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TIF CH15 - auditing
Bachelor of Science in Accountancy (Polytechnic University of the Philippines)
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CHAPTER 15
Multiple-Choice Questions
1.
easy
b
A sample in which the characteristics of the sample are the same as those of the population is
a(n)
a. variables sample.
b. representative sample.
c. attributes sample.
d. random sample.
2.
easy
a
When the auditor decides to select less than 100 percent of the population for testing, the
auditor is said to be using
a. audit sampling.
b. representative sampling.
c. poor judgment.
d. none of the above.
3.
easy
b
One of the ways to eliminate nonsampling risk is through
a. proper supervision and instruction of the client’s employees.
b. proper supervision and instruction of the audit team.
c. the use of attributes sampling rather than variables sampling.
d. controls which ensure that the sample drawn is random and representative.
4.
easy
a
One cause of nonsampling risk is
a. ineffective use of audit procedures.
b. testing less than the entire population.
c. use of extensive tests of controls.
d. any of the above.
5.
easy
b
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 sample selection.
b. haphazard selection.
c. systematic sample selection.
d. statistical selection.
6.
easy
a
When the auditor intends to evaluate a sample statistically, the only acceptable selection method
is
a. probabilistic selection.
b. judgmental selection.
c. haphazard selection.
d. block sample selection.
7.
easy
a
A sample in which every possible combination of items in the population has an equal chance of
constituting the sample is a
a. random sample.
b. statistical sample.
c. judgment sample.
d. representative sample.
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8.
easy
c
The process which requires the calculation of an interval and then selects the items based on the
size of the interval is
a. statistical sampling.
b. random sample selection.
c. systematic sample selection.
d. computerized sample selection.
9.
easy
a
In systematic sample selection, the population size is divided by the number of sample items
desired in order to determine the
a. interval.
b. tolerable exception rate.
c. computed upper exceptions rate.
d. mean.
10.
easy
d
Sampling risk may be controlled by
a. adjusting the sample size.
b. always using random sampling .
c. using whatever sample selection technique is appropriate for the population.
d. a and c.
11.
easy
b
Which of the following material occurrences would be least likely to attract the auditor’s
attention?
a. Deviations from client’s established control procedures.
b. Deviations from client’s budgeted values.
c. Monetary errors or irregularities in populations of transaction data.
d. Monetary errors or irregularities in populations of account balance details.
12.
easy
d
Which of the following statements is correct?
a. A sample of all items of a population will eliminate sampling risk, but increase
nonsampling risk.
b. The use of an appropriate sample selection technique ensures a representative sample.
c. The auditor’s failure to recognize an exception is a significant cause of sampling risk.
d. The use of inappropriate audit procedures is a significant cause of nonsampling risk.
13.
easy
c
The risk which the auditor is willing to take of accepting a control as being effective when it is
not is the
a. finite correction factor.
b. tolerable exception rate.
c. acceptable risk of assessing control risk too low.
d. estimated population exception rate.
14.
easy
a
The exception rate the auditor will permit in the population and still be willing to use
the assessed level of control risk is called the
a. tolerable exception rate.
b. estimated population exception rate.
c. acceptable risk of overreliance.
d. sample exception rate.
15.
easy
c
If the auditor decides to assess control risk at the maximum level, tests of controls are
a. increased in number.
b. reduced in number.
c. not performed.
d. unchanged from prior planned settings.
16.
easy
Attributes sampling would be an appropriate method to use on which one of the following
procedures in an audit program?
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c
a.
b.
c.
d.
Review sales transactions for large and unreasonable amounts.
Observe whether the duties of the accounts receivable clerk are separate from handling
cash.
Examine a sample of duplicate sales invoices for credit approval by the credit manager.
Review the aged schedule of accounts receivable to determine if receivables from officers
are included.
17.
easy
a
When the computed upper exception rate is greater than the tolerable exception rate, it is
necessary for the auditor to take specific action. Which of the following courses of action would
be most difficult to defend if the auditor is ever subject to review by a court?
a. Revise and relax the tolerable exception rate (TER) or the acceptable risk of assessing
control risk too low (ARACR).
b. Expand the sample size.
c. Revise the assessed control risk.
d. Write a letter to management.
