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PSA 530: AUDIT SAMPLING

PSA 500 – Audit Evidence as reference


OBJECTIVE:
PSA 530. Sec 5 - DEFINITIONS
PSA 530. Sec 5 - DEFINITIONS

AUDIT UNIVERSE
PSA 530.5(b & c): Audit Sampling - DEFINITIONS

Sampling risk can lead to two (2) types of


erroneous conclusions.
PSA 530. Sec 5 – DEFINITIONS

Non-statistical
sampling does not
considered (i) & (ii).
PSA 530. Sec 5 – DEFINITIONS

Cannot be eliminated
due to inherent
limitations of audit.
PSA 530. Sec 5 – DEFINITIONS
PSA 530. Sec 5 – DEFINITIONS
PSA 530. REQUIREMENTS
PSA 530. REQUIREMENTS
PSA 530. REQUIREMENTS
Audit Sampling: KEY DECISIONS
Which population should be tested?
Population?

Sample size?
Selection?

Evaluation?
Audit Sampling: DESIGN
AUDIT OBJECTIVES

STRATIFICATION
Characteristics of Good Audit Samples
1. Representative: estimates the true
population characteristics as
accurately as possible.
2. Corrective: sample will locate as many error items as possible
so these can be corrected.
3. Preventive: sampling method gives audit clients no idea what
items will be selected
4. Protective: attempts to include the maximum number of high
value items in the sample.
DEALING with SAMPLING RISKS
The auditor can eliminate sampling risks by testing the
entire population. However, such testing usually not
possible. Auditor reduces sampling risk to an
acceptably low level by making a sample more
representative of the population by:
- Increasing the sample size
- Using appropriate sample selection method
PSA 530. Sec 5 –SAMPLING RISK

The auditor is primarily concerned This type of erroneous conclusion


with this type of erroneous affects audit efficiency as it would
conclusion because it affects audit usually lead to additional work to
effectiveness & is more likely lead establish that initial conclusions
to an inappropriate audit opinion. reached were incorrect.
SAMPLING Alpha Risk Beta Risk
Type 1 Misstatement Type II Misstatement

TEST OF CONTROL (TOC)


Sampling Assessing control risk Assessing control risk
risks too high too low
Controls are: Ineffective when they Effective when they
are actually effective are actually not
(ineffective)
Control Under reliance Over-reliance
reliance
SAMPLING Alpha Risk Beta Risk
Type 1 Misstatement Type II Misstatement
TEST OF DETAILS (TOD)
Sampling Incorrect rejection Incorrect acceptance
risks
Material Exist when in fact it Does not exist when
misstatement does not in fact it does
Affects audit Efficiency Effectiveness
(Additional work/ Inappropriate audit
procedures) opinion
Audit Sampling: DOES NOT INCLUDE
Tracing several transactions through the
accounting system to gain an understanding
of the internal control structure.
Walk through
Audit Sampling: DOES NOT INCLUDE

Observing employees who are performing a control


procedure that does not leave an audit trail, such as
observing the physical inventory count.
Test of Controls (TOC) Test of Details (TOD)

1. All items (100%)


Extent 2. Specific items (non-representative)
Ex. High value or key items (suspicious, high risk)
of All items over a certain amount ex. >P1M
Selection Certain control activities/nature of entity
3. Audit sampling (representative)
Ex. < 100%, sampling units-chance of selection

Sufficient Appropriate Audit Evidence


Purpose of AUDIT SAMPLING: TEST OF CONTROLS
Obtain evidence about client’s CONTROL OBJECTIVE
on compliance:
Sample:
Usually from a class of transactions
(population) such as:
* Cash receipts
* Cash disbursements
* Purchases (inventory additions)
* Inventory issues
* Sales on credit
* Expenses details
Purpose of AUDIT SAMPLING: TEST OF CONTROLS
Purpose of AUDIT SAMPLING: TEST OF DETAILS
Obtain evidence about ASSERTIONS related to
Financial statement account balances:
Sample:
Usually from items in an asset/
Liability balance (population) such as:
* Accounts Receivable
* Loans receivable/payable
* Inventory
* CAPEX (PPE)
* Investments
* Accounts Payable
Test of DETAILS: Examples
Test of DETAILS: Examples
SUMMARY
SAMPLING RISKS NON-SAMPLING RISKS
Risk that auditor reaches an incorrect Risk that that audit tests do not
conclusion because the sample is not uncover existing exceptions in the
representative of the population sample
Inherent part of audit sampling The auditor’s failure to recognize
exceptions; inappropriate or
ineffective audit procedures
Controlled by: Controlled by:
• Determining the appropriate sample size • Training and supervision
•Ensuring that all items have an equal • Reasonable working conditions
opportunity of selection • Effort
• Mathematically evaluating sample results
10 STEPS OF AUDIT SAMPLING PROCESS
1 Define the objective (purpose) of test
2 Define the deviation or misstatement
3 Identify the relevant audit universe/population
4 Determine the relevant sampling unit
5 Select the appropriate sampling approach
6 Determine the sufficient sample size
7 Select the representative sample items
8 Perform the testing and evaluate evidence
9 Evaluate the test results and reach conclusion
10 Complete documentation
10 STEPS OF AUDIT SAMPLING PROCESS
1 Define the objective (purpose) of test

