Roque Quick Auditing Theory Chapter 8 PDF

585
CHAPTER 8
Audit Sampling
1. In designing audit procedures, the auditor is required to de-

termine appropriate means of selecting items for testing to
gather audit evidence. Which of the following means is/are
available to the auditor?
I. Selecting all items (100% examination).
II. Selecting specific items.
III. Audit sampling.
A. I and II only
B. III only
C. I and III only
D. I, II, and III
According to PSA 500 (Audit Evidence), the application of

any one or combination of the above means may be appro-
priate depending on the particular circumstances, such as:
• The risks of material misstatement related to the as-
sertion being tested; and
• The practicality and efficiency of the different means.
586 CPA EXAMINATION REVIEWER: AUDIT-ING TtiEORY
2. Which of the following should be considered by the auditor

in deciding which means (or combination of means) to use
in selecting items for testing?
I. The risk of material misstatement related to the asser-
tion being tested.
II. Audit efficiency.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
3. It will be appropriate to audit all the items that make up a

class of transactions or account balance (100% examina-
tion), except
A. When the class of transactions or account balance con-
sists of a large number of small value items.
B. When the class of transactions or account balance con-
sists of a small number of large value items.
C. When there is a significant risk of misstatement and oth·
er selection methods do not provide sufficient appropri-
ate audit evidence.
D. When the repetitive nature of a calculation or other pr~
cess performed automatically by the client's computer in·
formation system (CIS) makes a 100% examination cost
effective.
According to PSA 500, a 100% examination may be appro·

priate when:
• The population con.s titutes a small number of large

value items.
• There is a significant risk and other means do not

provide sufficient appropriate audit evidence.
8 Audit Sampling 587
cHApiER
• The repetitive nature of a calculation or other pro-

cess performed automatically by an information sys-
tem makes a 100% examination cost effective, for
example, through the use of computer-assisted audit
techniques (CAATs).
pSA 500 states that t~e auditor may decide to select specific
4· items from a population base~ on such factors as the audi-
tor's understanding of the entity, the assessed risk of mate-
rial misstatement, ~nd. the characteristics of the population
being tested . Specific items that may be selected for testing
usually include the following, except
A. Items that are of high value.
a. Items that are suspicious, unusual, risk-prone, or have a
history of error.
c. All items whose values do not exceed a certain amount
so as to verify only a small proportion of the total
amount of class of transactions or account balance.
o. Items that provide information about matters such as the
nature of the entity, the nature of transactions, and in-
ternal control .
According to PSA 500, specific items may include:

• High value or key items - it~ms that are of high
value or exhibit some other characteristics like those
that are unusual, suspicious, risk-prone, etc.
• . All items over a certain amount - items whose
values exceed a certain amount so as to verify a large
proportion of the total amount of a class of transac-
tions or an account balance.
588 CPA EXAMINATION REVIEWER: AUDITING THEORY
• Items to obtain information - items that provide

specific information like the nature of the entity, the
nature of transactions, and internal control.
5. Audit sampling involves the

A. Selection of all items over a certain amount.
B. Application of audit procedures to less than 100% of
items within a class of transactions or an account bal·
ance such that all items have a chance of selection.
C. Application of audit procedures to all items that comprise
a class of transactions.or an account balance.
D. Application of audit procedures to all items ·aver a certain
amount and those that are unusual or have a history of
error.
As defined in PSA 530 (Audit Sampling), audit sampling in·

volves the application of audit procedures to less than 100%
of items within a population of audit relevance such that all
sampling units have a chance of selection in order to pro·
vide' the auditor with a reasonable basis on which to draw
conclusions about the entire population.
~nswers A and D are incorrect because they involve selec·

twn of specific items for testing to gather audit evidence.
An swer c IS· mcorrect

· because it involves 100% exa rnina·
ti on.
· Populat!on, as defined in PSA 530 (Audit Sampling), rne:~J

6
the entrre. set of data from which a sample is selected It ;s
~bout whrch the auditor wishes to draw conclusions . .
important for the auditor to ensure that the population is
I. Appropriate to the objective of the audit procedure.
II. Complete.
8 AUdit Sampling 589
cHAprER
A. ronly
6 II only
c: Both I and II
o. Neither I nor II
The auditor should ensure that the population is appropri-

ate to the objective of the audit procedure, which includes
consideration of the direction of the test to be applied. For
example, the appropriate population to test for overstate-
ment of accounts payable will be the accounts payable list-
ing. However, if the auditor's objective is to test for under-
statement of accounts payable, the appropriate population
is not the accounts payable listing but the subsequent dis-
bursements, unpaid invoices, vendors' statements, or other
audit evidence that will satisfy the objective of the test.
It is also important for the auditor to ensure that the popu-

lation is complete. For example, if the sample is to be
drawn from the vouchers file, the auditor should be satisfied
that all vouchers have, in fact, been filed.
7. The two general approaches to audit sampling are:

A. Stratification and value weighted.
8. Random and nonrandom.
C. Statistical and nonstatistical.
D. Precision and reliability.
The two general approaches to audit sampling are statistical

and nonstatistical.
A statistical sampling plan should have the following char-

acteristics:
a) Random selection of a sample; and
1 '.
i{
~
-
_ .. . . . . . . .
j . . ......................................................
...
_J~
•~
b) Use of probability theory to evaluate sample results,

including measurement of sampling risk.
A nonstatistical sampling plan is any sampling plan which,

according to the standard, does not have the characteristics
of .s tatistical sampling.
Answers A, B, and Dare incorrect because stratification and

value weighted; random and nonrandom; and precision and
reliability are not general approaches to audit sampling.
Stratification is the process of dividing a population into

discrete subpopulations (also called strata), each of which is
a group of sampling units which have similar characteristics
(often monetary value).
Value weighted is a selection method in which the sam·

pling unit is identified as the monetary units that make up a
transaction class or an account balance.
Random selection gives each sampling unit a chance of be;

i~g selected. C~nversely, nonrandom ~ele.ction do~~ ~e
1
give each sampling unit a chance of bemg included
sample.
. .
Prec1s1on · k· RefiabJ·nr
. t he a II owance for sampling ns
is
1
arn·
5
(also caHed confidence level) is the degree to which the 01a·
pie selected is expected to be representative of the P. ~
0
ti on. It is the mathematical complement of sampling ns