18.
easy
a
Sampling risk is
a. the risk that an auditor reaches an incorrect conclusion because the sample is not
representative of the population.
b. the risk that an auditor reaches the correct conclusion after considering the nonsampling
risk introduced by auditor judgment.
c. a and b.
d. neither a nor b.
19.
easy
d
Which of the following factors is generally not considered in determining sample size for a test
of controls?
a. Expected population exception rate.
b. Risk of assessing control risk too low.
c. Tolerable exception rate.
d. Population size.
20.
easy
c
Which of the following statement is correct with respect to the quantification of sampling risk?
a. Sampling risk cannot be quantified.
b. Sampling risk can only be quantified when nonstatistical sample selection techniques are
used to select the sample.
c. Sampling risk can be quantified only when probabilistic sampling techniques are used to
select the sample.
d. None of the above.
21.
easy
d
When using the directed sample selection technique, the auditor may use which of the following
criteria?
a. Items most likely to contain misstatements.
b. Items containing selected population characteristics.
c. Large dollar coverage.
d. Any of the above.
22.
medium
b
Nonsampling errors occur when audit tests do not uncover existing exceptions in the
a. population.
b. sample.
c. planning stage.
d. financial statements.
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23.
medium
d
One of the ways to reduce sampling risk is to
a. carefully design the audit procedures to be used.
b. use variables sampling rather than attributes sampling.
c. provide proper supervision and instruction of the audit team.
d. use an appropriate method of selecting sample items from the population.
24.
medium
c
Which of the following statements is correct with respect to the evaluation of sample results?
a. It is acceptable to make nonstatistical evaluations only when probabilistic sample selection
is used.
b. It is acceptable to make nonstatistical evaluations only if the auditor cannot quantify
sampling risk.
c. It is never acceptable to evaluate a nonprobabilistic sample as if it were a statistical one.
d. All of the above are correct.
25.25.
medium
d
Which of the following statements is a valid criticism of the use of non-statistical 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. Non-statistical sampling does not differ substantially from statistical sampling methods.
d. Conclusions may be drawn in more precise ways when using statistical sampling methods.
26.26.
medium
d
Which of the following methods of sample selection is appropriately used when selecting a
random sample?
a. Use of random number tables.
b. Use computer generated random numbers.
c. Auditor’s random selection of items.
d. a and b, but not c.
27.
medium
b
Correspondence is established between the random number table and the population by
a. identifying each item in the population with a unique number.
b. deciding the number of digits to use in the random number table and their association with
the population numbering system.
c. defining which digits the auditor uses in a column and the method of reading the table.
d. selecting a random starting point on the table.
28. (Public)
medium
c
The acceptable risk of assessing control risk too low will normally be assessed at a
when auditing a public company.
a. higher
b. compensating
c. lower
d. nominal
29.
medium
b and c
Which of the following statements is not correct (select all that apply)?
a. It is acceptable to pick a starting point on a random number table by using a “blind stab”
method.
b. It is impossible to draw a six-digit random number from a table that is separated into
columns of five digits.
c. The only reason for selecting a random starting point on a random number table is to
eliminate the predictability of the sample.
d. When selecting a three-digit number from a table that is separated into columns of five
digits, it is permissible to use the first three digits, the middle three digits, or the last three
digits.
30.30.
medium
Which of the following is not one of the types of computer tools used to generate random
samples?
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d
a.
b.
c.
d.
Electronic spreadsheet programs.
Random number generators.
Generalized audit software.
Random application search software.
31.
medium
d
Auditors are concerned with which type of exceptions in populations of accounting data?
a. Deviations from client established controls.
b. Monetary misstatements in transaction data.
c. Monetary misstatements in account balance details.
d. Auditors are concerned with all of these exceptions.
32.
medium
b
In using audit sampling for exception rates, the auditor is primarily interested in determining the
the exception rate might be.
a. lowest.
b. most.
c. average range in which.
d. none of the above.
33.33.
medium
c
The highest estimated exception rate in the population at a given acceptable risk of assessing
control risk too low is
a. the upper exception rate.
b. estimated population exception rate.
c. the computed upper exception rate.
d. the tolerable exception rate.