The test objective is based on the ROMM at assertion level that guide
in designing the appropriate audit procedures necessary to achieve
the objective.
10 STEPS OF AUDIT SAMPLING PROCESS
2 Define the deviation or misstatement

The auditor considers what condition constitute a deviation or


misstatement by reference to test objective.
TOC, a deviation is a departure from adequate control performance
Ex. Sales invoice not supported by credit approval report & a
shipping document.

TOD, a misstatement is a difference between recorded amount &


the amount the auditor determines to be appropriate
Ex. Recorded receivable relating to fictitious sale or from a
prematurely recognized sale
10 STEPS OF AUDIT SAMPLING PROCESS
3 Identify the relevant audit universe/population
Ex. A/R balance = P1 M, Customers = 1,000, Sales invoices = 5,000
Relevant audit universe/population:
Any of the entire A/R, customers or sales invoices
Auditor identifies the relevant population & its characteristics such as:
A. direction of testing
TOD, stratification or value weighted selection (monetary unit
sampling) – direction of misstatement.
TOC, direction of deviations determines the relevant population
B. completion of population
Completeness is verified by its Boundaries (beg. & end) and Totality
10 STEPS OF AUDIT SAMPLING PROCESS
3 Identify the relevant audit universe/population

Accounts Receivable Stratification A/R balance = P181,000,000


Strata Average Amount No. of Customers Sample Size
1 Over P1,000, 000 50 50
2 P100,000 – P1,000,000 200 50
3 Below P100,000 500 25
Total 750 125*
•If not stratified, this sample size would have been greater in order to reduce sampling risk
•Assumption:
Presence of misstatement is projected for each stratum
10 STEPS OF AUDIT SAMPLING PROCESS
4 Determine the relevant sampling unit

Sampling units depend on the chosen population.


If the population is 1,000 customers, each customer = sampling unit
If the population is 5,000 sales invoices, 1 sales invoice = sampling unit
SAMPLING APPROACHES – Advantages & Disadvantages
STATISTICAL SAMPLING NON-STATISTICAL SAMPLING
Advantages:
• More effective due to aid of • Easy to apply & less costly
statistics/mathematics •Can be as effective as statistical
• More objective if appropriate judgment applied.
Disadvantages:
• Overvalue the evidence •Less objective
• Reduces auditor’s skepticism •Relies exclusively on professional
•Increased cost due to: judgment to:
- training auditors - Determine sampling size
- sampling software - Evaluate sample results
- Estimate sampling risk
10 STEPS OF AUDIT SAMPLING PROCESS
5 Select the appropriate sampling approach (OVERVIEW)

Attributes Sampling in TOC Variables Sampling in TOD

Statistical Non-Statistical Statistical Non-Statistical

Regular Discovery Sequential Classical Monetary Unit


Sampling

Mean per unit Differenc Ratio


e
10 STEPS OF AUDIT SAMPLING PROCESS
5 Select the appropriate sampling approach (OVERVIEW)
Attributes Sampling in TOC
Regular Conclusion is reached about a population in terms of a rate (frequency) of occurrence
based on a fixed sample size.
Ex. Sample Check Voucher – examined the signatures, evidencing approvals
# of Missing signatures = deviations, used to estimate the overall rate of exceptions
for the entire (population) check vouchers

Sampling plan to determine enough sample size (fixed sample size) required to have a
Discovery
probability of discovering at least one (critical) deviation
Expected deviation rate = zero or near zero, any deviation detected results in REJECTION
of the sampling plan

Sequential Sampling plan is performed by stage; NO FIXED SAMPLE SIZE is SET.