. . use of
8. The pnnc1p~I methods of selecting samples are the
I. Random number tables or CAATs.
II. Systematic selection.
III. Haphazard selection.
R 8 Audit Sampling
cH.APIE 591
A. I and II only
8. II and III only
c. r and III only
D. I, II, and III
According to PSA 530, the principal methods of selecting

samples are as follows:
a) Use of computerized random number generator

(through CAATs) or random number tables.
b) Systematic selection, in which every nth item from a
population of sequentially ordered items is selected.
c) Haphazard selection, in which the sample is selected
without following a structured or organized ap-
proach, but also without conscious bias. This selec-
tion method is inappropriate for statistic;al sampling
but may be useful for nonstatistical sampling plans.
9. An advantage of statistical sampling over nonstatistical sam-

pling is that statistical sampling helps an auditor to
A. Minimize the failure to detect errors and fraud.
B. Measure the sufficiency of · the evidential matter ob-
tained.
C. Eliminate the risk of nonsampling errors.
D. Reduce the level, of audit risk and materiality to a rela-
tively low amount.
Statistical sampling involves the application of the laws of

probability that enables the auditor to design an efficient
sample (i.e., a sample that is neither too large nor too small),
to measure the sufficiency of the audit evidence obtained,
and to evaluate the sample results.
Answer A is incorrect because, in some circumstances, a

nonstatistical sampling plan may be more appropriate to
minimize the failure to detect errors and fraud .
Answer C is incorrect because nonsampling errors do not

relate to audit sampling. These are human errors like the
auditor's use of inappropriate procedures or failure to rec-
ognize an error because of misinterpretation of audit evi-
dence obtained. In addition, nonsampling errors arise be-
cause of the fact that most audit evidence is persuasive ra-
ther than conclusive.
Answer D is incorrect because both statistical and nonstatis·

tical sampling may be used to reduce audit risk. Moreover,
statistical sampling is irrelevant to materiality.
10. The likelihood of assessing control risk too high is the risk
that the sample selected to test controls
A. Does not support the tolerable error for some or all of
management's assertions.
B. Contains proportionately fewer deviations from pre·
scribed internal controls than exist in the balance or class
as a whole.
C. Does not support the auditor's planned assessed level .of
control risk when the true operating effectiveness of in·
ternal control justifies such an assessment.
D. Contains misstatements that could be material to the fi·
~ancial statements when aggregated with misstatements
in other account balances or transactions classes.
A d f ct ·
s : ~~e in the standard, sampling risk arises frorn le
the
possi.bihty that the auditor's conclusion based on a sanl~ e
may be .different fram the conclusion reached 1'f t he ent1r
ris·
populat10n were subjected fo same audit procedure. It a
cHAprER
from the fact that a sample may not be representative of

~~e population from which it was drawn.
In performing tests of controls, the two aspects of sampling
risk are:
1) The risk of assessing control risk too high is the
risk that the assessed level of control risk based on
the sample is greater than the true operating effec-
tiveness of the control.
2) The risk of assessing control risk too low is the op-
posite of assessing control risk too high. It is the risk
that the auditor may believe that a control is operat-
ing effectively when it is not.
Answers A and D are incorrect because they relate more to

substantive testing. Answer Bis incorrect because it relates
to assessing control risk too low.
11. While performing a test of details during an audit, the audi-

tor determined that the sample results supported the con-
clusion that the recorded account balance was materially
misstated. It was, in fact, not materially misstated. This
situation illustrates the risk of
A. Assessing control risk too low
B. Assessing control risk too high
C. Incorrect acceptance
D. Incorrect rejection
The two aspects of sampling risk in substantive testing are:
1) The risk of incorrect rejection is the risk that a

sample supports the conclusion that the account bal-
ance is materially misstated when, unknown to the
·-
594 CPA EXAM/NATION REVIEWER: AUDITING THEORY
auditor, the account balance is not materially mis-

stated (i.e., it is fairly stated).
2) The risk of incorrect acceptance is the risk that a

sample supports the conclusion that the account bal-
ance is not materially misstated (i.e., it is fairly stat-
ed) when, unknown to the auditor, the account bal-
ance is materially misstated.
Answers A and B are incorrect because assessing control

risk too high or too low relates to tests of controls.
Answer C is incorrect because the risk of incorrect ac-

ceptance is the risk that the auditor will conclude based on a
sample that the account balance is not materially misstated
when, in fact, it is materially misstated.
12. The risk of il"'correct acceptance and the likelihood of as·

sessing control risk too low relate to the
A. Effectiveness of the audit.
B. Efficiency of the audit.
C. Tolerable misstatement.
D. Preliminary estimates of materiality levels.
If an auditor erroneously accepts an account balance as

fairly stated, it is unlikely that additional audit procedure~
will be performed. Thus, the probability that the erroneou.
conclusion will be discovered is minimal, thereby decreas
ing the effectiveness of the audit.
·s
1
An au d"t ' · ·
i ors reJect1on of a fairly stated accoun
t balancetive
most likely to result in performing extended substanbal·
testing that will ultimately lead to the acceptance of the
cHApTER
ance. Hence, the ris~ of incorrect rejection affects the effi-

ciency of the audit.
Assessing control risk too low leads to an unjustified reduc-

tion in substantive testing which, in turn, results in obtain-
·ng insufficient audit evidence, thereby decreasing the effec-
~iveness of the audit. Conversely, assessing control risk too
high results in an unjustified increase in substantive testing
and thus affecting the efficiency of the audit.
Answer B is incorrect because the risk of incorrect ac-

ceptance and the likelihood of assessing control risk too low
both relate to audit effectiveness, not audit efficiency. As
indicated above, audit efficiency is affected by the risk of in-
correct rejection and the likelihood of assessing control risk
too high.
Answers C and D are incorrect because the tolerable error

and preliminary estimates of materiality levels are consid-
ered when the auditor plans a sample for substantive test-
ing. Moreover, the likelihood of assessing control risk too
low is an aspect of sampling risk in performing tests of con-
trols.
13. Which of the following statements is true?

A. Statistical sampling is more convenient to use than non-
statistical sampling.
B. Statistical sampling aids the auditor in evaluating results.
C. Statistical sampling requires the auditor to make fewer
judgmental decisions.
D. Statistical sampling will be looked upon by the courts as
providing superior audit evidence.
14: The following are examples of nonsampling risk, except

l:Cilt'60. ;:;:;t1~:_·;.. _.1 .....
ol""".-, .• ;•• - - - -
lt : ,: .:, .·. :: :
A. Failure to recognize an error.

B. Obtaining an unrepresentative sample.
C. Use of an audit procedure inappropriate to achieve a
given objective.
D. Failing to evaluate results properly.
15. The following are advantages of using statistical sampling,

except .
A. Statistical sampling provides a means for mathematically
measuring the degree of risk that results from examining
only part of a population. ·
B. Statistical sampling allows the auditor to greatly reduce
substantive testing.
C. Statistical sampling allows the auditor to measure the
sufficiency of the evidential matter obtained.
D. Statistical sampling aids in the design of an efficient
sample.
16. Which of the following methods is most appropriate when

performing tests of controls?
A. Stratified random sampling
B. Unrestricted random sampling with replacement
C. Variable sampling
D. Attribute sampling
17. In the audit of inventory, attribute sampling may be applied

to estimate the
A. Average price of inventory items
B. Physical quantity of inventory items
C. Percentage of slow-moving inventory items
D. Peso value of inventory
18 Th · d on the ·
· e nsk that the assessed level of control risk base f the
. I ·
samp Ie ts ess than the true operating effect1vene oss
control policy or procedure is the risk of
S Audit Sampling 597
c~prER
A. ,ASsessing control r~sk too low.