34.
medium
a
The advantage of systematic sample selection is that
a. it is easy to use.
b. there is limited possibility of it being biased.
c. it is unnecessary to determine if the population is arranged randomly.
d. all three of the above.
35.35.
medium
a
A statistical method used to estimate the proportion of items in a population containing a
characteristic of interest is
a. attributes sampling.
b. variables sampling.
c. estimation sampling.
d. population-proportional-to-size sampling.
36.36.
medium
d
The exception rate that the auditor will permit in the population and still be willing to use the
assessed control risk is called the
a. acceptable exception rate.
b. estimated population exception rate.
c. sample exception rate.
d. tolerable exception rate.
37.
medium
a
The auditor’s best estimate of the population exception rate is the
a. sample exception rate.
b. tolerable exception rate (TER).
c. experience of the previous year.
d. computed upper exception rate (CUER).
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38.38.
medium
c
Place the following steps in their proper order:
1. Analyze exceptions
2. Select the sample
3. Define attributes and exception conditions
4. State the objectives of the audit test
5. Define the sampling unit
a.
b.
c.
d.
1,3,2,4,5.
4,3,1,2,5.
4,3,5,2,1.
1,2,3,4,5.
39.
medium
a
If an auditor, without statistical sampling, selects a sample of one hundred items from a
population and finds two exceptions, the auditor
a. can conclude that the sample exception rate is 2%.
b. can conclude that the population exception rate is 2%.
c. can calculate the highest exception rate expected in the population.
d. cannot make any conclusions about either the sample or the population.
40.
medium
a
For which of the following audit procedures is audit sampling inappropriate?
a. Review sales transactions for large and unusual amounts.
b. Examine a sample of duplicate sales invoices for credit approval.
c. Compare the quantity on duplicate sales invoices with the quantity on related shipping
documents.
d. Audit sampling is appropriate for each of the above procedures.
41.
medium
d
Which of the following statements regarding the process of defining the population is not
correct?
a. The auditor can define the population to include whatever data is desired.
b. The auditor may generalize only about that population which has been sampled.
c. The population represents the body of data about which the auditor wishes to generalize.
d. The auditor can randomly sample from whatever part of the population that he or she
chooses.
42.
medium
b
Which of the following is the exception rate that the auditor expects to find before testing?
a. Sample exception rate.
b. Estimated population exception rate.
c. Computed exception rate.
d. Tolerable exception rate.
The tolerable exception rate (TER) has a significant effect on sample size. The relationship of
TER to sample size is
a. direct (larger TER = larger sample).
b. inverse (larger TER = smaller sample).
c. variable (sometimes larger, sometimes smaller).
d. not determinable.
43.
medium
b
44.
medium
c
The acceptable risk of accessing control risk too low (ARACR) has a significant effect on
sample size. The relationship of ARACR to sample size is
a. variable (sometimes larger, sometimes smaller).
b. direct (larger ARACR = larger sample).
c. inverse (larger ARACR = smaller sample).
d. nonexistent.
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45.
medium
a
The acceptable risk of assessing control risk too low (ARACR) is a measure of the level of risk
that
a. the auditor is willing to take.
b. is predicted by the random number table.
c. is predicted by the statistical frequency table.
d. is generated as a result of the auditor’s knowledge of the true population exception rate.
46.
medium
a
In attributes sampling, an advance estimate of the estimated population exception rate is
necessary to plan the appropriate sample size. The relationship of expected population
exception rate (EPER) to sample size is
a. direct (small EPER = small sample).
b. inverse (small EPER = large sample).
c. a variable (sometimes small, sometimes large) dependent on other factors present.
d. indeterminate.
47.
medium
d
The initial sample size is so called because
a. there is always another sample to be done.
b. the auditor must take several samples to ensure randomness.
c. the auditor must take several samples to ensure that the final sample is representative of
the population.
d. the exceptions must be evaluated before deciding whether the sample is sufficiently large
to achieve the objectives.
48.
medium
b
Statistical theory proves that in most types of populations to which attributes sampling applies,
the population size is
a. not a consideration in determining sample size.
b. a minor consideration in determining sample size.
c. a major consideration in determining sample size.
d. the determining factor in establishing sample size.