The result of the previous stage determines the need to GO to next stage.
Stop-or-go If it is poor or ineffective --- continue to next stage
If it is good or effective --- does it justify reliance?
10 STEPS OF AUDIT SAMPLING PROCESS
5 Select the appropriate sampling approach (OVERVIEW)
Statistical Variables Sampling for TOD
Classical Generally, answers the following questions:
(1) How much?
(2) Is the account materially misstated?
CARRYING VALUE - AUDITED Amounts =DIFFERENCE (sample
misstatement)
3 variations: MPU, Difference Approach or Ratio Approach

Monetary Sample size, selection & results evaluation are terms of monetary
Unit amounts and is appropriate for testing:
Sampling - Assets
- Income
10 STEPS OF AUDIT SAMPLING PROCESS
6 Determine the sufficient sample size

Auditor shall determine a sample size sufficient to reduce sampling risk


to an acceptably low level.

Level of sampling risk (beta risk or type II misstatement), auditor is willing to


accept is inversely related to sample size.

the sampling risk, the the sample size to achieve level of confidence.
7 Select the representative sample items
10 STEPS OF AUDIT SAMPLING PROCESS
7 Select the representative sample items
10 STEPS OF AUDIT SAMPLING PROCESS
7 Select the representative sample items: Sample Selection Methods
7 Select the representative sample items: Sample Selection Methods
7 Select the representative sample items: Sample Selection Methods

Systematic Sample Selection:


The auditor calculates an interval &
then selects the items for the sample
based on the size of the interval.

The interval is determined by


dividing the population size by the
number of sample items desired.
10 STEPS OF AUDIT SAMPLING PROCESS
7 Select the representative sample items

Systematic Sample Selection: The interval is determined


The auditor calculates an interval & by dividing the population
then selects the items for the sample size by the number of
based on the size of the interval. sample items desired.
10 STEPS OF AUDIT SAMPLING PROCESS
7 Select the representative sample items
10 STEPS OF AUDIT SAMPLING PROCESS
7 Select the representative sample items
10 STEPS OF AUDIT SAMPLING PROCESS
8 Perform the testing and evaluate evidence
Auditor shall perform audit procedures, appropriate to the purpose, on
each item selected, and evaluate the audit evidence obtained.

In doing so the auditor may encounter:


Voided sample - not applicable to the selected item
Auditor shall perform procedure on a replacement item
Ex. Voided check is selected while testing payment authorization.
Missing or Lost Sample
10 STEPS OF AUDIT SAMPLING PROCESS
9 Evaluate the test results and reach conclusion
Whether the sampling is statistical or non-statistical, the auditor applies
professional judgment in evaluating the results and reaching an overall
conclusion by considering:
1. Nature, causes & effect of deviations and
misstatements;
Investigate whether the deviations or misstatements
is systematic or indicate the possibility of FRAUD,
which may require extended audit procedures.
2. Deviations and misstatements.
9 Evaluate the test results and reach conclusion
Test of Controls (TOC) – Deviations or Misstatements

PDR (Projected Deviation Rate) = SDR (sample deviation rate)


+ Allowance for Sampling Risk

An auditor is testing disbursement approval on 5,000 check vouchers processed


during 2018. The auditor designed a statistical sample that would provide 1% risk
of assessing control risk too low (99% confidence level) that not more than 5% of
the sales invoices lacked approval, with allowance for sampling risk of 3.5%. The
auditor estimated from pilot testing performed that about 1.5% of the check
vouchers lacked approval. A sample of 100 check vouchers was examined & 4 of
them lacked approval.
SDR is 4% (4/100); PDR = 7.5% (4% + 3.5%)
9 Evaluate the test results and reach conclusion
Test of Controls (TOC) – Deviations or Misstatements

PDR (Projected Deviation Rate) = SDR (sample deviation rate)


+ Allowance for Sampling Risk

The auditor may perform either:


(1) Compare PDR to TDR (tolerable deviation rate)
Increase the level of assessed of control risk (CR is high) because the TDR (5%)
was less than the PDR (7.5%)
(2) Compare SDR to EDR (expected deviation rate)
Increase the level of assessed of control risk (CR is high) because the EDR
(1.5%) was less than the SDR (4%)
9 Evaluate the test results and reach conclusion
Test of Details (TOD) – Calculating Sample Misstatements

Sample misstatement is the monetary misstatement detected in the sample.


Projected misstatement (MLE-most likely error) is the misstatement that the
auditor estimates to be in the population & is calculated by adjusting
the sample misstatement by an allowance for sampling risk.

