Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
Module 9
SAMPLING
PSA-BASED QUESTIONS
1.
Select the description which illustrates sampling risk.
A. Applying audit procedures which are inappropriate for the audit objectives.
B. Failing to recognize errors or deviations in the documents examined.
C. Arriving at incorrect statistical conclusions due to computational errors.
D. Choosing a sample which has proportionately more errors than the population.
2.
Sampling risk is an inherent part of sampling results from
A. the use of inappropriate audit procedures.
B. a failure to recognize exceptions.
C. testing a number of items less than the entire population.
D. weaknesses in client’s internal control system.
3.
Sampling risk refers to the possibility that:
A. The auditor may use a less than optimal statistical method for the circumstances, e.g. difference
estimation instead of ratio estimation.
B. The auditor may fail to recognize an error that exists in the sample.
C. Even though a sample is properly chosen, it may not be representative of the population.
D. The confidence level and/or precision established by the auditor are not appropriate.
4.
One of the causes of nonsampling error is the:
A. use of inappropriate or ineffective audit procedures.
B. failure to draw a random sample.
C. failure to draw a representative sample.
D. use of attributes sampling instead of variables sampling.
5.
Statistical sampling:
A. Measures quantitatively the risk from testing only a part of the audit population.
B. Allows the same degree of confidence as nonstatistical sampling but with substantially less work.
C. Allows the auditor to replace some judgments with quantitative measures.
D. Measures the reliability of misstatements.
6.
Statistical sampling provides a technique for
A. exactly defining materiality.
B. greatly reducing the amount of substantive testing,
C. eliminating judgment in testing.
D. measuring the sufficiency of evidential matter.
7.
Statistical samples as compared to non-statistical samples permit the auditor to
A. quantify and control sampling risk.
B. eliminate any type of non-sampling errors.
C. obtain smaller sample sizes in all cases.
D. use less complex formulas than those required to evaluate non-statistical samples.
8.
Of the following statements, which one best differentiates statistical sampling from nonstatistical sampling?
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A. Statistical sampling is a mathematical approach to inference, whereas nonstatistical sampling is a more
subjective approach.
B. Nonstatistical sampling has greater applicability to large populations that does statistical sampling.
C. Nonstatistical sampling is more subjective, but produces greater consistency in the application of audit
judgment.
D. Nonstatistical sampling has greater applicability to populations that lend themselves to random
selection.
9.
One way to reduce sampling risk is to
A. use an appropriate method of selecting sample items from the populations.
B. carefully design the audit procedures to be used.
C. provide proper supervision and instruction to the audit team.
D. use variables sampling rather than attributes sampling.
10. When the auditor goes through a population and selects items for the sample without regard to their size,
source, or other distinguishing characteristics, it is called
A. block selection.
B. haphazard selection.
C. systematic selection.
D. statistical selection .
11. The tolerable deviation rate has a significant effect on sample size. The relationship of tolerable deviation
rate to the sample is
A. parallel.
B. inverse.
C. direct.
D. variable.
12. The acceptable risk of assessing control risk too low in relation to the sample size is
A. direct.
B. indirect.
C. parallel.
D. not defined.
13. The deviation rate that the auditor will permit in the population and still be willing to reduce the assessed
level of control risk;
A. tolerable deviation rate.
B. estimated population deviation rate.
C. acceptable risk of assessing control risk too low.
D. sample deviation rate.
14. Which of the following statements is correct?
A. The expected population deviation rate has little or no effect on the sample size.
B. As the population size doubles, the sample size should also double.
C. For a given tolerate rate, a larger sample size should be selected as the expected population deviation
rate decreases.
D. The population has little or no effect on sample size except for very small populations.
15. Which of the following factors is generally not considered in determining the sample size for a test of
controls?
A. Population size
B. Risk of assessing control risk too low
C. Tolerable rate
D. Expected population deviation rate
16. When an auditor does a sampling for attributes, which of the following would decrease sample size?
A.
B.
C.
D.
Risk of assessing control risk too
low
Increase
Decrease
Increase
Increase
Tolerable rate of Deviation
Decrease
Increase
Increase
Increase
Expected population deviation
rate
Increase
Decrease
Decrease
Increase
17. If all other factors that are specified in a sampling plan remain constant, changing the expected population
deviation rate from 1 percent to 2 percent would cause the required sample size to
A. increase.
B. decrease.
C. remain the same.
D. become indeterminate.
18. Which of the following statements concerning the sample size is true?
A. An increase in the tolerable occurrence rate, other factors remaining unchanged, increases the sample
size.