49.
medium
c
The sample exception rate equals
a. the number of exceptions in the population divided by the sample size.
b. the number of items in the population multiplied by the number of exceptions in the
sample.
c. the number of exceptions in the sample divided by the sample size.
d. the number of exceptions in the population divided by the population size.
50.
medium
c
Before the population can be considered acceptable based on the acceptable risk of assessing
control risk too low (ARACR), the computed upper exception rate (CUER) must be
a. greater than or equal to the TER.
b. greater than the TER.
c. less than or equal to the TER.
d. less than the tolerable exception rate (TER).
51.
medium
d
Which of the following combinations of attributes and exception conditions is inappropriate.
a. Existence of sales invoice number in the sales journal – No record of sales invoice number
in the sales journal.
b. Credit is approved – Lack of initials indicating credit approval.
c. Quantity on customer order agree with duplicate sales invoice – Quantity on customer
order do not agree with quantity on duplicate sales invoice.
d. Evidence that pricing are checked – Lack of initials on duplicate sales invoice indicating
that extensions were checked.
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52.
medium
a
Which of the following statements is not true?
a. Random selection is statistical measurement.
b. It is acceptable to use random selection procedures without drawing statistical conclusions.
c. It would be inappropriate to draw a statistical conclusion unless the sample were randomly
selected.
d. Random selection is a part of statistical sampling.
53.53.
medium
d
An auditor selects a sample from the file of shipping documents to determine whether invoices
were prepared. This test is performed to satisfy the audit objective of
a. accuracy.
b. existence.
c. control.
d. completeness.
54.
medium
c
An example of sampling for attributes would be estimating the
a. quantity of specific inventory items.
b. probability of losing a patent infringement case.
c. percentage of overdue accounts receivable.
d. dollar value of accounts receivable.
55.
medium
d
The acceptable risk of assessing control risk too low is
a.
the risk that the auditor is willing to take of accepting a control as ineffective when it is
effective.
b. the risk that the auditor is willing to take of accepting a control as effective when it is
ineffective.
c.
the auditor’s measure of sampling risk.
d. b and c, but not a.
56.
medium
b
When using statistical sampling, the auditor would probably require a smaller sample if the
a. population increases.
b. desired reliability decreases.
c. desired precision interval narrows.
d. expected exception rate increases.
57.
medium
a
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.
58.58.
medium
d
A principal advantage of statistical methods of attributes sampling over nonstatistical methods
is that they provide a scientific basis for planning the
a. risk of assessing control risk too low.
b. tolerable exception rate.
c. expected population exception rate.
d. sample size.
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59.59.
medium
c
In performing a review of his client’s cash disbursements, a CPA uses systematic sample
selection with a random start. The primary disadvantage of systematic sample selection is that
population items
a. may occur twice in the sample.
b. must be reordered in a systematic pattern before the sample can be drawn.
c. may occur in a systematic pattern, thus negating the randomness of the sample.
d. must be replaced in the population after sampling to permit valid statistical inference.
60.60.
medium
a
Which of the following need not be known to evaluate the results of a sample for a particular
attribute?
a. Exception rate in the sample.
b. Size of the sample.
c. Acceptable risk of assessing control risk too low.
d. Actual number of exceptions in the sample.
61.61.
medium
d
In estimation sampling for attributes, which one of the following must be known in order to
appraise the results of the auditor’s sample?
a. Estimated dollar value of the population.
b. Standard exception of the values in the population.
c. Actual exception rate of the attribute in the population.
d. Sample size.
62.62.
challenging
b
Which of the following statements is not correct regarding probabilistic and nonprobabilistic
sample selection?
a. In probabilistic selection, every population item has a known chance of being selected.
b. It is not acceptable to make nonstatistical evaluations using probabilistic selection.
c. Probabilistic selection is required for all statistical sampling methods.
d. Both methods are acceptable and commonly used.
63.63.
challenging
a
Nonprobabilistic sample selection methods are not based on strict mathematical probabilities;
therefore,
a. the extent to which a sample is representative may be difficult to determine.
b. they are discouraged by the AICPA.
c. they are forbidden by the Statements on Auditing Standards.
d. they are not as good as statistical sampling.