In TOD, an unexpectedly high sample misstatement may


cause the auditor to believe that misstatement is material,
in absence of further audit evidence that no material
misstatement exists.
9 Evaluate the test results and reach conclusion
Test of Details (TOD) – Calculating Sample Misstatements
In TOD, an unexpectedly high sample misstatement may cause the auditor to believe
that misstatement is material, in absence of further audit evidence that no material
misstatement exists.
EPM [estimated population misstatement] = PM (Projected Misstatement)
+ AM (Anomalous Misstatement)
The closer the EPM is to tolerable misstatement, the more likely that actual
population misstatement (APM) may exceed the tolerable misstatement.
When EPM > Tolerable Misstatement, the sample does not provide reasonable
basis for conclusion.
If the projected misstatement is > than the auditor’s expectations of
misstatement used to determine the sample size, the auditor may conclude
that there is an unacceptable sampling risk that the APM exceeds the
tolerable misstatement.
9 Evaluate the test results and reach conclusion
Test of Details (TOD) – Calculating Sample Misstatements

If the auditor concludes that audit sampling has not provided a


reasonable basis for conclusions about the population that has been
tested, the auditor may:

-Request management to investigate misstatements identified and


the potential for further misstatements and necessary adjustments
-Tailor the nature, timing and extent of further audit procedures to
achieve the required assurance.
In auditing Accounts Payable, an auditor has accumulated the following data:
No. of Accounts Carrying Amt (CA) Audited Amt (AA) Misstatements
Population 4,100 P 5,000,000 ?? ??
Sample 200 P 250,000 P 300,000 P 50,000

Mean-per-unit Approach (EPAA -Estimated Population Audited Amount)

EPAA is calculated by an average audited amount in the sample and


multiply that average amount by the population size.
EPAA = Population size x Average Audited Amount
= P 6,150,000
computed as: 4,100 x (P300,000 / 200)
Projected Misstatement = P5,000,000 – P6,150,000
= P1,150,000 understatement
In auditing Accounts Payable, an auditor has accumulated the following data:
No. of Accounts Carrying Amt (CA) Audited Amt (AA) Misstatements
Population 4,100 P 5,000,000 ?? ??
Sample 200 P 250,000 P 300,000 P 50,000
Difference Approach
EPAA is calculated by an average difference between audited & recorded
amounts of the sample items & projects that average difference to
the population.
Average difference : Average CA – Average AA
= 250 = [250,0000/200] – [300,000/200]
Projected Misstatement = 4,100 accounts x 250 (average difference)
= P1,025,000 understatement
EPAA = P5,000,000 + P1,025,000 = P6,025,000
In auditing Accounts Payable, an auditor has accumulated the following data:
No. of Accounts Carrying Amt (CA) Audited Amt (AA) Misstatements
Population 4,100 P 5,000,000 ?? ??
Sample 200 P 250,000 P 300,000 P 50,000
Ratio Approach
EPAA is calculated by multiplying the recorded amount of population by the
same ratio.
EPAA = [Sample AA/Sample CA] x Population CA
= P 6,000,000 = [P300,000/P250,000] x P5,000,000

Projected Misstatement = P6,000,000 – P5,000,000


= P1,000,000 understatement
Test of Details (TOD) – Calculating Sample Misstatements: MUS

(1) Calculate the % of misstatement in each item


(2) Add up the misstatement %s, netting overstatements & understatements
(3) Calculate the average % misstatement per item sampled by dividing the
total misstatement %s by the number of all items sampled.
(4) Multiply the average % misstatement by the total representative
population monetary value. This results in the projected misstatements
for the sample.

Carrying amt (1) Audited amt (2) Misstatement (1-2) Misstatements % [1-2]/2
P 1,500 P 1,200 P 300 25.00%
P 3,500 P 3,000 P 500 16.67%
P 6,000 P 6,500 - P 500 - 7.69%
Test of Details (TOD) – Calculating Sample Misstatements
Monetary Unit Sample (MUS)