6. Assessing control nsk too high.
c. Incorrect acceptance.
o. Incorrect rejection.
An element of sampling risk is .

19
· A. Choosing a sample size that is too small to achieve the
sampling objective.
a. Choosing an audit procedure that is inconsistent with the
audit objective.
c. Failing to perform audit procedures that are required by
the sampling plan.
o. Failing to detect a deviation on a document inspected by
the auditor.
zo. Statistical sampling provides a technique for

A. Exactly defini.ng materiality.
B. Greatly reducing the extent of substantive testing.
c. Eliminating judgment in testing.
D. Measuring the sufficiency of evidential matter.
21. The distinguishing feature of statistical sampling is that it

A. Reduces the problems associated with the auditor's
judgment concerning materiality.
B. Requires the examination of a smaller number of sup-
porting documents.
C. Is evaluated in terms of two parameters: statistical mean
and random selection.
D. Provides a means for measuring mathematically the de-
gree of uncertainty that results from examining only part
of a population.
22. Whfch of the following is true if certain forms are not con-
secutively numbered?
A. Systematic sampling may be appropriate.
..•.. ·.· . :'· ii;..,·.: '
·:~~ ~-.
- -' ,,....,, __·. ""''*'-·:, ·.:.~,.-:.-. ~ .·
:; :·~-
~; ~re
J ... • •.'-. ' .· · .b ···' -
· •
i ·
$ ;
. - . -. -
t'
B. Selection of a random sample probably is not possible.

c. Random number tables cannot be used.
D. Stratified sampling should be used.
23. In examining cash disbursements, an auditor plans to

choose a sample using systematic selection with a random
start. The primary advantage of this selection technique is I
that population items
A. May occur more than once in the sample.
B. May occur in a systematic pattern, thus making the sam-
ple more representative. /
C. That are indicative of fraud will be included in the sam- 1
pie.
1
D. Do not have to be prenumbered in order for the auditor
to use the technique.
24. In attribute sampling, a 5% change in which of the foliowing

factors normally will have the least effect on the size of a
statistical sample?
A. Expected deviation rate.
B. Risk of assessing control risk too low.
C. Population size.
D. Tolerable deviation rate.
25. Given random sel~ct.ion, the same sample size, and t~~
same tolerable dev1at1on rate for the testing of two uneQU
populations, the risk of assessing control risk too low for the
larger population is
A H' h · . I w for
· ig er than the nsk of assessing control nsk too 0
the smaller population. tor
8 · Lower than the risk of assessing control risk too loW
the smaller population. tor
C. The same as the risk of assessing control risk too loW
the smaller population.
ER 8 Audit Sampling
cHAPT 599
D· Indeterminable
I f th
relative to the risk f : ·
o assessing control
risk too <;JW or e smaller population.
26. If the size of the sample to be used in a particular test of

attributes has not been determined by utilizing statistical
concepts, b~t the .sample has been randomly chosen
A: The aud1~or. will have. to evaluate the results by reference
to the principles of discovery sampling.
s. May not use statistical evaluation. ·
c. The auditor has committed a nonsampling error.
o. No inferences can be drawn from the sample.
27 . In determining the number of items to be selected in a sam-

ple for a p~rticular substantive test of details, the auditor
should consider all of the following, except
A. Tolerable misstatement
B. Characteristics of the population
C. Deviation rate
D. Allowable risk of incorrect acceptance
28. Which of the following statements best describes the con-

cept of sampling risk?
A: A randomly chosen sample may not be representative of
the population as a whole on the characteristic of inter-
est.
B. The documents related to the chosen sample may not be
available for inspection.
C. An auditor may fail to recognize errors in the documents
examined for the chosen sample.
D. An auditor may select audit procedures that are not ap-
propriate to achieve the specific objective.
According to the standard, sampling risk arises from the

possibility that the auditor's condusion based on a sample
may be different from the conclusion reached if the entire
.·'<J'.
population were subjected to the same audit procedure. It

is the risk that, unknown to the auditor, the sample selected
is not representative of the population.
Answers B, C, and D are incorrect because they all relate to

nonsampling risk, that is, the risk that the auditor will reach
an incorrect conclusion even if 100% of the population were
examined.
29. In assessing sampling risk, the risk of incorrect rejection and

the risk of assessing control risk too high relate to the
A. Effectiveness of the audit.
B. Efficiency of the audit.
C. Audit quality controls.
D. Selection of the sample.
Both the risk of incorrect rejection and the risk of assessing

control risk too high will typically lead to the performance
of unnecessary audit procedures. Thus, these risks relate to
the efficiency of the audit.
Answer A is incorrect because the risk of incorrect ac~