64.
challenging
c
Which of the following statements regarding block sampling is not true?
a. Block sampling is the selection of several items in sequence.
b. It is acceptable to use block sampling for tests of transactions only if a reasonable number
of blocks are used.
c. A “reasonable number” for most situations is probably at least six blocks from six
different months.
d. Once the first item in the block is selected, the remainder of the block is chosen
automatically.
65.
challenging
a
A means of reducing the potential bias in systematic sample selection is to
a. use multiple starts.
b. use a random number table.
c. include a large block of the population.
d. include only the high-dollar-value items.
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66.66.
challenging
c
Unless a precise statement of what constitutes an attribute is made in advance, the staff person
who performs the audit procedure will have no guidelines
a. to use when evaluating the results of analytical review procedures.
b. to determine what documents to obtain and review for the observation tests.
c. for identifying deviations.
d. for performing all three of the above.
67.
challenging
a
When deciding on the acceptable risk of assessing control risk too low, the auditor should
a. rely on his/her professional judgment.
b. err on the side of being conservative.
c. consult the professional standards.
d. do any of the above.
68.
challenging
d
The finite correction factor has the effect of significantly changing the sample size only when
a. less than 10% of the population is included in the sample.
b. 5% or more of the population is included in the sample.
c. greater than 5% but less than 10% of the population is included in the sample.
d. more than 10% of the population is included in the sample.
69.69.
challenging
c
Of the four factors which determine the initial sample size (population size, tolerable exception
rate, acceptable risk of overreliance, and expected population exception rate), which
combination of two factors has the greatest effect on sample size?
a. Population size times expected population exception rate.
b. Expected population exception rate plus acceptable risk of overreliance.
c. Tolerable exception rate minus expected population exception rate.
d. Acceptable risk of overreliance minus tolerable exception rate.
70.
challenging
d
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.
71.71.
challenging
b
When audit procedures have been completed for an attributes sampling application, the auditor
must generalize from the sample to the population. Which of the following statements would be
incorrect regarding this process?
a. The auditor would use an attributes sampling table to determine the computed upper
exception rate.
b. The computed upper exception rate is the highest exception rate at a given ARACR.
c. It would be wrong for the auditor to conclude that the population exception rate is exactly
the same as the sample exception rate.
d. In selecting the table corresponding to the risk of overreliance, it should be the same as the
ARACR used for determining the initial sample size.
72.
challenging
b
A CPA examining inventory may appropriately apply sampling for attributes to estimate the
a. average price of inventory items.
b. percentage of slow-moving inventory items.
c. dollar value of inventory.
d. physical quantity of inventory items.
If an auditor, planning to use statistical sampling, is concerned with the number of a client’s
sales invoices that contain mathematical errors, the auditor would most likely utilize
a. random sampling with replacement.
73.73.
challenging
b
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b.
c.
d.
sampling for attributes.
sampling for variables.
stratified random sampling.
74.74.
challenging
a
If the result obtained from a particular sample will be critical (that is, the auditor would not be
able to render an unqualified opinion unless every item in the population were examined),
which of the following is the most important to the auditor?
a. Acceptable risk of assessing control risk too low.
b. Estimated population exception rate.
c. Tolerable exception rate.
d. Size of the population.
75.
challenging
b
The tolerable rate of exceptions for tests of controls is generally
a. lower than the estimated population exception rate in the related accounting records.
b. higher than the estimated population exception rate the related accounting records.
c. identical to the estimated population exception rate in the related accounting records.
d. unrelated to the estimated population exception rate in the related accounting records.
76.
challenging
a
An advantage of using statistical sampling techniques is that such techniques
a. mathematically measure sampling risk.
b. eliminate the need for judgmental decisions.
c. define the values of precision and reliability required to provide audit satisfaction.
d. have been established in the courts to be superior to judgmental sampling.
77.77.
challenging
a
Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of
statistical sampling flows from its unique ability to
a. provide a mathematical measurement of uncertainty.
b. promote a more legally defensible procedural approach.
c. define the precision required to provide audit satisfaction.
d. establish conclusive audit evidence with decreased audit effort.