Carrying amt (1) Audited amt (2) Misstatement (1-2) Misstatements % [1-2]/2
P 1,500 P 1,200 P 300 25.00%
P 3,500 P 3,000 P 500 16.67%
P 6,000 P 6,500 - P 500 - 7.69%
Total % of misstatement 33.98%
Average % misstatement [33.98% / 100 sample size) 0.3398%
Projected Misstatement [0.3398% x 250,000 population] P 849.50
10 STEPS OF AUDIT SAMPLING PROCESS
10 Complete documentation
True or False
PSA 530
Audit Sampling
1. The most effective way to control sampling
risk is to increase the sample size.
2. For tests of details, the auditor makes an
assessment of the expected misstatement in
the population. If the expected misstatement
is high, 100% examination or use of a large
sample size may be appropriate when
performing tests of details.
3. Statistical sampling is used when an auditor
chooses to examine all purchases of
equipment exceeding P 100,000.00 and to
test the remaining items by analytical
procedures.
4. Audit sampling implies the application of
audit procedures to 100% of items in the
population to use as a basis for making valid
inferences about the characteristics of the
population as whole and examining every
transaction.
5. The only way to know with certainty whether
a sample is representative is to subsequently
audit the entire population.
6. If the expected rate of deviation is
unacceptably high, the auditor will normally
decide not to perform tests of controls.
7. The decision whether to use a statistical or
non-statistical sampling approach is a matter
for the auditor’s judgment; however, sample
size is not a valid criterion to distinguish
between statistical and non-statistical
approaches.
8. The level of sampling risk that the auditor is
willing to accept affects the sample size
required. The lower the risk the auditor is
willing to accept, the lower the sample size
will need to be.
9. Non-statistical sampling permits auditors to
be more subjective, to be vague about risk &
materiality & less rigid approach to unique
audit problems.
10. The sample size can be determined by the
application of a statistically-based formula or
through the exercise of professional judgment.
11. The more the auditor is relying on other
substantive procedures (TOD or SAP) to
reduce to an acceptable level the detection
risk regarding a particular population, the
less assurance the auditor will require from
sampling and, therefore, the larger the
sample size.
12. The auditor’s assessment of the risk of
material misstatement is affected by inherent
risk, audit risk and control risk.
13. For small populations however, audit
sampling may not be as efficient as
alternative means of obtaining sufficient
appropriate audit evidence.
14. The greater the level of assurance that the
auditor desires that the results of the sample
are in fact indicative of the actual incidence
of deviation in the population, the smaller
the sample size needs to be.
15. The lower the tolerable rate of deviation, the
larger the sample size needs to be.
16. PSA 570 provides guidance on the means
available to the auditor for selecting items for
testing, of which audit sampling is one
means.
17. The objective of the auditor when using audit
sampling is to provide a reasonable basis for
the auditor to draw conclusions about the
population from which the sample is
selected.
18. Audit risk means that the auditor’s
conclusion based on a sample may be
different from the conclusion if the entire
population were subjected to the same audit
procedure.
19. If the auditor is unable to apply the designed
audit procedures, or suitable alternative
procedures, to a selected item, the auditor
shall treat that item as a material
misstatement from the prescribed control, in
the case of tests of controls, or a
misstatement, in the case of tests of details.
20. In the extremely rare circumstances when the
auditor considers a misstatement or deviation
discovered in a sample to be an anomaly, the
auditor shall obtain a high degree of certainty
that such misstatement or deviation is not
representative of the population.
21. Haphazard selection is a type of value-
weighted selection in which sample size,
selection and evaluation results in a
conclusion in monetary amounts.
22. The objective of stratification is to reduce the
variability of items within each stratum and therefore
allow sample size to be reduced without increasing
sampling risk.
23. Block selection cannot ordinarily be used in
audit sampling because most populations are
structured such that items in a sequence can
be expected to have similar characteristics to
each other, but different characteristics from
items elsewhere in the population.
24. For large populations, the actual size of the
population has little, if any, effect on sample
size. Thus, for small populations, audit
sampling is often not as efficient as
alternative means of obtaining sufficient
appropriate audit evidence.
25. Factors relevant to the auditor’s consideration
of the expected misstatement amount include
the extent to which item values are determined
subjectively, the results of risk assessment
procedures, the results of tests of control, the
results of audit procedures applied in prior
periods, and the results of other substantive
procedures.
MULTIPLE CHOICES
1. A sample in which the characterisitics in the
sample are the same as thos eof the populations
is a (an)
a. Random sample
b. Variables sample
c. Attributes sample
d. Representative sample
2. Non-sampling errors occur when audit tests do
not uncover existing exceptions in the
a. Population
b. Sample
c. Planning stage
d. Financial statements
3. One of the causes of non-sampling error is
a. The use of inappropriate or ineffective audit
procedures
b. Failure to draw a random sample
c. Failure to draw a representative sample
d. The use of attributes sampling instead of variables
sampling
4. One of the ways to eliminate non-sampling risk is
through
a. Proper supervision and instruction of the client’s
employees
b. Proper supervision and instruction of the audit
team
c. The use of attributes sampling rather than variables
sampling
d. Controls which ensure that the sample drawn is
srandom and representative
5. Sampling risk or error is an inherent part of
sampling that results from
a. Inappropriate audit procedures
b. Failure to recognize exceptions
c. Testing less than the entire population
d. Weaknesses in client’s internal control system
6. One of the ways to reduce sampling risk is to
