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1 | |
Which of the following is not an aspect of sampling risk? |
| | A) | Risk of assessing control risk too high. |
| | B) | Risk of not identifying a misstatement included in a sample. |
| | C) | Risk of incorrect acceptance. |
| | D) | Risk of sampling results indicating that a population is materially misstated when it is not. |
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2 | |
Which type of sampling plan is most frequently used in testing control activities? |
| | A) | Attributes sampling |
| | B) | Discovery sampling. |
| | C) | Probability proportional sampling |
| | D) | Classical variables sampling. |
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3 | |
What is ordinarily the preferable course of action when an auditor finds a higher than expected deviation rate when sampling controls? |
| | A) | Triple the size of the sample to further analyze potential problems. |
| | B) | Project the level of deviation to the entire sample, and if material qualify the audit opinion. |
| | C) | Continue to selection items from the population until the error rate diminishes to a tolerable level. |
| | D) | Increase the assessed level of control risk and expand substantive testing procedures. |
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4 | |
Which is most likely to have more serious consequences, assessing control risk as too high or too low, and why? |
| | A) | Too high, because too much reliance will be put on weak controls, increasing overall audit risk. |
| | B) | Too high, because audit efficiently and consequently audit reliability will be inhibited. |
| | C) | Too low, because too much reliance will be put on weak controls, increasing overall audit risk. |
| | D) | Too low, because audit efficiency and consequently audit reliability will be inhibited. |
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5 | |
The mean-per-unit estimation method calculates the estimated total audited value of a population of accounts receivable as which of the following? |
| | A) | A summation of the total individual accounts values in the population. |
| | B) | The sample mean audited value multiplied by the number of items in the population. |
| | C) | The estimated total audited value of the population multiplied by the number of items in the sample. |
| | D) | The summation of the sample multiplied by the number of discrete samples in the population. |
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6 | |
The projected misstatement under the mean-per-unit estimation is which of the following? |
| | A) | Difference between the sample audited mean and the population audited mean. |
| | B) | Difference between the projected misstatement and the population mean for the population. |
| | C) | Difference between the book value of the population and the sample audited mean multiplied times the number of items in the population. |
| | D) | Average difference between the projected audit value and the book value of an account. |
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7 | |
What is the best description of "tolerable misstatement" for mean-per-unit estimation? |
| | A) | The maximum misstatement that may exist without causing an account to be materially misstated. |
| | B) | The "bounds" around the sample mean that we would expect the value to fall within to be correct. |
| | C) | The "projected" misstatement in the population based upon the sample chosen. |
| | D) | The upper limit (or lower limit for liabilities) of asset values for which the book value may exceed that sample mean without being materially misstated. |
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8 | |
What is the best description of a planned allowance for sampling risk under mean-per-unit estimation? |
| | A) | The projected misstatement in the population based upon the sample chosen. |
| | B) | The maximum misstatement that may exist without causing the financial statements to be materially misstated. |
| | C) | An amount used to calculate the "bounds" around the sample mean that we would expect the value to fall within to be correct. |
| | D) | The upper limit (or lower limit for liabilities) of asset values for which the book value may exceed that sample mean without being materially misstated. |
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9 | |
In the course of auditing accounts receivable, the auditors calculated the estimated total audited value ($3,100,000), the allowance for sampling risk ($100,000), and the tolerable misstatement ($175,000). If the book value of accounts receivable is $3,250,000, what is the audit conclusion and projected misstatement? |
| | A) | Conclude the book value is materially misstated and the projected misstatement is $150,000. |
| | B) | Conclude the book value is materially misstated and the projected misstatement is $50,000. |
| | C) | Conclude the book value is not materially misstated and the projected misstatement is $150,000. |
| | D) | Conclude the book value is not materially misstated and the projected misstatement is $50,000. |
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10 | |
When are the ratio estimation and difference estimation techniques most likely to be preferable to the mean-per-unit estimation method? |
| | A) | The choice between any of the methods method is irrelevant, since they all provide similar results. |
| | B) | When differences between book and audited values are infrequent. |
| | C) | When differences between book and audited values are frequent. |
| | D) | When differences between book and projected misstatement is estimated to be small. |
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11 | |
A company's 1,000 accounts receivable have a total book value of $40,000 (Average book value = $40). An audited sample of 50 accounts resulted in the following mean values:
Book value of $38.00
Audited value of $39.20
What is the estimated total audited value using mean per unit sampling? |
| | A) | $38,000 |
| | B) | $38,776 |
| | C) | $39,200 |
| | D) | $41,200 |
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12 | |
A company's 1,000 accounts receivable have a total book value of $40,000 (Average book value = $40). An audited sample of 50 accounts resulted in the following mean values:
Book value of $38.00
Audited value of $39.20
What is the estimated total audited value using difference estimation sampling? |
| | A) | $38,000 |
| | B) | $38,776 |
| | C) | $39,200 |
| | D) | $41,200 |
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13 | |