B. The higher the expected occurrence rate, other factors remaining unchanged, the larger will be the
sample size.
C. The more critical the attribute being tested, the higher will be the tolerable occurrence rate set by the
auditor, and the larger will be the sample size.
D. The lower the acceptable risk of underassessment of control risk, the smaller will the sample size be.
19. In attribute estimation, a 10 percent change in which of the following factors normally will have the least
effect on the size of the statistical sample?
A. Population size.
B. Reliability.
C. Precision interval.
D. Standard deviation.
20. An important distinction between a statistical (judgmental) sample is that with a statistical sample:
A. No judgment is required, everything is by formula.
B. A smaller sample size can be used.
C. More accurate results are obtained.
D. Population estimates with measurable reliability can be made.
QUIZZERS
CONCEPTS
1.
The application of statistical sampling technique is least related to which of the following generally
accepted auditing standards?
A. The work is to be adequately planned, and assistants, if any, are to be properly supervised.
B. In all matters relating to the assignment, an independence in the mental attitude is to be maintained by
the auditor or auditors.
C. A sufficient understanding of internal control is to be obtained to plan the audit and to determine the
nature, timing, and extent of the tests to be performed.
D. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and
confirmations to afford a reasonable basis for an opinion about the financial statements under audit.
2.
A sample in which the characteristics of the sample are the same as those of the population is a (an)
A.
B.
C.
D.
Random sample.
Variables sample.
Attributes sample.
Representative sample.
3.
A bank auditor is interested in estimating the average account balance of its depositors based on a sample.
This substantive test is an example of
A. Attribute sampling.
B. Discovery sampling.
C. Acceptance sampling.
D. Variables sampling.
4.
Nonsampling errors occur when audit tests do not uncover existing exceptions in the
A. Population.
B. Sample.
C. Planning stage.
D. Financial statements.
5.
Which of the following best illustrates 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. An auditor may select audit procedures that are not appropriate to achieve the specific objective.
C. An auditor may fail to recognize errors in the documents examined for the chosen sample.
D. The documents related to the chosen sample may not be available for inspection.
6.
The auditor who prefer statistical to non-statistical sampling believe that the principal advantage of
statistical sampling flows from its unique ability to
A. Define the precision required to provide adequate satisfaction.
B. Provide a mathematical measurement of risk.
C. Establish conclusive audit evidence with decreased audit effort.
D. Promote a more legally defensible procedural approach.
7.
The primary reason for an auditor to use statistical sampling is to
A. Obtain a smaller sample than would be required by non-statistical sampling technique.
B. Obtain a sample more representative of the population than would be obtained by non-statistical
sampling technique.
C. Allow the auditor to quantify, and therefor control, the risk of making an incorrect decision based on
sample evidence.
D. Meet requirements of Philippine Standards on Auditing.
8.
One of the ways to reduce nonsampling risk is through
A. Proper supervision and instruction of the client’s employees.
B. Proper supervision and instruction of the audit team members.
C. The use of attributes sampling, rather than variables sampling.
D. Controls which ensure that the sample drawn is random and representative.
9.
Detection risk may be subdivided into the risk that analytical procedures and other substantive procedures
will fail to detect a material misstatements and the allowable:
A. Risk of incorrect acceptance.
B. Risk of incorrect rejection.
C. Control risk.
D. Audit risk.
10. Which of the following statements is incorrect?
A. It is acceptable for the auditors to use statistical sampling method.
B. It is acceptable for the auditors to use non-statistical sampling method.
C. The primary benefit of statistical sampling method is the quantification of sampling risk.
D. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.
11. In applying variable sampling, an auditor attempts to
A. Estimate a qualitative characteristic of interest.
B. Determine various rates of occurrence for specified attributes.
C. Discover at least one instance of a critical error.
D. Predict a monetary population value within a range of precision.
12. Which of the following statements is valid criticism against the use of nonstatistical sampling methods?
A. Many audit tests, such as footing of journals, must be performed outside a statistical sampling context.
B. The cost of performing random selection or testing often exceeds the benefits.
C. Nonstatistical sampling does not differ substantially from statistical sampling method.
D. Conclusions may be drawn in more precise ways when using statistical sampling method.
13. Which of the following statements is not correct regarding probabilistic and non probabilistic sample
selection?