a. Use an appropriate method of selecting sample
items from the population
b. Carefully design the audit procedures to be used
c. Provide proper supervision and instruction to the
audit team
d. Use variables sampling rather than attribute
sampling
7. Which of the following statements is not correct?
a. It is acceptable for auditors to use statistical
sampling methods.
b. It is acceptable for auditors to use non-statistical
sampling methods.
c. The primary benefit of statistical sampling methods
is the quantification of sampling risk.
d. An advantage of using statistical sampling is that
the cost/benefit ratio is always positive.
8. The most common method used of performing
statistical tests of transaction is
a. Variables sampling
b. Attribute sampling
c. Judgment sampling
d. Random selection of samples
9. Which of the following statements is a valid
criticism of the use of non-statistical sampling
methods?
a. Many audit tests, such as footing of journals, must be
performed outside a statistical context.
b. The cost of performing random selection of testing
often exceeds the benefit.
c. Non-statistical sampling does not differ substantially
from statistical sampling method.
d. Conclusions may be drawn in more precise ways when
using statistical sampling methods.
10. A sample in which every possible combination of
items in the population has an equal chance of
constituting the sample is
a. Representative sample
b. Statistical sample
c. Random sample
d. Judgment sample
11. Which of the following statements regarding
documentation of the sample selection process is not true?
a. Regardless of the method used in selecting a random sample, it
is necessary to have proper documentation.
b. When comparing statistical sampling to judgmental sampling it
is more important that statistical sampling be properly
documented because of its mathematical nature.
c. Minimum documentation would include sufficient information
to permit the reproduction of the sample at a later date.
d. For documentation, it is permissible for the auditor to include
in the working papers a copy of the table used, with the
random numbers identified.
12. Which of the following is not an advantage of
using computerized selection of random
numbers over use of a random number table?
a. Time saving
b. Reduced likelihood of auditor error
c. Automatic documentation
d. Correspondence of the numbers with the
population is not required.
13. The process which requires the calculation of an
interval and then selects the items based on the
size of the interval is
a. Statistical sampling
b. Random selection
c. Systematic selection
d. Computerized selection
14. The advantage of systematic selection is
a. It is easy to use
b. There is limited possibility of it being biased
c. It is unnecessary to determine if the population is
arranged randomly
d. All there of the above
15. When the auditor goes through a population
and selects items for the sample without regard
to their size, source or other distinguishing
characteristics, it is called
a. Block selection
b. Haphazard selection
c. Systematic selection
d. Statistical selection
16. When the auditor intends to evaluate a sample
statistically, the only acceptable selection
method is
a. Probabilistic selection
b. Block selection
c. Haphazard selection
d. Judgmental selection
17. Since auditors are interested in the occurrence
of exceptions in populations, they refer to the
occurrence rate as
a. Exceptions rate
b. Populations rate
c. Deviation rate
d. Confidence level
18. If an auditor, without statistical sampling, selects
a sample of one hundred items from a
population and finds two exceptions, the auditor
a. Can conclude that the sample deviation rate is 2%
b. Can conclude tha the population deviation rate is
2%
c. Can conclude that the highest deviation rate
expected in the population.
d. Cannot make any conclusions about either the
sampe or the population.
19. The degree to which the auditor is justified in
believing that the estimate based on a random
sample will fall within a specified range is called:
a. Sampling risk
b. Non-sampling risk
c. Confidence level
d. Precision
20. Using random numbers to select a sample:
a. Is required for variables sampling plan
b. Is likely to result in an unbiased sample
c. Results in a representative sample
d. Allows auditors to use smaller samples
21. In sampling application, the standard deviation
represents a measure of the:
a. Expected error rate
b. Level of confidence required
c. Degree of data variability
d. Extent of precision achieved
22. In sampling application, the standard deviation
represents a measure of the:
a. Expected error rate
b. Degree of data variability
c. Level of confidence required
d. Extent of precision achieved
23. If all other sample size planning factors were
exactly the same in attributes sampling, changing
the confidence level from 95% to 90% and
changing the desired precision from 2% to 5%
would result in a revised sample size which would
be:
a. Smaller
b. Unchanged
c. Indeterminate
d. Larger
24. Auditors employ the concept of precision in audit
sampling contexts. In this context, precision is
a. A characteristic of the population at hand
b. A measure of the accuracy with which one has
generated sample estimates. Desired precision must be
established before the sample is obtained and
evaluated.
c. Evaluated independently of reliability in a given sample.
d. Important for evaluating variables samples, but not
attribute samples.
25. All of the output from a single source is called a:
a. Population
b. Sample
c. Process
d. Subgroup
26. Considerations for sample design, size & selection of
items for testing, except:
a. When designing an audit sample, the auditor shall
consider the purpose of the audit procedure and the
characteristics of the population from which the sample will
be drawn.
b. The auditor shall determine a sample size sufficient to reduce
sampling risk to an acceptably low level.
c. The auditor shall select items for the sample in such a way that
each sampling unit in the population has a chance of selection.
d. The auditor shall perform audit procedures, appropriate to the
purpose, on each item selected.
27. Evaluate whether each of the following statements
qualifies as sampling:
I. Test performed on 100% of the items within the population
II. Selecting items over a certain amount
III. Selecting items for the total population on the basis that was
expected to be representative

