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Chapter 9 Statistical Sampling for Testing Control Procedures 142

Statistical Sampling for Testing Control


Procedures
MULTIPLE CHOICE

1. 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.

ANSWER: B

2. 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.

ANSWER: B

3. Which of the following sampling plans would be designed to


estimate a numerical measurement of a population, such as a
dollar value?
a. Numerical sampling.
b. Discovery sampling.
c. Sampling for attributes.
d. Sampling for variables.

ANSWER: D

4. Based on a random sample, it is estimated that four percent,


plus or minus two percent, of a firm's invoices contain
errors. The plus or minus two percent is known as the
estimate's:
a. Precision.
b. Accuracy.
143 Chapter 9 Statistical Sampling for Testing Control Procedures

c. Confidence level.
d. Standard error.

ANSWER: A
5. In order to quantify the risk that 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.

ANSWER: C

6. Which of the following statements is not true regarding


audit risk assessment?
a. The auditor studies the business and industry and
applies analytical procedures as a basis for assessing
inherent risk.
b. When control risk and inherent risk are high, the
auditor increases detection risk to maintain overall
audit risk at the desired level.
c. The auditor studies and evaluates internal control
policies and procedures for assessing control risk.
d. The auditor designs substantive audit procedures to
reduce detection risk to an acceptable level.

ANSWER: B

7. 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 dollar amount of the items to be sampled.
c. Estimated standard deviation of the population.
d. Tolerable error.

ANSWER: D

8. Random numbers can be used to select a sample only when each


item in the population:
a. Can be assigned to a specific stratum.
b. Is independent of outside influence.
c. Can be identified with a unique number.
Chapter 9 Statistical Sampling for Testing Control Procedures 144

d. Is expected to be within plus or minus three standard


deviations of the population mean.

ANSWER: C

9. The tolerable occurrence rate for a control test is


generally
a. Lower than the expected occurrence rate in the related
accounting records.
b. Higher than the expected occurrence rate in the related
accounting records.
c. Identical to the expected occurrence rate in the
related accounting records.
d. Unrelated to the expected occurrence rate in the
related accounting records.

ANSWER: B

10. An advantage of statistical over non-statistical sampling is


that statistical sampling:
a. Enables auditors to objectively measure the reliability
of their sample results.
b. Permits use of a smaller sample size than would be
necessary with non-statistical sampling.
c. Is compatible with a wider variety of sample selection
methods than is non-statistical sampling.
d. Allows auditors to inject their subjective judgment in
determining sample size and selection process in order
to audit items of greatest value and highest risk.

ANSWER: A

11. An auditor samples cash disbursement records for significant


errors of $5 or 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.

ANSWER: B

12. Of the following statements, which one best differentiates


statistical sampling from nonstatistical sampling?
145 Chapter 9 Statistical Sampling for Testing Control Procedures

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 than 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.

ANSWER: A

13. 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 is that
population items
a. Which include errors will not be overlooked when the
auditor exercises compatible reciprocal
options.
b. May occur in a systematic pattern, thus making the
sample more representative.
c. May occur more than once in a sample.
d. Do not have to be prenumbered in order for the auditor
to use the technique.

ANSWER: D

14. When planning an attribute sampling application, the


difference between the expected occurrence rate and the
tolerable occurrence rate is the planned
a. Precision.
b. Reliability.
c. Dispersion.
d. Skewness.

ANSWER: A

15. 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.

ANSWER: B
Chapter 9 Statistical Sampling for Testing Control Procedures 146

16. In an attribute sampling application, holding other factors


constant, sample size will increase as which of the
following becomes smaller?
a. Reliability level.
b. Population.
c. Planned precision.
d. Expected rate of occurrence.

ANSWER: C

17. Which of the following sampling methods is most useful to


auditors when testing for internal control effectiveness?
a. Stratified random sampling.
b. Attribute sampling.
c. Variables sampling.
d. Unrestricted random sampling with replacement.

ANSWER: B

18. Attribute sampling, as applied to control testing, can


assist the auditor in several ways. Which of the following
tasks is not enhanced by sampling?
a. Determining the number of documents to examine in
testing for a specific attribute.
b. Selecting the documents to be tested.
c. Examining the documents.
d. Evaluating the sample results.

ANSWER: C

19. Which of the following is an element of sampling risk?


a. Choosing an audit procedure that is inconsistent with
the audit objective.
b. Choosing a sample size that is too small to achieve the
sampling objective.
c. Failing to detect an error on a document that has been
inspected by the auditor.
d. Failing to perform audit procedures that are required
by the sampling plan.

ANSWER: B

20. Which of the following would not be an attribute of interest


to an auditor performing control tests?
a. Do selling prices agree with published price lists?
b. Do purchased parts meet established quality standards?
c. Are proper labor rates being used to compute payroll?
147 Chapter 9 Statistical Sampling for Testing Control Procedures

d. Are account distributions (debits and credits) correct?

ANSWER: B

21. 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.

ANSWER: B

22. Which of the following statements concerning sample size is


true?
a. An increase in the tolerable occurrence rate, other
factors remaining unchanged, increases 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 be the sample size.

ANSWER: B

23. 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. Underassessment of control risk.
b. Overassessment of control risk.
c. Incorrect rejection.
d. Incorrect acceptance.

ANSWER: B

24. If all other factors in a sampling plan are held constant,


changing the risk of underassessment from five percent to
Chapter 9 Statistical Sampling for Testing Control Procedures 148

three percent would cause the sample size to be:


a. Smaller.
b. Larger.
c. Unchanged.
d. Indeterminate.