78.78.
challenging
d
Which of the following is an advantage of systematic sample selection over random number
sampling?
a. It provides a stronger basis for statistical conclusions.
b. It enables the auditor to use the more efficient “sampling with replacement” tables.
c. There may be correlation between the location of items in the population, the feature of
sampling interest, and the sampling interval.
d. It does not require establishment of correspondence between random numbers and items in
the population.
79.79.
challenging
b
What is an auditor’s evaluation of a statistical sample for attributes when a test of 100
documents results in four exceptions if the tolerable exception rate is 5%, the expected
population exception rate is 3%, and the allowance for sampling risk is 2%?
a. Accept the sample results as support for planned reliance on the control because the
tolerable rate less the allowance for sampling risk equals the expected population
exception rate.
b. Modify planned reliance on the control because the sample exception rate plus the
allowance for sampling risk exceeds the tolerable rate.
c. Modify planned reliance on the control because the tolerable rate plus the allowance for
sampling risk exceeds the expected population exception rate.
d. Accept the sample results as support for planned reliance on the control because the
sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
80.80.
challenging
a
In the evaluation of the results of an attributes sample, the fact that the exception rate in the
sample was 2% rather than the estimated population exception rate of 4% would cause the
computed upper exception rate to
a. be less than the tolerable exception rate.
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b.
c.
d.
81.81.
challenging
c
equal the tolerable exception rate.
exceed the tolerable exception rate.
cannot be determined from the information given.
If the size of the sample to be used in a particular test of attributes has not been determined by
using statistical concepts, but the sample has been chosen in accordance with random selection
procedures,
a. no inferences can be drawn from the sample.
b. the auditor has committed a nonsampling error.
c. the auditor may or may not achieve the tolerable exception rate at the acceptable risk of
assessing control risk too low.
d. the auditor will have to evaluate the results by reference to the principles of discovery
sampling.
Essay Questions
82.8
2
.
easy
Briefly explain why auditors utilize audit sampling.
83.8
3
.
easy
Discuss what is meant by “sampling risk.”
84.8
4
.
easy
Discuss what is meant by “nonsampling risk.”
85.8
5
.
easy
Explain the difference between sampling with replacement and without replacement. Which
method is more common in audit practice?
Answer:
Auditors use sampling techniques primarily because it is generally impractical to audit all
transactions or balances. Consequently, auditors must design strategies to help them select
items from the population that are likely to be representative of the remaining population
items. In addition, auditors often use sampling techniques because of economic realities.
That is, clients generally do not want to incur the substantial audit fees associated with
auditing every transaction or balance.
Answer:
Sampling risk occurs when the sample is not representative of the population; that is, the
characteristics of interest in the sample are not the same as those in the population.
Answer:
Nonsampling risk occurs when audit tests do not uncover existing exceptions in the
sample.
Answer:
In replacement sampling, an element in the population can be included in the sample more
than once, whereas in nonreplacement sampling, an element can be included only once.
Nonreplacement sampling is more common in audit practice.
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86.86.
medium
Discuss two causes of nonsampling risk. Also discuss ways the auditor can control nonsampling
risk.
Answer:
The two causes of nonsampling risk are (1) the auditor’s failure to recognize exceptions
and (2) inappropriate or ineffective audit procedures. The auditor can control nonsampling
risk through careful design of audit procedures and through proper instruction,
supervision, and review.
87.87.
medium
What is the key advantage and disadvantage associated with systematic sample selection? How
must auditors address this disadvantage?
Answer:
The key advantage is its ease of use. Generally, systematic samples are easily drawn from
the population and supporting documentation is easily developed. The key disadvantage is
the potential for bias. Once the first item in the sample is selected, all other items are
chosen automatically. Auditors should be careful to consider any potential pattern in the
data prior to selecting their sample to ensure that their selection considers the possible
bias.
88.88.
medium
Describe the differences between statistical and nonstatistical sampling in terms of (1) the
sample selection methods used, and (2) measurement (quantification) of sampling risk.
Answer:
Nonstatistical sampling differs from statistical sampling in that nonprobabilistic sampling
can be used for the former but not the latter. In addition, sampling risk can be quantified
when using statistical sampling, but not when using nonstatistical sampling.
89.89.
medium
Describe each of the three types of sample selection methods commonly associated with
nonstatistical audit sampling.