ceptance and the risk of assessing control risk too low bot
relate to the effectiveness of the audit.
l'tY con·
Answer C is incorrect because the standards on qua 1
trol do not specifically mention any of these risks.
d' ectlY re·
Answer D is incorrect because these risks do not ir
late to the actual selection of the sample.
. . f iteros is
30. An underlying feature of random-based selection °
~~~~ ~e~
· . 1ace1"
A. Item must be systematically selected using rep
ctW'TER
Jtern in the accounting popula~ion should have an oppor-
e. tunity to be selected. .
stratum of the accounting population be given equal rep-
C. resentation in the sample.
Item in the accounting population be randomly ordered.
o.
der random-based selection, each item has a known
Un . d
hance of being selected. The auditor typically uses ran om
cumber tables or a computerized random number genera-
~or (through CAATs) in applying this method.
Answer A is incorrect because systematic selection involves
selecting every nth item from the population. Moreover,
random selection may be used without replacement.
Answer .c is incorrect because each subpopulation or stra-

tum need not be given equal representation.
Answer D is incorrect because while items are selected at

random, there is no requirement that the accounting popu-
lation be randomly ordered.
31. If certain forms are not consecutively numbered

A. Selection of a random sample probably is not possible.
B. Systematic sampling may be appropriate.
C. Random number tables cannot be used.
D. Stratified sampling should be used.
Systematic selection involves selecting every nth item from

the population. The number of items to skip is determined
by calculating the sampling interval (population size divided
by sample size). Under this method, there is no need to es-
tablish correspondence between population items and ran-
dom numbers.
·r •e
..
Answers A and C are incorrect because the use of random

selection and random number tables is possible even if
items in the population are not consecutively numbered.
Answer D is incorrect because there is no requirement to

use stratified sampling if the forms are not consecutively
numbered.
Stratification involves dividing the population into differ-

ent homogenous groups called subpopulations or strata.
Different selection methods are then applied to each sub-
population or stratum.
32. When performing a test of a control with respect to control

over cash receipts, an auditor may use a systematic sam-
pling technique, with a start at any randomly selected item.
The biggest disadvantage of this type of sampling is that
the items in the population
A. . Must be systematically replaced in the population after
sampling. the
B. Must be recorded in a systematic pattern before
sample can be drawn. . the
C. May occur in a· systematic pattern, thus destroying
sample randomness. . m 1e.
D. May systematically occur more than once 1n the sa P
. l ction, the
PSA 530 states that when using systematic see . within
. auditor would need to determine that sampling unitshat the
the population are not structured in· such. a way tttern in
sampling interval corresponds with a particular pa
the population.
e replaced iJl
.A nswer A is incorrect because items need not b
the population.
C~pf~R
Answer B is incorrect because systematic sampling is a se-

tee
tion method and does
•
not relate to the manner in which
1
items in the popu a~1on are r~corded. Moreover, the occur-
rence of a systematic pattern m the population destroys the
sample randomness.
Answer D is incorr~ct because there is no ehance that the

'terns will systematically occur more than once in the sam-
~le since systematic selection involves selecting every nth
item from the population.
For which of the following audit tests would an auditor most

33
· likely use attribute sampling?
A. Selecting accounts receivable for confirmation of account
balances.
s. Examining invoices in support of the valuation of proper-
ty, plant, and equipment additions.
c. Making an independent estimate of the amount of FIFO
inventory.
D. Inspecting employee time cards for proper· approval by
supervisors.
Attribute sampling is designed to test the rate of deviation

from a prescribed control procedure.
Answers A, B, and C a~e incorrect because they relate more

directly to variables sampling which is designed to test
whether an account balance is materially misstated.
34. Which of the following sampling methods would be used to

estimate a numerical measurement of a population, such as
a peso value?
A. Variable sampling
B. Attribute sampling
C. Random-number sampling
604 CPA EXAMINATION REVIEWER: A.UDITING THEORY
D. Stop-or-go sampling
A variable sampling plan is designed to test whether an ac-

count balance is materially misstated and therefore ad-
dresses numerical measurements such as a peso value.
Answer Bis in.correct because attribute sampling deals with

deviation rates, not numerical measurements.
Answer C is incorrect because random-number ·sampling is

a selection method and may be used with either an attribute
or a variable sampling plan.
Answer D is incorrect because stop-or-go sampling (also

called sequential sampling) is a form of attribute sampling.
In stop-or-go ·
sampling, the sample is selecte d ·m several
steps (i.e., not only a single sample is tested). For each .s~ef~
the auditor decides whether to stop the test or to procee
the next step.
35. Which of the following combinations results in a decrease in

sample size in an attribute sample?
Allowable Risk
of Assessing ulation
Control Risk Tolerable Expected pop
Too Low Deviation Rate ~
Increase
A. Increase Increase oecrease
B. Decrease Increase oecrease
C. Increase Increase increase
D. Increase Decrease d'1
au •
trols, the
To determine the sample size for tests of con
tor considers the following factors:
TER 8 Audit Sampling
cHAP . 605
Factor S Conditions Leading to

mailer Sample Size Larger Sample Size
J. Planned rel iance on
1 Lower reliance Higher reliance
internal control
on internal control on internal control
2• Tolerable deviation
2
rate (TOR) Higher TOR Lower TOR
3. Allowable risk of Higher allowable Lower allowable
assessing control risk of assessing risk of assessing
risk too low control risk too low c.ontrol risk too low
4. Expected
population
deviation ral"e
(EDR) 3 Lower EDR Higher EDR
5. Number of
sampling units Negligible effect on sample size
in the. population unless population is small.
i The auditor does not perform tests of controls when no reliance on

internal controls is planned.
z The TDR is the rate of deviation from the prescribed control activi-
ty that the auditor is willing to accept.
J The EDR is the rate of deviation from the prescribed control activi-
ty that the auditor expects to find in the population.
36. In determining the number of documents. to select for a test

to obtain assurance that all sales returns have been properly
authorized, an auditor should consider the tolerable rate of
I deviation from the control activity. The auditor should also
I
I
r
consider the
I. Likely rate of deviations.
II. Allowable risk of.assessing control risk too high.
A. I only
I f
B. II only
I
I
I
I
~·
-"'"--.-""-------...
./
---- ......
- Iii'?"~.,.,.,,.,.,.._=-~""'-'"- .;;......--;.~. :" ". . -;·
~~
606 CPA EXAMINATION REVIEWER: AUDITING THEORY.
C. Both I and II
D. Elther I or II
The auditor considers the following factors to determine the

sample size for a test of controls:
1) Expected deviation rate
2) Tolerable deviation rate
3) Allowable risk of assessing control risk too low
37. Which of the following factors is usually not considered in

determining the sample size for a· test of controls?
A. Expected population deviation rate
B. Risk of assessing control risk too low ·
C. Tolerable deviation rate
D. Population size, when the population is large
A change in the number of sampling units in the population

has a negligible effect on the required sample size when the
population is large. Therefore, population size is often n~t
considered in determining the ·Sample size unless it is smal ·
· k fas·
Answers A, B, and C are incorrect because the ns 0 d
3
sessing control risk too low, the tolerable deviation rate: .n g
the expected deviation rate are considered in detenninin
the sample size for a test of controls.
38. The sample si.ze of a test of controls varies inversely with

·Tolerable Expected
Deviation Rate CTDR) Deviation Rate CEDBl
A. No . No
B. Yes Yes
C. No Yes
D. Yes No
...cR--8 Audit Sampling
c;HAP• .. 607
'fhe TOR is inversely related to the sam . .
1
the TOR increases, the sample size decre~s:s~1ze-that is, as
'fhe EDR has a direct effect on the sampl . h .

.· . e s1ze-t at 1s as
the expecte d d ev1at1on rate increases th · . '.
, e samp 1e size in-
creases.
39. In pl~nning a dst~tistical sample for a test of controls, an au-

ditor increa~e t e ,expected population deviation rate (EDR)
from the prior years rate because of the results of the prior
year's t~sts of co~trols and the overall control environment.
ThS? ~ud1tor most .likely would then increase the planned
A. Risk of assessing control risk too low.
B. Sample size.
c. Allowance for sampling risk.
o. Tolerable deviation rate.
The EDR directly affects the sample size-that is, as the EDR
increases, the sample size increases. An increase in the EDR
increases the degree of assurance to be provided by the
sample and therefore increases the sample size.
Answer A is incorrect because the risk of assessing control

risk. too low is determined based on the auditor's judgment
and does not necessarily increase with the EDR.
Answer C is incorrect because the allowance for sampling

risk is the difference between the maximum deviation rate
(also called upper precision limit) and the sample deviation
rate.
Answer D is incorrect because the tolerable deviation rate is

determined based on the auditor's judgment. It is a function
of the planned asse~sed level of control ris~ and the level of
-
assurance the evidence is expected to provide. It does not

necessarily increase with the EDR.
40. Which of the following factors does an auditor usually need

to consider in planning a particular audit sample for a test of
controls?
A. Acceptable level of risk of assessing control risk too low.
B. Tolerable misstatement.
C. Number of sampling units in the population.
D. Total peso amount of the items to be sampled.
To determine the sample size for a test controls, the auditor

considers the risk of assessing control risk too low, the tol-
erable deviation rate, and the expected population deviation
rate.
Answer Bis incorrect because the auditor considers the tol-

erable misstatement in determining the sample size for sub-
stantive tests of details.
Answer C is incorrect because the number of units in the

population has a negligible effect on the sample size unless
it is small.
Answer D is .incorrect because the total peso amount of:~~

items to be sampled is irrelevant to the objective of a tes of
controls, that is, to determine the operating effectiveness
prescribed controls.
. . . stadsti·
41. Wh1cti of the following statements is true concerning
cal sampling in tests of controls? . ould be
A. For a given tolerable rate a larger sample size sh te de·
selected as the expected' population devra
·t·10nra .
creases.
S AUdil sampling 609
cHApr£Efl.
As the population size doubles, the sample size also