A. In probabilistic selection, every population item has a known chance of being selected.
B. Probabilistic selection is required for all statistical sampling methods.
C. It is not acceptable to make nonstatistical evaluation using probabilistic selection.
D. Both methods are acceptable and commonly used.
14. Which one is not a sample selection method commonly associated with nonstatistical audit sampling?
A. Directed sample selection.
B. Block sample selection.
C. Probability proportional to size sample selection.
D. Haphazard sample selection.
15. Which one is not a sample selection method commonly associated with statistical audit sampling?
A. Simple random sample selection.
B. Systematic sample selection.
C. Block sample selection.
D. Stratified sample selection.
16. The major weakness of nonstatistical sampling is that it
A. usually requires larger sample size than statistical sampling.
B. does not allow sampling risk to be objectively measured.
C. frequently results in samples that are not representative of the population.
D. gives less accurate point estimates of parameters than statistical sampling does.
17. Which of the following statements regarding statistical sampling in auditing is true?
A. Inasmuch as audits are test-based, generally accepted auditing standards require the use of statistical
sampling methods whenever the auditor decides to examine only a part of the population.
B. Although statistical sampling may be applied to test controls, it is required for substantive testing
purposes.
C. Sampling methods are used by auditors in both testing of controls and substantive testing.
D. Statistical sampling methods are more appropriate for testing of controls when the auditor elects to
reprocess transactions, that when controls are tested by means of document examination.
18. Which of the following is not an aspect of sampling risk?
A. Risk of assessing control risk too high.
B. Risk of not identifying a misstatement included in a sample.
C. Risk of incorrect acceptance.
D. Risk of sampling results indicating that a population is materially misstated when it is not.
19. Which of the following statements is true?
A. The audit procedures will vary as a result of using either statistical or nonstatistical sampling.
B. The audit procedures will be the same for either statistical or nonstatistical sampling, but they must be
performed differently for each.
C. Statistical sampling requires quantitative audit procedures whereas nonstatistical sampling requires
judgmental audit procedures.
D. The same audit procedures are performed in the same manner for either statistical or nonstatistical
sampling.
20. An underlying feature of random sampling is that each
A. Stratum of the accounting population be given equal representation in the sample.
B. Item in the accounting population be randomly ordered.
C. Item in the accounting population should have an opportunity to be selected.
D. Item must be systematically selected using replacement.
21. In which of the following cases would the auditor be most likely to conclude that all of the items in an
account under consideration should be examined rather than tested on a sample basis?
A.
B.
C.
D.
The measurement of Tolerable
error is
Large
Small
Large
Small
Error frequency is expected
to be
Low
High
High
Low
22. Auditors who prefer statistical sampling to non-statistical sampling may do so because statistical sampling
helps the auditor
A. Measure the sufficiency of the evidential matter obtained.
B. Eliminate subjectivity in the evaluation of sampling results.
C. Reduce the level of tolerable error to a relatively low amount.
D. Minimize the failure to detect a material misstatement due to non-sampling risk.
23. In order to quantify the risk that the sample evidence leads to erroneous conclusions about the sampled
population.
A. Each item in the sampled population must have an equal chance of being selected.
B. Each item in the sampled population must have a chance of being selected proportional to its book
value.
C. Each item in the sampled population must have an equal or known probability of being selected.
D. The precise number of items in the population must be known.
24. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a
random start. The primary advantage of such a systematic selection approach is that population items.
A.
B.
C.
D.
which include errors will not be overlooked when the auditor exercises compatible reciprocal options.
may occur in a systematic pattern, thus making the sample more representative.
may occur more than once in a sample.
do not have to be prenumbered in order for the auditor to use the technique.
25. If certain forms are not consecutively numbered
A. Selection of a random sample probably is not possible.
B. Systematic sampling may be appropriate.
C. Stratified sampling should be used.
D. Random number tables cannot be used.
26. If all other factors in a sampling plan are held constant, changing the measure of tolerable error to a smaller
value would cause the sample size to be:
A. Smaller.
B. Larger.
C. Unchanged.
D. Indeterminate.
27. Which of the following is an element of sampling risk?
A.
B.
C.
D.
Choosing an audit procedure that is inconsistent with the audit objective.
Choosing a sample size that is too small to achieve the sampling objective.
Failing to detect an error on a document that has been inspected by the auditor.
