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Procedures

MULTIPLE CHOICE

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

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

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

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

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

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

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

deviations of the population mean.

ANSWER: C

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

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

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

statistical sampling from nonstatistical sampling?

145 Chapter 9 Statistical Sampling for Testing Control Procedures

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

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

difference between the expected occurrence rate and the

tolerable occurrence rate is the planned

a. Precision.

b. Reliability.

c. Dispersion.

d. Skewness.

ANSWER: A

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

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

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

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

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

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

ANSWER: B

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

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

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

changing the risk of underassessment from five percent to

Chapter 9 Statistical Sampling for Testing Control Procedures 148

a. Smaller.

b. Larger.

c. Unchanged.

d. Indeterminate.

ANSWER: B

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

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

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

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

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

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

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

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

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

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

evidence which has been obtained through the use of

statistical sampling. Which of the following

151 Chapter 9 Statistical Sampling for Testing Control Procedures

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

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

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

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

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

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

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

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

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

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

$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

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

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