a. All of the above c. I and II do not qualify


b. III does not qualify d. All of the above do not qualify
28. In which of the following cases the auditor is unlikely to
perform 100% examination of items to obtain sufficient
appropriate audit evidence?
a. The population constitutes a small number of large value
items
b. There is a significant risk & other means do not provide
sufficient appropriate audit evidence
c. Testing control activities about the approval of expenditures
d. The use of cost effective computer assisted audit techniques
29. Specific selection of items for testing may be
appropriate in the following cases, except:
a. High value or key items that are suspicious, unusual,
particularly risk-prone or that have a history or error.
b. All items less than the performance materiality level
c. All items above the performance materiality level
d. Items to obtain information about matters such as the nature
of the entity or the nature of the transactions.
30. Why do auditors generally use a sampling approach to
evidence gathering?
a. Auditors must balance the cost of the audit with the need for
precision
b. Auditors are experts & do not need to look at much to know
whether the F/S are correct or not
c. Auditors must limit their exposure to their client to maintain
independence.
d. Auditor’s relationship with the client is generally, adversarial,
so that auditor will not have access to all the F/S information
of the company.
31. Which of the following would cause a sampling error in
an audit of F/S?
a. Selecting inappropriate audit procedures
b. Applying audit procedures improperly
c. Interpreting results inappropriately
d. Selecting a non-representative sample
32. Which of the following is true concerning sampling risk?
a. It can be reduced to zero in statistical sampling but not
in non-statistical sampling
b. It includes the risk of error due to the auditor’s lack of
training
c. It exists in both statistical and non-statistical sampling
d. It cannot be measured.
33. At times sample may indicate in the case of TOC, that
controls are more effective than they actually are. This
situation illustrates the risk of
a. Over-reliance
b. Incorrect precision
c. Under-reliance
d. Incorrect rejection
34. At times sample may indicate in the case of TOD, that a
material misstatement does not exist when in fact it
does. This situation illustrates the risk of
a. Over-reliance
b. Incorrect acceptance
c. Under-reliance
d. Incorrect rejection
35. The risk likelihood of assessing control risk too low (risk
of over reliance) and risk of incorrect acceptance relate
to the
a. Efficiency of the audit
b. Effectiveness of the audit
c. Preliminary estimates of materiality levels
d. Allowable risk of tolerable misstatements
36. Which of the following is true about sampling and non-
sampling risks?
a. Sampling risk can be reduced by increasing the sample
size
b. Sampling risk cannot be eliminated
c. Non-sampling risk can be eliminated by proper
engagement planning, supervision and review
d. Non-sampling risk arises from the possibility that the
auditor’s conclusion based on a sample may be different
from the conclusion reached if the entire population
were subjected to the same audit procedure.
37. In testing A/R, an auditor sends out a positive
confirmation requests to 100 randomly selected
customers. A customer returns the confirmation
indicating that the balance is correct when, in fact, the
balance is overstated. This is an example of
a. Projected misstatement
b. Sampling error
c. Standard error
d. Non-sampling error
38. Which of the following statements about the process of
defining the population is not correct?
a. The auditor can define the population to include the
desired data.
b. The auditor may generalize only about that population
that has been sampled.
c. The population represents the body of data about which
the auditor wishes to generalize.
d. The auditor can randomly sample from any part of the
population that she chooses.
39. What is the primary objective of using stratified
sampling in auditing?
a. To increase the confidence level at which a decision will
be reached from the results of the sample selected.
b. To determine the occurrence rate for a given
characteristic in the population being studied.
c. To decrease the effect of variance in the total population.
d. To determine the precision range of the sample selected.
40. When selecting a stratified sample, the sample size is:
a. Determined for the unstratified population and the
apportioned to each stratum.
b. Determined for each stratum and selected from that
stratum.
c. Determined for each stratum and selected randomly
from the entire unstratified population.
d. Always larger than if unstratified sampling had been
used.
41. Of the following statements, which one best
differentiates statistical sampling from non-statistical
sampling?
a. Statistical sampling is a mathematical approach to inference,
whereas non-statistical sampling is a more subjective approach.
b. Non-statistical sampling has greater applicability to large
populations than does statistical sampling.
c. Non-statistical sampling is more subjective, but produces
greater consistency in the application of audit judgment.
d. Non-statistical sampling has greater applicability to populations
that lend themselves to random selection.
42. Statistical sampling is best known for combining
a. Binomial and confidence intervals
b. Probability and statistical inference with audit
judgment
c. Random and haphazard selection
d. Hypergeometric distribution with audit risk
43. A non-statistical sampling plan can:
a. Overstate the estimate of sampling risk
b. Misdirect an auditor to unreliable sampling units
c. Replicate the results of a statistical sampling plan
d. Understate the degree of audit assurance desired
44. Which of the following statistical sampling plans
does not use a fixed sample size for tests of
controls?
a. Sequential sampling
b. Ratio estimation sampling
c. MUS sampling
d. Variables sampling
45. Discovery sampling should be used to estimate
whether a population contains
a. Errors of any kind
b. Critical deviations
c. Noncritical errors
d. No errors
46. When confirming receivables in testing for
overstatements, there are few or no
misstatements expected, and the selection is
based on monetary amounts, the auditor is likely
to use
a. Attribute sampling
b. Ratio estimation sampling
c. MUS sampling
d. Stratified mean-per-unit sampling
47. Statistical sampling techniques may be used to sample
‘attributes’ as well as ‘variables’. An example of a ‘variable’
that can be tested using statistical sampling technique
would be:
a. The number of errors in the client prepared aging schedule
of accounts receivable
b. Compliance with the requirement that each voucher be
initiated by the treasurer before a check is prepared for
payment of the voucher.
c. The number of entries improperly posted to a job order
cost card.
d. The balance in the A/R account
48. An auditor is applying probability-proportional-to-
size (PPS) sampling. If the population consists of
200 items and is represented by P1,000,000 what
is the probability the auditor will select for testing
an account recorded at P100,000?
a. 0.005
b. 0.100
c. 0.025
d. Not determinable from the facts given
49. In MUS sampling, the expected amount of
misstatement must be
a. Less than tolerable misstatement
b. Greater than tolerable misstatement
c. Equal to tolerable misstatement
d. Either A or C
50. If all other factors specified in a variables sampling
plan remain constant, increasing the acceptable
risk of incorrect acceptance would cause the
required sample size to
a. Become indeterminate
b. Increase
c. Decrease
d. Remain the same
51. In substantive testing which of the following would increase
sample size?