Failing to perform audit procedures that are required by the sampling plan.
28. Other factors remaining constant, the audit risk is increased by an increase in:
A. Materiality
B. The effectiveness of analytical procedures.
C. The risk of incorrect rejection.
D. Detection risk.
29. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high
relate to the
A. Efficiency of the audit.
B. Selection of the sample.
C. Effectiveness of the audit.
D. Audit quality controls.
SAMPLING FOR ATTRIBUTES
30. Which type of sampling plan is most frequently used in testing control activities?
A. Attributes sampling.
B. Discovery sampling.
C. Probability-proportional-to-size sampling
D. Classical variables sampling.
31. Tests of controls provide reasonable assurance that controls are applied as prescribed. A sampling method
that is useful when testing controls is:
A.
B.
C.
D.
Nonstatistical sampling
Discovery sampling
Attribute estimation sampling
Stratified random sampling
32. Attributes sampling would be an appropriate method to use on which one of the following procedures in an
audit program?
A. Review sales transactions for large and unreasonable amount.
B. Observe whether the duties of the accounts receivable clerk are separate from handling cash.
C. Examine a sample of duplicate sales invoices for credit approval by the credit manager.
D. Review the aged schedule of the accounts receivable to determine if the receivables from officers are
included.
33. Which of the following is a valid statement about the assessment of control risk?
A. There is a positive relationship between detection risk and the combined level of inherent and control
risk.
B. Misstatements discovered by conducting substantive procedures may cause the auditor to modify the
previous assessment of control risk.
C. The auditor should consider the assessed levels of inherent and control risks in determining the nature,
timing, and extent of substantive procedures required to eliminate audit risk.
D. The assessed level of inherent and control risks can be sufficiently low in order to eliminate auditor’s
need to perform substantive tests on some assertions.
34. Discovery sampling should be used to estimate whether a population contains
A. Errors of any kind
B. Critical deviations
C. Noncritical errors
D. No errors
35. Establishing the tolerable deviation rate requires
A. Statistical frequency probability tables.
B. Random number tables.
C. A computer program.
D. Auditor judgment.
36. Acceptable risk of assessing control risk too low or too high is directly related to
A. Nonsampling risk.
B. Sampling risk.
C. Inherent risk.
D. Control risk.
37. Which of the following statements is true about nonstatistical sampling in tests of controls?
A. Nonstatistical sampling plans provide a quantitative measure of sampling risk.
B. The auditor’s judgment in nonstatistical sampling is guided by classical statistical sampling concepts.
C. The calculated nonstatistical sample should never be altered by the auditor.
D. The auditor considers the same parameters when determining a statistical sample size.
38. The risk which the auditor is willing to take of accepting a control as being effective when, in fact, it is not
is the
A. Tolerable deviation rate.
B. Acceptable risk of assessing control risk too low.
C. Estimated population deviation rate.
D. Finite correction factor.
39. If the auditor is concerned that a population may contain exceptions, the determination of a sample size
sufficient to include at least one such exception is a characteristic of
A. Discovery sampling
B. Variables sampling
C. Random sampling
D. Monetary-unit sampling
40. Statistical sampling may be applied to tests controls when a client’s control procedures:
A. Depend primarily on segregation of duties.
B. Are carefully reduced to writing and are included in client accounting manuals.
C. Leave an audit trail as evidence of compliance.
D. Enable the detection of fraud.
41. Which of the following conditions suggest an increase in sample size?
A. Internal controls in the area of payroll processing are found to be much stronger than the auditor’s
initial assessment.
B. Tests of internal controls in nearly all transaction cycle subsets have produced numerous and
widespread errors.
C. The application of the analytical procedures reveals a favorable sales budget variance that is material
and that remains unexplained.
D. Study of business and industry reveals a material decline in both the industry and the client’s revenue
during the current year.
42. If the size of the sample to be used in a particular test of attributes has not been determined by utilizing
statistical concepts but the sample has been chosen in accordance with random selection procedures,
A. On inferences can be drawn from the sample
B. The auditor has committed a non-sampling error
C. The auditor may or may not achieve desired allowance for sampling risk at the desired level of
confidence
D. The auditor will have to evaluate the results by reference to the principles of discovery sampling
43. Which of the following factors does an auditor generally need to consider in planning a particular audit
sample for a control test?
