the auditor’s business risk.
    c. Be related to preliminary judgments about materiality levels.
    d. Not be adjusted for qualitative factors.
54. An auditor may decide to increase the risk of incorrect rejection when
    a. The cost and efffort of selecting additional sample items are low.
    b. Increased reliability from the sample is desired.
    c. Many differences (audit value minus recorded value) are expected.
    d. Initial sample results do not support the planned level of control risk.
55. In statistical sampling methods used in substantive testing, an auditor most likely
    would strtify a population into meaningful groups if
    a. Probability-proportional-to-size (PPS) sampling is used.
    b. The population has highly variable recorded amounts.
    c. The standard deviation of recorded amounts is relatively small.
    d. The auditor’s estimated tolerable misstatement is extremely small

Answer 11

51. D
52. A
53. C
54. A
55. B

Question 12

56. How would decreases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?
    Decrease in Tolerable Misstatement | Decrease in Assessed Level of Control Risk
    A Increase sample size Increase sample size
    B Increase sample size Decrease sample size
    C Decrease sample size Increase sample size
    D Decrease sample size Decrease sample size
57. Which of the following courses of action would an auditor most likely follow in
    planning a sample of cash disbursements if the auditor is aware of several unusually
    large cash disbursements?
    a. Continue to draw new samples until all the unusually large disbursements appear
    in the sample
    b. Increase the sample size to reduce the effect of the unusually large
    disbursements.
    c. Stratify the cash disbursements population so that the unusually large
    disbursements are selected.
    d. Set the tolerable rate of deviation at a lower level than originally planned.
58. A number of factors influence the sample size for a substantive test of details of an
    account balance. All other factors being equal, which of the following would lead to a
    larger sample size?
    a. Smaller measure of tolerable misstatement.
    b. Smaller expected frequency of errors.
    c. Greater reliance on analytical procedures.
    d. Greater reliance on internal control.
59. An auditor established a P180,000 tolerable misstatement for an asset with an
    account balance of P3,000,000. The auditor selected a sample of every 20th item from
    the population that represented the asset account balance and discovered that
    represented the asset account balance and discovered a net overstatement of P10,500
    (P11,100 overestaments minus P600 overstatements). Under these circumstances, the
    auditor most likely would conclude that
    a. The asset account is fairly stated because the tolerable misstatement exceeds
    the net of projected actual overstatements and understatements.
    b. The asset account is fairly stated because the total projected misstatement is
    less than the tolerable misstatement.
    c. These is an unacceptably high risk that the actual misstatement in the population
    exceed the tolerable misstatement because the total projected misstatement
    exceeds the tolerable misstatement.
    d. There is an unacceptably high risk that the tolerable misstatement is more than
    the sum of actual overstatement and understatement.
60. Which of the following sample selection methos is not appropriate when using
    statistical sampling?
    a. Random selection
    b. Systematic selection’
    c. Monetary unit sampling
    d. Haphazard selection

Answer 12

56. B
57. C
58. A
59. C
    60.D

Question 13

61. Which of the following sample selection methods cannot ordinarily be used in audit
    sampling?
    a. Value-weighted selection
    b. Random selection
    c. Block selection
    d. Systematic selection
62. In systematic selection, the number of sampling units in the population is divided by
    the sample size to determine the
    a. Sampling interval
    b. Pattern that may exist in the population
    c. Sampling risk
    d. Nonsampling risk
63. In audit sampling, ______ involves the population into discrete sub-populations
    which have an identifying characteristic.
    a. Value-weighted selection
    b. Stratification
    c. Random selection
    d. Block selection
64. Which of the following statements relating to stratification is incorrect?
    a. When performing test of details of transactions and account balances, the
    population is often stratified by monetary value.
    b. The results of audit procedures applied to a sample of items within a stratum can
    be projected to the entire population.
    c. When verifying the valuation assertion for accounts receivable, account balances
    may be stratified by age.
    d. Stratification reduces the variability of items within each stratum.
65. Audit efficiency may be improved when the sampling unit is defined as the individual
    monetary units that comprise the population. This technique is called
    a. Stratification
    b. Random selection
    c. Systematic selection
    d. Value-weighted selection

Answer 13

61. C
62. A
63. B
64. B
    65.D