A company's 1,000 accounts receivable have a total book value of $40,000 (Average book value = $40). An audited sample of 50 accounts resulted in the following mean values:
Book value of $38.00
Audited value of $39.20
What is the estimated total audited value using ratio estimation sampling? |
| | A) | $38,776 |
| | B) | $39,200 |
| | C) | $41,200 |
| | D) | $41,263 |
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14 | |
In determining the sample size using a structured nonstatistical sample, the reliability factor used takes into consideration the auditor's assessment of? |
| | A) | Control risk, inherent risk, and risk related to other substantive procedures. |
| | B) | Control risk and detection risk. |
| | C) | Control risk and inherent risk. |
| | D) | Detection risk. |
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15 | |
What is the major difference between statistical and nonstatistical sampling in substantive testing? |
| | A) | In nonstatistical sampling the determination of the sample size is ad hoc based upon the auditors' professional judgment. |
| | B) | In nonstatistical sampling the level of risk is not formally quantified, instead auditors use their professional judgment. |
| | C) | The results of nonstatistical sampling are not as reliable as those in statistical sampling. |
| | D) | Nonstatistical sampling uses more randomized methods for sample selection and thus is more reliable. |
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16 | |
If the projected misstatement in nonstatistical sampling is $95,000, while the tolerable misstatement is $100,000, what would an auditor likely conclude? |
| | A) | Since the projected misstatement is less than the tolerable misstatement, the auditor would conclude the account is not misstated. |
| | B) | Since the projected misstatement is less than the tolerable misstatement, the auditor would conclude the account is misstated. |
| | C) | The auditor would conclude that the risk is high that the account is materially misstated. |
| | D) | There is not enough information to answer this question. |
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17 | |
The following Questions are for Chapter 9 -- Appendices
What is one of the main advantages of the probability-proportional-to-size sampling technique over the classical variables approach? |
| | A) | It provides a more accurate estimation of the sample mean |
| | B) | It provides a wider range for acceptance so that less substantive testing needs to be done. |
| | C) | It provides a smaller range for acceptance so that more errors are discovered. |
| | D) | It often requires a smaller sample size to be selected. |
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18 | |
What is the difference in how classical sampling and probability-proportional-to-size sampling define the discrete items in the population from which sampling occurs? |
| | A) | Classical sampling often defines the sample as each account, while probability-proportional-to-size sampling defines each dollar as an item in the population. |
| | B) | Classical sampling defines each dollar as an item in the population, while probability-proportional-to-size sampling defines the sample as each transaction within an account. |
| | C) | Classical sampling defines the sample as a discrete subpopulation of items within an account, while probability-proportional-to-size sampling defines each dollar as an item in the account. |
| | D) | Classical sampling defines the sample as each transaction within an account, while probability-proportional-to-size sampling defines the sample as a discrete subpopulation of items within an account. |
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19 | |
Although many aspects of sampling techniques are fairly mechanical in their approach, ordinarily the most subjective part of the techniques is the auditors' decision on: |
| | A) | Where the sample selection should start. |
| | B) | Tolerable misstatement and acceptable levels of risk. |
| | C) | Population item heterogeneity. |
| | D) | The allowance for sampling risk. |
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20 | |
Probability-proportional-to-size sampling will result in what type of sample items being selected? |
| | A) | Highly representative of the population because it is wholly randomized. |
| | B) | A higher proportion of small value items then large value items because of the sampling interval used. |
| | C) | A higher proportion of large value items than small value items because of the sampling interval used. |
| | D) | A biased sample mean that may not be representative of the population. |
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21 | |
An auditor has used probability-proportional-to-size sampling with a sampling interval of $50,000. The misstatement for accounts with a book balance larger than the sampling interval is $10,000. One other misstatement was identified, an account with a book value of $6,000 had an audited value of $2,400. What would be the total projected misstatement? |
| | A) | $3,600 |
| | B) | $13,600 |
| | C) | $30,000 |
| | D) | $40,000 |
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22 | |
An auditor using probability-proportional-to-size sampling on accounts payable had the following results. Total book value: $8,000,000; Tolerable Misstatement: $800,000; Sampling Interval: $160,000; Projected Misstatement: $175,000; and an Upper Limit on Misstatement: $700,000. What is the auditors conclusion? |
| | A) | The book value is materially misstated by $100,000. |
| | B) | The book value of the account is $7,300,000. |
| | C) | The book value is not materially misstated because the upper limit on misstatement is $700,000. |
| | D) | The book value is not materially misstated because the projected misstatement is $175,000. |
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23 | |
Other factors remaining constant, audit risk is increased by an increase in: |
| | A) | Materiality. |
| | B) | The effectiveness of analytical procedures. |
| | C) | The risk of incorrect rejection. |
| | D) | Detection risk. |
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24 | |
Detection risk may be subdivided into the risk that analytical procedures and other substantive procedures will fail to detect a material misstatements and the allowable: |
| | A) | Risk of incorrect acceptance. |
| | B) | Risk of incorrect rejection. |
| | C) | Control risk. |
| | D) | Audit risk. |
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