A. Number of items in the population.
B. Total peso amount of the items to be sampled.
C. Estimated standard deviation of the population.
D. Tolerable error.
44. An auditor plans to test a sample of 20 checks for counter signatures as prescribed by the client’s control
procedures. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the
reasons for this limitation and
A. Evaluate the results as if the sample size had been 19.
B. Treat the missing check as a deviation for the purpose of evaluating the sample.
C. Treat the missing check in the same manner as the majority of the other 19 checks, i.e., countersigned
or not.
D. Choose another check to replace the missing check in the sample.
45. The tolerable rate of deviation for tests of controls necessary to justify a control risk assessment depends
primarily on which of the following?
A. The cause of errors
B. The extent of reliance to be placed on the procedures
C. The amount of any substantive errors.
D. The limit used in audits of similar clients
46. An auditor who is examining inventory may appropriately apply sampling for attributes in order to estimate
the
A. Average price of inventory items.
B. Percentage of slow-moving inventory items.
C. Peso value of inventory.
D. Physical quantity of inventory items.
47. The tolerable rate of deviations for a test of controls is generally
A. Lower than the expected rate of errors in the related accounting population.
B. Higher than the expected rate of errors in the related accounting records.
C. Identical to the expected rate of errors in the related accounting records.
D. Unrelated to the expected rate of errors in the related accounting records.
48. To determine whether the client’s internal control operated effectively in minimizing the likelihood of
failing to bill customers for inventory shipped to them, the auditor would select a sample of transactions
from the population represented by the
A. Customer order file
B. Bill of lading file
C. Open invoice file
D. Sales invoice file
49. The precision limit for control testing necessary to justify lowering the assessed control risk level depends
primarily on which of the following?
A. The cause of the errors.
B. The materiality of the attribute(s) to be tested.
C. The amount of any substantive errors.
D. The limit used in audits of similar clients.
50. An auditor performs a test to determine whether all merchandise for which the client was billed was
received. The population for this test consists of all
A. Merchandise received.
B. Vendors’ invoices.
C. Canceled checks.
D. Receiving reports.
51. Although mathematically based, statistical sampling does not replace audit judgment. In utilizing statistical
sampling techniques, the auditor must apply judgment in all but which of the following tasks?
A. Selecting a tolerable rate of error.
B. Determining an acceptable risk of underassessing control risk.
C. Calculating the actual error rate.
D. Assessing the materiality of control weaknesses.
52. If an auditor, in planning to use statistical sampling, is concerned with the number of a client’s sales
invoices that contain mathematical errors, he would most likely to utilize
A. Random sampling with replacement.
B. Sampling for attributes.
C. Sampling for variables.
D. Stratified random sampling.
53. An auditor wishes to determine if the error rate on travel reimbursement claims is within the five-percent
tolerance level set by management. What sampling plan should the auditor use?
A. Variables sampling.
B. Attribute sampling.
C. Judgment sampling.
D. PPS sampling.
54. An auditor samples cash disbursement records for significant errors of P5, 000 of more. Upon finding one
such error, these records are scheduled for a complete review. This conclusion is most likely based on a
A. Cluster sample.
B. Discovery sample.
C. Systematic sample.
D. Stratified sample.
55. In attribute estimation, which of the following must be known in order to appraise the results of the
auditor’s sample?
A. Estimated peso value of the population.
B. Standard deviation of the values in the population.
C. Actual occurrence rate of the attribute in the population.
D. Sample size.
56. Given random sampling, the same sample size, and the same tolerable error for the testing of two unequal
populations, the risk of assessing control risk too low on the smaller population is
A. The same as the risk of assessing control risk too low on the larger population.
B. Higher than the risk of assessing control risk too low on the larger population.
C. Lower than the risk of assessing control risk too low on the larger population.
D. Not determinable relative to the risk of assessing control risk too low on the larger population.
57. When using statistical sampling for tests of controls, an auditor’s evaluation would include a statistical
conclusion about whether:
A. Deviations in the population are within an acceptable range.
B. Monetary precision exceeds a predetermined amount.
C. The population’s total monetary value is not in error by more than a predetermined amount.
D. Population characteristics occur at least once in the population.
58. An auditor is testing credit authorization procedures by examining sales invoices for credit approval by the
credit department. The procedures will be considered to be working adequately if 96% of all sales invoices
either indicate approval or are cash sales. The auditor selects a random sample of 100 invoices. In this
situation, which of the following outcomes illustrates underassessment?