B· hould double.
~e expected population deviation rate has .little or no
c. effect on determining sample size except for very small
populations. . . . .
The population size has lrttle or no effect on determining
0 ·. sample size except for very small populations.
hange in the size of the population has a negligible effect

~ncthe required sample size when the population is large.
Answer A is incorrect because the expected population de -
iation rate directly affects the sample size. A smaller sam-
;Ie size should be selected as the expected population devi-
ation rate decreases.
Answer B is incorrect because, as previously stated, a

change in the population size has a negligible effect on the
required sample size when the population is large.
Answer C is incorrect because,- as indicated in answer A, the

expected population deviation rate directly affects the sam-
ple size.
42. Which of the following statements is correct concerning sta-

tistical sampling in tests of controls?
A. In determining the tolerable rate, an auditor considers
detection risk and the sample·size.
B. Deviations from specific control activities at a given rate
ordinarily,result in misstatements at a lower rate.
C. As the population size increases, the sample size should
increase proportionately.
D. There is an inverse relationship between the expected
population deviation rate and the sample size.
1i
~ .
. i r I
' z:i
Deviations from a specific control activity increase the risk

of, but do not" always result in, misstatement. Hence, devia·
tions from a specific control activity at a given rate ordinari·
ly result in misstatements at a lower rate.
Answer A is incorrect because the tolerable rate is a func·

tion of the planned assessed level of control risk and the as-
surance sought from the audit evidence.
Answer C is incorrect because as the population size in·

creases, the sample size increases at a decreasing rate.
Thus, a large population size will have little or no effect on
the sample size.
Answer D is incorrect because the expected deviation rate is

directly related to the required sample size.
43. An auditor plans to examine a sample of 20 purchase orders

for proper approvals as prescribed by the client's internal
control. One of the purchase orders in the chosen .sample of
20 cannot be found, and the auditor is unable to use alter·
native procedures to test whether the purchase order was
properly approved. The auditor should
A. Choose another purchase order to replace the missing
purchase order in the sample.
B. Sele~ a con:1pletely new set of 20 purchase orders. ith
C. Consider this test of controls invalid and proceed. w
substantive tests because internal control is ineffective.
D. Treat the missing purchase order as a deviation For the
purpose of evaluating the sample.
Th d·. ' · edures
e au 1tor s failure to apply the planned audit proc e·
or .to perfor?1 alternative procedures to selected .it~JJl~i~O·
qmres consideration of the reasons for the Junita
\
"R
cHAPT"'
8 Audi! Sampling
611
Moreover, the auditor considers such 1't . ·.

·b d ems as dev1Qt10ns
from the prescn e control procedures for th
evaluating the sample. e purpose of
Answer A is incorrect because choosi'ng th h

. ano er pure ase
order is appropn~te only if the selected item has been found
to be properly VOJded or canceled.
Answer B is incorrect because selecting a completely new

set of 20 purchase orders is unnecessary.
Answer C is incorrect because by treating the missing pur-

. chase order as a deviation, the sampling plan could still be
completed.
44. An attribute sampling plan may be used to test the effec-

tiveness of controls. The auditor's evaluation of the sam-
pling results ordinarily leads to a conclusion concerning
A. The relation of the population deviation rate to the toler-
able rate.
B. Monetary precision exceeding a certain predetermined
amount.
c. The population value not being misstated by more than a
predetermined amount.
D. Population characteristics occurring at least once in the
population.
In an attribute sampling plan, the auditor's concern is the

occurrence rate of deviations in the population. This statis-
tical sampling plan enables the auditor to make an estimate
of the occurrence rate and to arrive at a conclusion concern-
ing the relation of the population deviation rate to the toler-
able deviation rate.
~---------
j ......----~rm--~~
~f
612 CPA EXAM/NAT/ON REVIEWER: AUDITING THEORY
Answers Band Care incorrect because variables sampling is

concerned with peso values.
Answer D is incorrect because determining if a population

characteristic occurs at least once in the population will in-
volve examining items until one is detected.
45. As a result of sampling procedures applied as tests of. con-

trols, an auditor incorrectly assesses control risk lower than
appropriate. Which of the following is the most likely expla-
nation for this situation?
A. The deviation rate in the auditor's sample exceeds the
tolerable rate, but the deviation rate in the population is
less than the tolerable rate.
B. The deviation rate in the auditor's sample is less than
the tolerable rate, but the deviation rate in the popula-
tion exceeds the tolerable rate.
C. The deviation rates of both the auditor's sample and the
population are less than the tolerable rate.
D. The deviation rates of both the auditor's sample and the
population exceed the tolerable rate.
If the sample devia tion rate is less th an the tolerable rate,

the a uditor will condude th a t th e cun trol tested is function-
ing effectively. However, if th e true population deviatio~
0
rate exceeds the tol er abl e rate, the a udi tor's assessment
control risk would be lower than appropr ia te, that is, too
low.
Answ er A is incorr ect beca use the auditor's assessment~:

contro l risk is too high if the sample deviation rate excee is
the to lerable rate, but the true populat ion deviatio n ra te
less tha n the tolerable rate.
8 AUdit sampling 6f 3
cHApffR
Answers C and _Dare incorrect because the auditor's conclu-

sion is correct if the sample and population deviation rates
are both greater or less than the tolerable rate
The diagram below depicts ~he auditor's estimated maximum

46. deviation rate compare_d with the tolerable rate, and also
depicts the true population deviation· rate compared with the
tolerable rate.
AUditor's Estimate True State of Population

eased on Deviation Rale Deviation Rate is
sample Results Exceeds Tolerable Rate Less Than Tolerable Rate
Maximum Deviation
Rate Exceeds I III
rolerable Rate
Maximum Deviation
Rate is Less Than II IV
lolerable Rate
As a result of testing internal controls, the auditor assesses

control risk too high and thereby increases substantive test-
ing. This is illustrated by situation
~. I
B. II
. C. III
D. IV
The auditor would assess control risk too high if, based on
sample results, the maximum deviation rate exceeds the tol-
erable rate, but the true population deviation rate is less
than the tolerable deviation rate. Moreover, assessing con-
trol risk too high concerns the efficiency, not the effective-
ness, of the audit because it typically leads to the perfor-
)
!
-· ·· = - ·---- ~ ---- ..~~-- ..... ..._.._ ,.._ ... f,

'!
-·--·- ----- -. -·.
mance of additional audit procedures to ultimately arrive at

the correct conclusion.
Answers A and D are incorrect because the auditor will

properly-assess control risk at a high level in situation I and
at a low level in situation IV.
Answer B is incorrect because the auditor will assess con·

trol risk too low in situation II.
47. In evaluating an attribute sample, the estimated range that

is expected to contaln the population characteristic is the
A. Confidence level
B. Expected deviation rate
C. Precision
D. Upper deviation limit
Precision (also called confidence interval) is the ran~e

within which the estimate of the population characterist~c ~s
expected to fall. It is an interval around the sample statistic
that is expected to contain the true population value.
Answer A is incorrect because confidence level refers to th~

auditor's measure of how reliable the sample re_sults shoul
· be.
. . . . ate is
Answer B is mwrrect because the expected dev1at1on r .
the rate of deviation the auditor expects to find in the popu
lation.
1·t' as
· n liilldence
Answ
. er D is
· ·mcorrect because the upper deviatlo
~t suggests, is the upper limit of the precision or confi
interval.
cHAf'iER
Which of the follo~ing sample planning factors would influ-

48. ence the sample size for a substantive test of details for a
specific account?
Expected Amount Measure of
of Misstatements Tolerable Misstatement
A. Yes Yes
e. No No
c. Yes No
D. No Yes
The auditor considers the following factors in determining

the sample size for substantive tests of details:
Conditions Leading to
Smaller Sam(!le Size Lar1er Samule Size
a. Reliance on Higher reliance on Lower reliance on
internal control internal control on internal control
b. Reliance on other Higher reliance to Lower reliance or no

substantive tests be placed on other reliance to be placed
directed at the substantive tests on other substantive
same assertion tests-
c. Measure of Larger measure of Smaller measure of

tolerable error tolerable error tolerable error
d. Expected size
and frequency Smaller errors or Larger errors or
of errors lower frequency higher frequency
e. Population Smaller monetary Larger monetary

value significance to the significance to the
financial information financial information
f Acceptable Hig~er acceptable Lower acceptable

level of risk level of risk level of risk
-
g. Stratification Stratification of the No stratification

population when of the population
appropriate
h. Number of
sampling units Negligible effect on sample size unless
in the population population is small.
49. An error that arises from an isolated event that has not re-
curred other than on specifically identifiable occasions and is
therefore not representative of similar errors in the popula-
tion is a/an
A. Anomalous error
B. Isolated error
C. Scandalous error
D. Non-recurring error
50. Which of the following statements concerning projection of

. errors found in the sample to the population is incorrect?
A. For tests of details, the auditor should project monetary
errors found in the sample to the population, and shoul?
consider the effect of the projected error on the audit
objective an.d on other areas of the audit. . d-
B. Anomalous errors found in the sample should be inclu
ed in the projection of errors to the population. .
15
C. For tests of controls, no explicit projection of errors •
necessary since the sample deviation rate is also the pro
jected deviation rate for the population as a whole. been '
D. I~~ clas~ of transactions or an account balance has stra·
d1v1ded into strata, the error is projected for each
tum separately.
PS " I' hed as an

A 530 states, When an error has been estab. 15 . sarn-
anomalous error, it may be excluded when pro1ect1ng
ple errors to the population."
S Aud1I Sampling 617
cW'pTE R
In estimation samplin~ for variables, which of the following

· rnust be known to est1~a~e the a~propriate sample size re-
51
quired to ~eet the au~1t~r s needs 1n a given situation?
A. The estimated dev1at1on rate in the population.
a. The qualitative aspects of misstatements.
c. The estimated population value.
D. The acceptable level of risk.