Inc = increase Dec = decrease

a b c d
Assessment of control risk Inc Inc Inc Dec
Reliance on other substantive procedures Inc Dec Dec Inc
Tolerable misstatement Dec Inc Dec Inc
Expected amount of misstatement Inc Dec Inc Dec
Risk of incorrect acceptance Dec Inc Dec Inc
52. When sampling for attributes, which of the following would
decrease sample size?

Inc = increase Dec = decrease

a b c d
Operating effectiveness of controls Inc Dec Inc Dec
Tolerable rate of deviation Dec Inc Inc Inc
Expected control deviation Inc Dec Dec Dec
Risk of over reliance Dec Inc Inc Dec
53. Which of the following is the exception rate that
the auditor expects to find before testing?
a. Sample exception rate
b. Computed exception rate
c. Tolerable exception rate
d. Estimated population exception rate
54. A major disadvantage of MUS sampling is which of
the following?
a. Sample selection is relatively easy
b. Sample sizes are relatively small
c. It is difficult to test for understatement
d. It directly controls for the risk of incorrect
acceptance
55. In analyzing misstatements using sampling
techniques, the auditor should analyze the
misstatements
a. Qualitatively and quantitatively
b. Absolutely and proportionately
c. Haphazardly and randomly
d. Methodically and systematically
56. When the auditor goes through a population and
selects items for the sample without regard to
their size, source or other distinguishing
characteristics, it is called:
a. Block sample selection
b. Haphazard selection
c. Systematic sample selection
d. Statistical selection
57. A sample in which every possible combination of
items in the population has an equal chance of
constituting the sample is a:
a. Judgment sample
b. Random sample
c. Statistical sample
d. Representative sample
58. In sample selection, block sampling deals with
a. Each item in the population having an equal
chance of selection
b. Selecting all items on a day or week
c. An arbitrary selection with no conscious bias
d. Every nth item being selected after a random start
59. When the auditor goes through a population and
selects items for the sample without regard to
their size, source, or other distinguishing
characteristics, it is called:
a. Block sample selection
b. Systematic sample selection
c. Haphazard selection
d. Statistical selection
60. An auditor is testing internal control procedures that are
evidenced on an entity’s vouchers by matching random
numbers with voucher numbers. If a random number
matches the number of a voided voucher, that voucher
ordinarily should be replaced by another voucher in the
random sample if the voucher
a. Constitutes a deviation
b. Cannot be located
c. Represents an immaterial peso amount
d. Has been properly voided.