Answer:
Three types of sample selection methods commonly associated with nonstatistical audit
sampling are:
 Directed sample selection. Each item in the sample is selected on the basis of some
judgmental criteria established by the auditor.
 Block sample selection. Several items in the population are selected in sequence.
 Haphazard sample selection. Sample items are selected from the population without
regard to their size, source, or other distinguishing characteristics.
90.90.
medium
Describe each of the four types of sample selection methods commonly associated with
statistical audit sampling.
Answer:
Four types of sample selection methods commonly associated with statistical audit
sampling are:
 Simple random sample selection. Every possible combination of elements in the
population has an equal chance of constituting the sample.
 Systematic sample selection. A probabilistic method of sampling in which the auditor
calculates an interval (the population size divided by the number of sample items
desired) and selects the items for the sample based on the size of the interval.
 Probability proportional to size. The probability of selecting any individual
population item is proportional to its recorded amount.
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
91.91.
medium
Stratified sample selection. A probabilistic method of sampling in which the
population is divided into subpopulations, and subsamples are taken from each of the
subpopulations.
Directed sample selection is the selection of each item in the sample based on some judgment
criteria established by the auditor. Discuss three commonly-used criteria.
Answer:
Commonly-used criteria used in directed sample selection are:
 Items most likely to contain misstatements; for example, unusual or complex
transactions, overdue receivables.
 Items containing selected population characteristics, such as transactions selected
from each month during the year or from each location.
 Large dollar coverage in which the auditor focuses on selecting the relatively large
items in the population for testing.
92.92.
medium
What types of exceptions are auditors most concerned with when evaluating populations of
accounting data?
Answer:
There are three types of exceptions that auditors are generally concerned with when
evaluating populations of accounting data. They are:
1. Deviations from client’s established controls.
2. Monetary misstatements in populations of transaction data.
3. Monetary misstatements in populations of account balance details.
93.
medium
There are 14 steps to attributes sampling, divided into three sections: plan the sample, select the
sample and perform the audit procedures, and evaluate the results. Discuss each of the steps that
comprise the “evaluate the results” section.
Answer:
The steps that comprise the “evaluate the results” section in attributes sampling are:
1. Generalize from the sample to the population. Tables can be used to determine the
upper precision limit (computed upper exception rate) based on the acceptable risk of
assessing control risk too low and the sample exception rate.
2. Analyze exceptions. In this step, the auditor should analyze individual exceptions to
determine the breakdown in the internal controls that caused them.
3. Decide the acceptability of the population. In the final step, the auditor compares the
computed upper exception rate with the tolerable exception rate. If the computed
upper exception rate is less than or equal to the tolerable exception rate, then the
population is considered acceptable.
94.
medium
Explain the effect on sample size of increasing each of the following: (1) tolerable exception
rate, (2) estimated population exception rate, (3) acceptable risk of assessing control risk too
low, and (4) population size.
Answer:
The tolerable exception rate and acceptable risk of assessing control risk too low are
inversely related to sample size; that is, as TER or ARACR increase, sample size will
decrease. The estimated population exception rate and the population size are directly
related to sample size; as EPER increases, sample size will also increase, and as
population size increases, sample size may slightly increase.
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95.
challenging
There are 14 steps to attributes sampling, divided into three sections: plan the sample, select the
sample and perform the audit procedures, and evaluate the results. Discuss each of the steps that
comprise the “plan the sample” section.
Answer:
The steps that comprise the “plan the sample” section in attributes sampling are:
1. State the objectives of the audit test. Typically, in attributes sampling, the overall
objective is to test the application of controls and determine whether transactions
contain monetary misstatements.
2. Decide if audit sampling applies. Audit procedures involving documentation normally
can be performed using sampling, whereas procedures involving observation, inquiry
of the client, and analytical procedures are not suited to audit sampling.
3. Define attributes and exception conditions. In this step, the auditor carefully defines
the attributes of interest and the conditions that constitute exceptions or errors.
4. Define the population. The population is the body of data about which the auditor
wished to generalize, from which the sample must be drawn.
5. Define the sampling unit. In attributes sampling, the sampling unit is normally a
document, identified by document numbers, or a transaction recorded in a journal.