When determining the sample size for a substantive test of

details, the auditor should consider the acceptable level of
sampling risk.
Answer A is incorrect because the estimated population de-

viation rate is considered in attribute sampling.
Answer B is incorrect because the qualitative aspects of

misstatements are considered in the evaluation of the sam-
ple results.
Answer C is incorrect because estimation of the population

value is the objective of variables sampling.
52. In applying variables sampling, an auditor attempts to

A. Predict a monetary population value within a range of
precision.
B. Estimate a qualitative characteristic of interest.
c. Determine various rates of occurrence for specified at-
tributes.
D. Discover' at least one instance of a critical deviation.
Variables sampling is designed to estimate the value of a

population, for example, an account balance.
1
) '
618 CPA EXAMINATION REVIEWER: AUDITING 'J'.HEORY
Answer B is incorrect because variables sampling involves

estimating the value of a population. Hence, the estimate is
quantitative, not qualitative.
Answer C is incorrect because the rate of occurrence ~f de-

viations from a prescribed control activity is determined
when applying attribute sampling.
Answer D is incorrect because discovering at least one in-

stance of a critical deviation is the objective of discovery
sampling, which is a form of attributes sampling.
.53, When planning a sample for a substantive test of d~tails, an

auditor should consider tolerable misstatement for the sam-
ple. This consideration should
A. Not be changed during the audit process.
B. Be related to the auditor's business risk.
C. Be related to preliminary judgments about materiality
levels.
D. Not be adjusted for qualitative factors.
The tolerable misstatement is the maximum amount of mis·

statement that may exist in an account balance without
causing the financial state~ents to be materially misstated.
The combined tolerable misstatement for an entire -audit

sh~ul~ not exceed .the auditor's preliminary estimate of ma·
tenahty for the financial statements taken as a whole.
Answer A · · h
d. is mcorrect because, as the audit progresses, t e
~ ito~ may decide to change the tolerable misstatement
. e w en he/she discovers that incorrect planning assumP·
t ions were used.
8 Audit sampling 619
ctW'rER
swer B is incorrect because the auditor's business risk is
An
irrelevant to t h e d e t ermmat1on
. ·
of tolerable misstatement.
Answer D is incorrect bec~~se qualitative factors should be

considered when determmmg the tolerable misstatement
for the sample. For exam.pie, the auditor should consider
the nature and cause of misstatements and their impact on
other phases of the audit.
54. An auditor may decide to increase the risk of incorrect rejec-

tion when
A. The cost and effort of selecting additional sample items
are low.
e. Increased reliability from the sample is desired.
c. Many differences (audit value minus recorded value) are
expected.
o. Initial sample results do not support the planned level of
control risk.
The risk of incorrect rejection is the· risk that the sample

supports the conclusion that the recorded account balance
is materially misstated, when, in fact, it is fairly stated. This
risk ordinarily results in the performance of additional audit
procedures that will lead the auditor to the proper conclu-
sion. Thus, the risk of incorrect rejection affects the effi-
ciency, not the effectiveness of the audit. If the cost and ef-
fort of selecting additional items are low, the auditor may
accept a higher risk of incorrect rejection.
Answer B is incorrect because a decrease in the risk of in-

correct rejection is required if increased reliability (confi-
dence level) from the sample is desired.
I •
~ I
rt
- I
620 CPA EXAMINATION REVIEWER: AUDITING THEORY,
Answer C is incorrect because the account balance is more

likely to be misstated if many differences are expected and
therefore incorrect rejection is less likely.
Answer Dis inc.o rrect because control risk relates to tests of

controls whereas incorrect rejection relates to substantive
testing.
55. In statistical sampling methods used in substantive testing,

an auditor most likely would stratify a population into mean·
ingful groups if
A. Probability-proportional-to-size (PPS) sampling is used.
B. The population has highly variable recorded amounts.
C. The standard deviation of recorded amounts is relatively
small.
D. The auditor's estimated tolerable misstatement is ex·
tremely small.
Stratification involves dividing the population into hom?g·

enous groups called strata or subpopulations, thus redu~ing
the effect of high variability of amounts in the populatwn.
Because the variability of items within each subpopulation
or stratum is reduced, the auditor will be able to select a
smaller sample for each subpopulation. ·
Answer A is . Incorrect
. because the population is au
tomati·
cally stratified under PPS sampling.
Answer C is incorrect be::cause the auditor would seleC~ ~

s~mple from the total population when the standard devia
tlon of recor~ed amounts is relatively small.
cHApfER
swer D is incorrect because a relatively large sample size

~~JI be required when the tolerable misstatement is ex-
tremely small.
HOW would decreases ~n tolerable misstatement and as-

56.. essed level of control nsk affect the sample size in a sub-
~tantive test of details?
Decrease in Decrease in
Tolerable Assessed Level
Misstatement of Control Risk
A. Increase sample size Increase sample size
s. Increase sample size Decrease sample size
c. Decrease sample size Increase sample size
D. Decrease sample size Decrease sample size
The tolerable misstatement is inversely related to the sam-

ple size- th at is, as the tolerable misstatement decreases,
the sample size increases. Also, a decrease in the assessed
level of control risk will allow the auditor to accept a higher
level of detection risk and therefore a small sample size for
substantive testing.
57. Which of the following courses of action would an auditor .

most likely follow in planning a sample of cash disburse-
ments if the auditor is aware of several unusually large cash
disbursements? ·
A. Continue to draw new samples until all the unusually
large disbursements appear in the sample.
B. Increase the sampl~ size to reduce the effect of the unu-
sually large disbursements.
C. Stratify the cash disbursements population so that the
unusually large disbursements are selected .
D. Set the tolerable rate of deviation at a lower level than
originally planned.
--
The auditor should stratify the ,population to ensure that the

"unusually large disbursements" will be tested. Sampling
procedures will
then be applied to those smaller disburse-
ments.
Answer A is incorrect because it will be inefficient to con-

tinue to draw new samples to assure inclusion of all unusu-
ally large disbursements.
Answer B is incorrect because the auditor will tend to in-

clude in his/her test those disbursements described as "un-
usually large."
Answer D is incorrect because the existence of unusually

large disbursements in the population does not affect the
tolerable deviation rate in an attribute sampling application.
58. A number of factors influence the sample size for a substan·

tive test of details of an account balance. All other factors
being equal, which of the following would lead to a larger
sample size?
A. Smaller measure of tolerable misstatement.
B. Smaller expected frequency of errors.
C. Greater reliance on analytical procedures.
D. Greater reliance on internal control.
The tolerable misstatement is inversely related to the sarTl;

pie size-that is, as the tolerable misstatement decrease '
the sample size increases.
0 fer·
Answer B is incorrect because the expected frequency cted
rors directly affects the sample size-that is, as the exP~eas·
frequency of errors decreases, the sample size also deC
es.
cHAprER
.A swer C is incorrect because the auditor will select a

naller sample size for a substantive test of details if greater
s~iance
re is to be. placed on analytical procedures directed at
the same assertion.
,Answer D is incorrect because as the degree of reliance on

·nternal control increases, the acceptable level of detection
~isk also increases. This means that the auditor may restrict
his/her substantive testing by selecting a smaller sample
size.
An auditor established a P180,000 tolerable misstatement

59. h
for an asset wit an account balance of P3,000,000. The
auditor selected a sample of every 20th item from the popu-
lation that represented the asset account balance and dis-
covered a net overstatement of Pl0,500 (Pll,100 over-
statements minus P600 understatements). Under these cir-
cumstances, the auditor most likely would conclude that
A. The asset account is fairly stated because the tolerable
misstatement exceeds the net of i:>rojected actual over-
statements and understatements.
B. The asset account is fairly stated because the total pro-
jected misstatement is less than the tolerable misstate-
ment.
C. There is an unacceptably high risk that the actual mis-
statements in the population exceed the tolerable mis-
statement because the total projected misstatement e~
ceeds the tolerable misstatement.
D. There is an unacceptably high risk that the tolerable mis-
statement is more than the sum of actual overstate-
ments and understatements.
The net overstatement of Pl0,500 represents 1/20 of the

items in the population. Thus, the projected misstatement
__
....... _;..
will be P210,000 (Pl0,500 x 20), which exceeds the tolera-

ble misstatement of P180,000. This circumstance will lead
to a conclusion that there is an unacceptably high risk that
the actual misstatements in the population exceed the toler-
able misstatement.
Answers A and B are incorrect because the calculation

above indicates that the projected misstatement exceeds the
tolerable misstatement.
Answer D is incorrect because even if the sum of actual

overstatements and understatements is to be projected to
the population, the projected misstatement will exceed the
tolerable misstatement. Moreover, if the tolerable mis-
statement exceeds the projected misstatement, the auditor
will simply accept the account balance as fairly stated.
60. Which of the following sample selection methods is not ap·

propriate when using statistical sampling?
A. Random selection
B. Systematic selection
C. Monetary unit sampling
D. Haphazard selection
Haphazard selection method involves selection of thhe

sample without following a structured approach. This
· tee -
nique is not appropriate when using statistical sampling.
.
61. Which of the following sample selection methods canno
t or·
dinarily be used in audit sampling?
A. Value-weighted selection
B. Random selection
C. Block selection
D. Systematic selection
8 Audit sampling 625
ctlApfER
k selection involves selection of a block(s) of contigu-
810\erns from within the population. In most populations,
?05 1 in a sequence are expected to have similar character-
ite~s to each other, but different characteristics from items
j5t1CS l .
W
here in the popu at1on.
else
ause audit sampling involves d·rawing valid conclusions
~~~ut the who~e population bas~d ~n the .sample,. block se-
lection ordinarily cannot be applied m audit sampling.
In systematic selection, the number of sampling units in the