A. The auditor finds five deviations and concludes that procedures work inadequately. The actual
population deviation rate is 2%.
B. The auditor finds no deviations and concludes that procedures work adequately. The true population
deviation rate is 5%.
C. The auditor finds no deviations and concludes that the procedures work adequately. The true
population deviation rate is 2%.
D. The auditor finds five deviations and concludes that procedures work inadequately. The true
population deviation rate is 6%.
59. An auditor who uses statistical sampling for attributes in testing internal controls should increase the
assessed level of control risk when the
A. Sample occurrence rate is less than the expected occurrence rate used in planning the sample.
B. Tolerable rate less the allowance for sampling risk exceeds the sample occurrence rate.
C. Sample occurrence rate plus the allowance for sampling risk exceeds the tolerable rate.
D. Sample occurrence rate plus the allowance for sampling risk equals the tolerable rate.
60. If a selected random number matches the number of a voided voucher, the voucher ordinarily should be
replaced by another one if it
A. Constitutes a deviation.
B. Cannot be located.
C. Has been properly voided.
D. Represents an immaterial peso amount.
61. Assuming the tolerable deviation rate is 5 percent, the expected population rate is 3 percent, and the
allowance for sampling risk is 2 percent, what should an auditor conclude if the tests of 100 randomly
selected documents reveal 4 deviations?
A. Accept the sample results as a support for assessing control risk below the maximum because the
tolerable rate less the allowance for sampling risk equals the expected population deviation rate.
B. Assess control risk at the maximum because the sample deviation rate plus the allowance for sampling
risk exceeds the tolerable rate.
C. Assess control risk at the maximum because the tolerable rate plus the allowance for sampling risk
exceeds the expected population deviation rate.
D. Accept the sample results as support for assessing control risk below the maximum because the sample
deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
62. What is ordinarily the preferable course of action when an auditor finds a higher than expected deviation
rate when he is sampling controls?
A.
B.
C.
D.
Triple the size of the sample to further analyze potential problems.
Project the level of deviation to the entire sample, and if material qualify the audit opinion.
Continue to selection items from the population until the error rate diminishes to a tolerable level.
Increase the assessed level of control risk and expend substantive testing procedures.
63. Which one is most likely to have more serious consequences, assessing control risk as too high or too low,
and why?
A. Too high, because too much reliance will be put on weak controls, increasing overall audit risk.
B. Too high, because of audit inefficiency and consequently audit reliability will be inhibited.
C. Too low, because too much reliance will be put on weak controls, increasing overall audit risk.
D. Too low, because audit efficiency and consequently audit reliability will be inhibited.
64. Assessing control risk too high is the risk that the sample result
A. Does not support tolerable error for some or all of management’s assertions.
B. Contains proportionately more deviations from prescribed control procedures than what actually exists
in the population as a whole.
C. Contains monetary misstatements that could be material to the financial statements when aggregated
with misstatements in other account balances or classes of transactions.
D. Contains proportionately fewer deviations from prescribed control procedures than what actually exist
in the population as a whole.
65. Assessing control risk too low relates to:
A. The efficiency of the audit.
B. The effectiveness of the audit.
C. The preliminary estimate of materiality.
D. Tolerable error.
66. At times a sample may indicate that the auditor’s assessed level of control risk for a given control is
reasonable when, in fact, the true compliance rate does not justify the assessed level. This situation
illustrates the risk of
A. Assessing control risk too low.
B. Incorrect precision.
C. Assessing control risk too high.
D. Incorrect rejection.
67. In the examination of the financial statements of Delta Company, the auditor determines that in performing
a test of internal control effectiveness, the rate of error in the sample does not support the auditor’s
preconceived notion of a tolerable occurrence rate when, in fact, the actual error rate in the population does
meet the auditor’s notion of effectiveness. This situation illustrates the risk of
A.
B.
C.
D.
Underassessment of control risk.
Overassessment of control risk.
Incorrect rejection.
Incorrect acceptance.
68. Several risk are inherent in the evaluation of audit evidence which has been obtained through the use of
statistical sampling. Which of the following risks is an example of the risk of underassessment of control
risk?
A. Failure to properly define the population to be sampled.
B. Failure to draw a random sample from the population.
C. Failure to accept the statistical hypothesis that internal control is unreliable when, in fact, it is.
D. Failure to accept the statistical hypothesis that a book value is not materially misstated when the true
book value is not materially misstated.