6. Specify tolerable exception rate. This is the exception rate that the auditor will permit
in the population and still be willing to use the assessed control risk and/or the amount
of monetary misstatements in the transactions established during planning.
7. Specify acceptable risk of assessing control risk too low. This is the risk that the
auditor is willing to take of accepting a control as effective when the true population
exception rate is greater than the tolerable exception rate.
8. Estimate the population exception rate. This is the exception rate the auditor expects
to find in the population before testing begins.
9. Determine the initial sample size. The initial sample size is determined from tables,
based on values for the tolerable exception rate, acceptable risk of assessing control
risk too low, population size, and the estimated population exception rate.
Other Objective Answer Format Questions
96.
medium
Match five of the terms (a-k) with the definitions provided below (1-5):
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
Haphazard selection
Attributes sampling
Block sample selection
Judgmental sampling
Nonprobabilistic sample selection
Probabilistic sample selection
Random sample
Representative sample
Statistical sampling
Systematic sample selection
Sampling distribution
i
1.
The use of mathematical measurement techniques to calculate formal statistical
results and quantify sampling risk.
c
2.
A nonprobabilistic method of sample selection in which items are selected in
measured sequences.
h
3.
A sample whose characteristics are the same as those of the population.
b
4.
A statistical, probabilistic method of sample evaluation that results in an
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estimate of the proportion of items in a population containing a characteristic of
interest.
a
5.
A nonprobabilistic method of sample selection in which items are chosen
without regard to their size, source, or other distinguishing characteristics.
97.
easy
b
Sampling risk results from the auditor’s failure to recognize exceptions in transaction data.
a. True
b. False
98.
easy
a
Even when nonsampling risk is zero, there is always a chance that a sample is not reasonably
representative.
a. True
b. False
99.
medium
a
When selecting a sample, random numbers may be obtained either with replacement or without
replacement. Although both selection methods are theoretically sound, auditors rarely use
replacement sampling.
a. True
b. False
100.
medium
b
If a particular internal control is not followed by the client exactly 6% of the time, and the
auditor’s tests of that control find three control violations in a sample of 50, the sample is
considered to be nonrepresentative.
a. True
b. False
101.
medium
a
In practice, auditors do not know whether a sample is representative, even after all testing is
complete.
a. True
b. False
102.
medium
b
The only way to control sampling risk is to increase sample size.
a. True
b. False
103.
medium
a
A sample of all items in a population will have a zero sampling risk.
a. True
b. False
104.
medium
a
It is equally acceptable under professional auditing standards for auditors to use either statistical
or nonstatistical sampling methods.
a. True
b. False
105.
medium
b
When using nonstatistical sampling, the sample must be a probabilistic one.
a. True
b. False
106.
medium
b
The use of haphazard sample selection is not allowed under professional auditing standards.
a. True
b. False
107.
Although systematic sample selection is easy to use, its primary disadvantage is that it is not a
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b
probabilistic sampling method.
a. True
b. False
108.
medium
b
Acceptable risk of assessing control risk too low is the risk that the auditor is willing to take of
accepting a control as effective when the true population exception rate is greater than the
estimated population exception rate.
a. True
b. False
109.
medium
b
Directed sample selection, block sample selection, and haphazard sample selection are three
types of probabilistic sample selection methods.
a. True
b. False
110. (Public)
medium
a
ARACR is normally lower for a public company audit than a private company audit.
a. True
b. False
111.
medium
a
The estimated population exception rate is the auditor’s “best estimate” of the actual exception
rate in the entire population.
a. True
b. False
112.
medium
a
When the computed upper exception rate is greater than the tolerable exception rate in attributes
sampling, one possible appropriate course of action is to increase sample size.
a. True
b. False
113.
challenging
a
Tolerable exception rate (TER) is inversely related to sample size; that is, as TER increases,
sample size decreases.
a. True
b. False
114.
challenging
b
The higher the assessed control risk, the lower will be the acceptable risk of assessing control
risk too low.
a. True
b. False
115.
challenging
a
In nonstatistical sampling, the calculated sampling error is the difference between the tolerable
exception rate and the sample exception rate.
a. True
b. False
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