62 · population is divided by the sample size to determine the
A. sampling interval
6. Pattern that may exist in the population
c. sampling risk
D. Nonsampling risk
In systematic selection, the number of sampling units in the

population is divided by the sample size to determine the
sampling interval. For example, 20 will be the sampling in-
terval in a population of 1,000 sampling units within which
a sample of 50 items will be selected (1,000 + 50). After se-
lecting a starting point within the sampling interval of 20, .
the auditor will then select every 20th item.
63. In audit sampling, involves dividing the popula-

tion into discrete sub-populations which have an identifying
characteristic.
A. Value-weighted selection
B. Stratification
C. Random selection
D. Block selection
The auditor may stratify a population by dividing it into dis-

crete sub-populations which have an identifying character-
istic.
Stratification of the population may improve audit effici~ncy

because each stratum will contain homogenous items that
will allow selection of smaller sample size without increas·
ing sampling risk.
64. Which of the following statements relating to stratification is

incorrect?
A. When performing tests of details of transactions and ac-
count balances, the population is often stratified by
monetary value.
B. The results of audit procedures applied to a sample of
items within a stratum can be projected to the entire
population.
C. When verifying the valuation assertion for accounts re·
ceivable, account balances may be stratified by age.
D. Stratification reduces the variability of items within each
stratum.
Wh~n using stratified sampling technique, misstatement. is

projected for each stratum separately. The projected mis·
statements are then combined to determine the possible ef·
feet on the entire population.
65. Audit efficiency may be improved when the sampling unit is

defined. as the. individual monetary units that comprise ttie
population. Thrs technique is called
A. Stratification
B. Random selection
C. Systematic selection
D. Value-weighted selection
R S Audit Sampling 627
cl'IApTE
vaJue-weighted selection identifies the sampling unit as