69. As a result of tests of controls; an auditor underassessed control risk and decreased substantive testing. This
underassessment occurred because the true occurrence rate in the population was
A. Less than the risk of underassessment in the auditor’s sample.
B. Less than the occurrence rate in the auditor’s sample.
C. More than the risk of underassessment in the auditor’s sample.
D. More than the occurrence rate in the auditor’s sample.
SAMPLING FOR VARIABLES
70. Which of the following sampling plans would be designed to estimate a numerical measurement of a
population, such as a peso value?
A. Numerical sampling.
B. Discovery sampling.
C. Sampling for attributes.
D. Sampling for variables.
71. Which of the following statements is an advantage of classical variables sampling?
A. If no errors are expected, classical variables sampling will result in a smaller sample size than
probability-proportional-to-size sampling.
B. A classical variables sampling plan can begin before the completed population is available.
C. Classical variables sampling may result in a smaller sample size than probability-proportional-to-size
sampling if there are many differences between recorded and audited amounts.
D. Classical variables sampling does not require recorded values for individual sampling units.
72. What is the primary objective of using stratification as a sampling method in auditing?
A. To increase the confidence level at which a decision will be reached from the results of the sample
selected.
B. To determine the occurrence rate for a given characteristic in population being studied.
C. To decrease the effect of variance in the total population.
D. To determine the precision range of the sample selected.
73. An auditor is applying PPS sampling. In determining the sample size, which of the following is not
necessary?
A. A reliability factor for overstatement errors
B. A reliability factor for understatement errors
C. Tolerable error
D. Anticipated error
74. In a variable sampling plan, an auditor must generally consider each of the following except
A. Variation within the population.
B. Acceptable risk of incorrect acceptance.
C. Tolerable error
D. Population
75. When sampling methods are used in a substantive test, all of the following factors must be considered in
determining an optimum sample size, except the
A. Variation in the population.
B. Risk levels that the auditor is willing to accept.
C. Deviation occurrence rate that the auditor expects to exist in the sample.
D. Tolerable misstatement.
76. Which of the following factors would influence the sample size for a substantive test of details for a
specific account?
A.
B.
C.
D.
Expected amounts of
misstatements
No
Yes
No
Yes
Measure of tolerable misstatement
No
Yes
Yes
No
77. An auditor initially planned to use unrestricted random sampling with replacement when testing accounts
receivable. Later, the auditor decided to use unrestricted random sampling without replacement. As a result
only of this decision, the sample size should
A. Increase.
B. Remain the same.
C. Decrease.
D. Be recalculated using a binomial distribution.
78. The relationship between the sampling risk of incorrect acceptance and the sample size of substantive tests
is
A. Inverse.
B. Indeterminate.
C. Positive.
D. Linear.
79. The use of difference estimation sampling technique to estimate peso amounts is inappropriate when
A. The total book value is known and corresponds to the sum of all the individual book values.
B. A book value for each sample item is unknown.
C. There are some observed differences between audited values and book values.
D. The audited values are nearly proportional to the book value.
80. Which of the following situations would increase the sample size? A decrease in:
A. Risk of incorrect rejection.
B. Estimated population standard deviation.
C. Expected frequency of errors.
D. Tolerable errors.
81. 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. Lowering the assessed level of control risk.
B. Lowering the assessed inherent risk through the use of analytical review procedures.
C. Smaller expected frequency of errors.
D. Smaller measure of tolerable error.
82. For variables sampling purposes, changes in certain parameters affect sample size positively while changes
in others have a negative effect. In this regard, which of the following statements is true?
A. An increase in beta risk reduces sample size.
B. Population size affects sample size inversely, i.e., as population size increases, sample size decreases.
C. An increase in alpha risk increases sample size.
D. As materiality (M) increases, sample size increases.
83. An auditor is primarily concerned with substantial overstatements of accounts receivable balances and
expects few, if any, errors. In an effort to concentrate on the large peso values, the auditor would logically
employ
A. Ratio estimation.
B. Probability proportional to size sampling.
C. Discovery sampling.
D. Mean per unit sampling.
84. Ratio estimation is inappropriate when:
A.
B.
C.
D.
The total population book value is known and corresponds to the sum of all population items.
There are some observed differences between audited and recorded book values.
Differences between recorded and audited values are nearly proportional to the recorded values.
There are no recorded values for some items in the population.