ANSWER: B

25. 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.

ANSWER: B

26. 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.

ANSWER: C

27. To determine sample size in an attribute sampling


application, what must be specified?
a. Population mean, expected error rate, precision.
b. Precision, reliability, standard deviation.
c. Precision, reliability, expected occurrence rate.
d. Population mean, standard deviation, precision.

ANSWER: C

28. 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 part of a population.
b. Although statistical sampling may be applied to control
testing, it is required for substantive testing
149 Chapter 9 Statistical Sampling for Testing Control Procedures

purposes.
c. Sampling methods are used by auditors in both control
testing and substantive testing.
d. Statistical sampling methods are more appropriate for
control testing when the auditor elects to reprocess
transactions, than when controls are tested by means of
document examination.

ANSWER: C

29. The application of statistical sampling techniques 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 independ-
ence in mental attitude is to be maintained by the
auditor or auditors.
c. A sufficient understanding of the internal control
system is to be obtained to plan the audit and to
determine the nature, timing, and extent of 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 regarding the financial statements
under examination.

ANSWER: B

30. The major weakness of nonstatistical (judgmental) sampling


is it
a. Usually requires larger sample sizes 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.

ANSWER: B

31. 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
Chapter 9 Statistical Sampling for Testing Control Procedures 150

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%.

ANSWER: B

32. 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.
b. Sampling for attributes.
c. Sampling for variables.
d. Stratified random sampling.

ANSWER: B

33. An advantage of using statistical over non-statistical


sampling methods in tests of controls is that the
statistical methods
a. Afford greater assurance than a non-statistical sample
of equal size.
b. Provide an objective basis for quantitatively
evaluating sample risks.
c. Can more easily convert the sample into a dual-purpose
test useful for substantive testing.
d. Eliminate the need to use judgment in determining
appropriate sample sizes.

ANSWER: B

34. Several risks are inherent in the evaluation of audit


evidence which has been obtained through the use of
statistical sampling. Which of the following
151 Chapter 9 Statistical Sampling for Testing Control Procedures

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.

ANSWER: C

35. 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.

ANSWER: D

36. If all other factors specified in an attribute sampling plan


remain constant, changing the specified precision from 6% to
10%, and changing the specified reliability from 97% to 93%
would cause the required sample size to
a. Increase.
b. Remain the same.
c. Decrease.
d. Change by 4%.

ANSWER: C

37. Which of the following factors is generally not considered


in determining the sample size for a test of controls?
a. Population size.
b. Tolerable rate.
c. Risk of underassessment.
d. Expected population occurrence rate.

ANSWER: A
Chapter 9 Statistical Sampling for Testing Control Procedures 152

38. The expected population occurrence rate of client billing


errors is 3%. The auditor has established a tolerable
rate of 5%. In the review of client invoices the auditor
should use
a. Stratified sampling.
b. Variable sampling.
c. Discovery sampling.
d. Attribute sampling.

ANSWER: D

39. An auditor desired to test credit approval on 10,000 sales


invoices processed during the year. The auditor designed a
statistical sample that would provide a 1% risk of assessing
control risk too low (99% confidence) that not more than 7%
of the sales invoices lacked approval. The auditor estimated
from previous experience that about 2 1/2% of the sales
invoices lacked approval. A sample of 200 invoices was
examined and 7 of them were lacking approval. The
auditor then determined the upper occurrence limit to be
8%. In the evaluation of this sample, the auditor decided to
increase the level of the preliminary assessment of control
risk because the
a. Tolerable rate (7%) was less than the achieved upper
occurrence limit (8%).
b. Expected occurrence rate (7%) was more than the
percentage of errors in the sample (3 1/2%).
c. Achieved upper occurrence limit (8%) was more than the
percentage of errors in the sample (3 1/2%).
d. Expected occurrence rate (2 1/2%) was less than the
tolerable rate (7%).

ANSWER: A

40. To evaluate the sample results for an attributes sampling


application, a measure of precision is required. Which of
the following statements is true regarding precision?
a. Precision is subtracted from the tolerable rate of
error to determine the acceptability of sample
results. b. Precision is added to the tolerable rate
of error to determine the acceptability of sample
results. c. Precision is subtracted from the
sample occurrence rate and the result is compared to the
tolerable rate of error.
d. Precision is added to the sample occurrence rate and
the result is compared to the tolerable rate of error.
153 Chapter 9 Statistical Sampling for Testing Control Procedures

ANSWER: D

41. 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.

ANSWER: C

42. Which of the following statements is correct concerning


statistical sampling for control testing?
a. The population size has little or no effect on
determining sample size except for very small
populations.
b. The expected population occurrence rate has little or
no effect on determining sample size except for
very small populations.
c. As the population size doubles, the sample size also
should double.
d. For a given tolerable rate, a larger sample size should
be selected as the expected population deviation rate
decreases.

ANSWER: A

43. 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.

ANSWER: B

44. The auditor samples cash disbursements for minor errors of


$5 or less. The parameter to be estimated is the error
rate, which might be as high as 10%. The auditor is
most likely to use
Chapter 9 Statistical Sampling for Testing Control Procedures 154

a. Block sampling.
b. Variables sampling.
c. Attributes sampling.
d. Discovery sampling.

ANSWER: C

45. An important difference between a statistical sample and a


non-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.

ANSWER: D