the individual monetary units that make up the population.
under this method, audit effort m~y be directed to the larger
value items because they will have a greater chance of being
selected. This can result in smaller sample sizes and may
thus improve audit efficiency.
fR.UE OR FALSE
1. Nonsampling risk is. the risk that audit tests will not uncover
existing exceptions in a sample.
2. For a given tolerable deviation rate, a larger sample size

should be selected as the expected population deviation rate
decreases.
3. Tue tolerable deviation rate for a test of c;:ontrols is generally

lower than the expected rate of deviations in the related ac-
counting records.
4. In statistical or nonstatistical sampling methods used in sub-

stantive testing, an auditor most likely would stratify a popu-
lation into meaningful groups if the population contains both
very high and very low recorded amounts.
5. If sample results indicate that the control is operating effec-

tively, but in fact it is not, control risk will be assessed too ·
high.
6. To determine if a sample is truly representative of the popu-

lation, an auditor would be required to use systematic sam-
ple selection.
7. The risk of incorrect acceptance relates to the Effectiveness

of the audit.
628 CPA EXAMINATION REVIEWER : AUDITING THEORY
8. One of the ways to eliminate nonsampling risk is through the

use of attributes sampling rather than variables sampling.
9. As the amount of misstatements expected in the population

approaches tolerc,:ible misstatement, the planned sample size
will increase.
10. The auditor's principal objective when using a sample of

tests of details of balances is whether the transactions being
audited are free of misstatements.
11. The computed upper deviation rate is the sum of the sample
deviation rate and an appropriate allowance for sampling
risk.
12. When selecting a stratified sample, the sample size is de-

termined for each stratum and selected randomly from the
entire unstratified population.
13. Statistical sampling provides a technique for measuring the

sufficiency of evidential matter.
14. Sampling risk is the risk that audit tests will not uncover ex-
isting exceptions in a sample.
t tistical
15. Auditors who prefer statistical sampling to .nons ~ 5
the
sampling may do so because statistical sa~p\lng he ~plin9
auditor eliminate subjectivity in the evaluation of sa
results.
incor-
16. Sampling risk is the risk that an auditor will ieach ~~tive of
rect conclusion because a sample is not represen
the population.
cHApTER
fhe primary_objective of using stratified sampling in auditing

11· . to determine the occurrence rate for a. given characteristic
:~ the population being studied.
A sample of all items of a population will eliminate sampling
18· risk, but increase nonsampling risk.
The use of inappropriate audit procedures is a significant

19· cause of nonsampling risk.
20. The use of an appropriate

. sample selection technique en-
sures a representative sample.
21. The process which requires the calculation of an interval and

then selects the items based on the size of the interval is
random sample selection.
22. Correspondence is established between the random number

table and the population by deciding the number of digits to
use in the random number table and their association with
the population numbering system.
23. It is impossible to draw a six-digit random number from a

table that is separated .into columns of five digits.
24. To determine the sample size for a test of controls, an· audi-
tor should consider the tolerable deviation rate, the desired
confidence level, and the expected population deviation rate.
25. 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 . .
KEY ANSWERS
1. D 23. D 45. B
2. c 24. c 46. c
3. A 25. A 47. c
4. c 26. B 48. A
5. B 27. c 49. A
6. c 28. A so. B
7. c 29. B 51. D
8. D 30. B 52. A
9. B 31. B 53. c
10. c 32. c 54. A
11. D 33. D 55. B
12. A 34. A 56. B
13. B 35. c 57. c
14. B 36. A 58. A
15. B 37. D 59. c
16. D 38. D 60. D
17. c 39. B 61. c
18. A 40. A 62. A
19. A 41. D 63. B
20. D 42. B 64. B
21. D 43. D 65. D
22. A 44. A
cl'IAp~R
fltllE OR FALSE
6. False 11. True 16. True 21. False
1. rrue
7. True 12. False 17. False 22. True
2. false
8. False 13. True 18. False 23. False
3, false
9. True 14. False 19. True 24. True
4. rrue
10. False 15. False 20. False 25. True
5, false

Roque Quick Auditing Theory Chapter 8 PDF

Caricato da

Informazioni sul documento

Descrizione originale:

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Roque Quick Auditing Theory Chapter 8 PDF

Caricato da

Copyright:

Formati disponibili

585

1. In designing audit procedures, the auditor is required to de-

According to PSA 500 (Audit Evidence), the application of

2. Which of the following should be considered by the auditor

3. It will be appropriate to audit all the items that make up a

According to PSA 500, a 100% examination may be appro·

• The population con.s titutes a small number of large

• There is a significant risk and other means do not

• The repetitive nature of a calculation or other pro-

According to PSA 500, specific items may include:

• Items to obtain information - items that provide

5. Audit sampling involves the

As defined in PSA 530 (Audit Sampling), audit sampling in·

~nswers A and D are incorrect because they involve selec·

An swer c IS· mcorrect

· Populat!on, as defined in PSA 530 (Audit Sampling), rne:~J

The auditor should ensure that the population is appropri-

It is also important for the auditor to ensure that the popu-

7. The two general approaches to audit sampling are:

The two general approaches to audit sampling are statistical

A statistical sampling plan should have the following char-

590 CPA EXAMINATION REVIEWER: AUDITING THEORY

b) Use of probability theory to evaluate sample results,

A nonstatistical sampling plan is any sampling plan which,

Answers A, B, and Dare incorrect because stratification and

Stratification is the process of dividing a population into

Value weighted is a selection method in which the sam·

Random selection gives each sampling unit a chance of be;

ti on. It is the mathematical complement of sampling ns

According to PSA 530, the principal methods of selecting

a) Use of computerized random number generator

9. An advantage of statistical sampling over nonstatistical sam-

Statistical sampling involves the application of the laws of

Answer A is incorrect because, in some circumstances, a

Answer C is incorrect because nonsampling errors do not

Answer D is incorrect because both statistical and nonstatis·

from the fact that a sample may not be representative of

Answers A and D are incorrect because they relate more to

11. While performing a test of details during an audit, the audi-

The two aspects of sampling risk in substantive testing are:

1) The risk of incorrect rejection is the risk that a

auditor, the account balance is not materially mis-

2) The risk of incorrect acceptance is the risk that a

Answers A and B are incorrect because assessing control

Answer C is incorrect because the risk of incorrect ac-

12. The risk of il"'correct acceptance and the likelihood of as·

If an auditor erroneously accepts an account balance as

ance. Hence, the ris~ of incorrect rejection affects the effi-

Assessing control risk too low leads to an unjustified reduc-

Answer B is incorrect because the risk of incorrect ac-

Answers C and D are incorrect because the tolerable error

13. Which of the following statements is true?

14: The following are examples of nonsampling risk, except

596 CPA EXAMINATION REVIEWER: AUDITING THEORY

A. Failure to recognize an error.

15. The following are advantages of using statistical sampling,

16. Which of the following methods is most appropriate when

17. In the audit of inventory, attribute sampling may be applied

A. ,ASsessing control r~sk too low.

An element of sampling risk is .

zo. Statistical sampling provides a technique for

21. The distinguishing feature of statistical sampling is that it