85. A population that is physically separated into two or more groups based on sample variation being less than
that for the entire population is called a
A. Systematic sample.
B. Judgment sample.
C. Simple random sample.
D. Stratified sample.
86. In probability-proportional-to-size sampling, each invoice:
A. Has an equal probability of being selected.
B. Can be represented by no more than one peso unit.
C. Has an unknown probability of being selected.
D. Has a probability proportional to its peso value of being selected.
87. Which of the following is improper when using probability-proportional-to-size sampling?
A. Combining negative and positive peso error items.
B. Using a sample selection technique in which the same account balance could be selected more than
once.
C. Selecting a random starting point and the sampling every nth peso unit.
D. Defining the sampling unit as an individual peso and not as an individual account balance.
88. In comparison with classical variables sampling, which of the following is an advantage of probabilityproportional-to-size (PPS) sampling?
A. PPS sampling automatically results in a stratified sample.
B. PPS sampling results in a smaller sample size if many differences are expected between audited and
recorded amounts.
C. PPS sampling is particularly appropriate when understatement errors are expected.
D. PPS sampling is less likely to overstate the allowance for sampling risk when errors are found in the
sample.
89. PPS sampling is less efficient if
A. Computerized account balances are being audited.
B. Statistical inferences are to be made.
C. The audit objective is oriented to understatements
D. The account contains a large number of transactions.
90. 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. Increase the sample size to reduce the effect of the unusually large disbursements.
B. Continue to draw new samples until all the unusually large disbursements appear in the sample.
C. Set the tolerable rate of deviation at a lower level than originally planned.
D. Stratify the cash disbursements population so that the unusually large disbursements are selected.
91. PPS sampling is most appropriate when the auditor
A. Anticipates understatement errors.
B. Anticipates overstatement errors.
C. Expects no errors.
D. Has assessed control risk at the maximum.
92. The mean-per-unit estimation method calculates the estimated total audited value of a population of
accounts receivable as:
A. A summation of the total individual accounts values in the population.
B. The sample mean audited value multiplied by the number of items in the population.
C. The estimated total audited value of the population multiplied by the number of items in the sample.
D. The summation of the sample multiplied by the number of discrete samples in the population.
93. What is the best description of “tolerable misstatement” for mean-per-unit estimation?
A. The maximum misstatement that may exist without causing an account to be materially misstated.
B. The “bounds” around the sample mean that we would expect the value to fall within to be correct.
C. The “projected” misstatement in the population based upon the sample chosen.
D. The upper limit (or lower limit for liabilities) of asset values for which the book value may exceed that
sample mean without being materially misstated.
94. When are the ratio estimation and difference estimation techniques most likely to be preferable to the
mean-per-unit estimation method?
A. The choice between any of the methods is irrelevant, since they all provide similar results.
B. When differences between book and audited values are infrequent.
C. When differences between book and audited values are frequent.
D. When differences between book and projected misstatements is estimated to be small.
95. What is the main advantage of the probability-proportional-to-size sampling technique over the classical
variables approach?
A. It provides a more accurate estimation of the sample mean.
B. It provides a wider range for acceptance so that less substantive testing needs to be done.
C. It provides a smaller range for acceptance so that more errors are discovered.
D. It often requires a smaller sample size to be selected.
96. Probability-proportional-to-size sampling will result in what type of sample items being selected?
A. Highly representative of the population because it is wholly randomized.
B. A higher proportion of small value items the large value items because of the sampling interval used.
C. A higher proportion of large value items than small value items because of the sampling interval used.
D. A biased sample means that may not be representative of the population.
97. While performing a substantive 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. Alpha risk.
B. Assessing control risk too low.
C. Beta risk.
D. Assessing control risk too high.
98. The risk of incorrect acceptance related to the:
A. Effectiveness of the audit.
B. Efficiency of the audit.
C. Preliminary estimate of materiality.
D. Allowable risk of tolerable error.
99. Sample results support the conclusion that a recorded account balance is materially misstated but, unknown
to the auditor, the account is not misstated, suggesting the risk of
A. Incorrect rejection.
B. Assessing control risk too high.
C. Incorrect acceptance.
D. Assessing control risk too low.
100.In conducting a substantive test of an account balance an auditor hypothesizes that no material error exists.
The risk that sample results will support the hypothesis when a material error actually does exist is the risk
of
A. Incorrect rejection.
B. Alpha error.
C. Incorrect acceptance.
D. Type 1 error.