Auditing and Assurance Services Audit Sampling: Overview - Chapter 8 Test Bank

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Auditing and Assurance Services Audit Sampling: Overview - Chapter 8 Test Bank

Attribution Non-Commercial (BY-NC)

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True / False Questions

1. Auditing standards permit oth statistical and nonstatistical methods of audit sampling. True !alse

(. Confidence level and sampling ris% are related to sample si)e. True !alse

*. The larger the sample+ the lower the confidence level and the lower the sampling ris%. True !alse

,. Audit sampling is commonl# used to gather confirmation audit evidence. True !alse

8. Audit sampling is commonl# used to gather scanning audit evidence. True !alse

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-. Attri ute sampling is used to estimate the proportion of a population that possesses a specified characteristic. True !alse

10. .ith a nonstatistical sampling application+ the auditor relies on professional /udgment rather than the laws of pro a ilit# to reach a conclusion a out the audit test. True !alse

11. .hich of the following est illustrates the concept of sampling ris%0 A. A randoml# chosen sample ma# not e representative of the population as a whole 1regarding the characteristic eing tested2. 3. An auditor ma# select audit procedures that are not appropriate to achieve the specific o /ective. C. An auditor ma# fail to recogni)e errors in the documents e4amined for the chosen sample. 5. The documents related to the chosen sample ma# not e availa le for inspection.

1". 6ones+ C7A+ elieves the industr#-wide deviation rate of client illing errors is &8 and has esta lished a tolera le deviation rate of (8. $n the review of client invoices 6ones should use A. 5iscover# sampling 3. Attri utes sampling C. Stratified sampling 5. 9aria les sampling

1&. The tolera le deviation rate for a test of controls is generall# A. :ower than the e4pected rate of deviations in the related accounting records 3. ;igher than the e4pected rate of deviations in the related accounting records C. $dentical to the e4pected rate of deviations in the related accounting records 5. <nrelated to the e4pected rate of deviations in the related accounting records

8-"

1'. The ris% of incorrect acceptance relates to the A. =ffectiveness of the audit 3. =fficienc# of the audit C. 7reliminar# estimates of materialit# levels 5. Tolera le misstatement

1(. The li%elihood of assessing control ris% too high is the ris% that the sample selected to test controls A. 5oes not support the auditor>s planned assessed level of control ris% when the true operating effectiveness of internal control /ustifies such an assessment 3. Contains misstatements that could e material to the financial statements when aggregated with misstatements in other account alances or transactions classes C. Contains proportionatel# fewer deviations from prescri ed internal controls than e4ist in the alance or class as a whole 5. 5oes not support the tolera le misstatement for some or all of management>s assertions

1*. !or which of the following audit tests would an auditor most li%el# use attri utes sampling0 A. ?a%ing an independent estimate of the amount of :$!O inventor# 3. =4amining invoices in support of the valuation of fi4ed asset additions C. Selecting accounts receiva le alances for confirmation 5. $nspecting emplo#ee time cards for proper approval # supervisors

1,. ;arve# 6ones+ C7A+ uses statistical sampling to test control procedures. .hat is a enefit of using statistical sampling0 A. $t provides a means of mathematicall# measuring the sampling ris% that result from e4amining onl# a part of the data 3. $t eliminates the use of /udgment re@uired of 6ones ecause the A$C7A has esta lished numerical criteria for this t#pe of testing C. $t increases 6ones> %nowledge of the client>s prescri ed procedures and their limitations 5. $t is re@uired # generall# accepted auditing standards

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18. $n addition to evaluating the fre@uenc# of deviations in tests of controls+ an auditor should also consider certain @ualitative aspects of the deviations. The auditor most li%el# would give roader consideration to the implications of a deviation if it was A. The onl# deviation discovered in the sample 3. $dentical to a deviation discovered during the prior #ear>s audit C. Caused # an emplo#ee>s oversight 5. $nitiall# concealed # a forged document

1-. An underl#ing feature of random- ased selection of items is that each A. Stratum of the accounting population e given e@ual representation in the sample 3. $tem in the accounting population e randoml# ordered C. $tem in the accounting population should have an opportunit# to e selected 5. $tem must e s#stematicall# selected using replacement

"0. An auditor plans to e4amine a sample of "0 chec%s for countersignatures as prescri ed # the client>s internal control procedures. One of the chec%s in the chosen sample of "0 cannot e found. The auditor should consider the reasons for this limitation and A. =valuate the results as if the sample si)e had een 13. Treat the missing chec% as a deviation for the purpose of evaluating the sample C. Treat the missing chec% in the same manner as the ma/orit# of the other 1- chec%s 1i.e.+ countersigned or not2 5. Choose another chec% to replace the missing chec% in the sample

"1. An auditor is testing internal control procedures that are evidenced on an entit#>s vouchers. To select the vouchers for testing+ the auditor o tains random num ers etween the first and last voucher num er in the period. $f a random num er matches the num er of a voided voucher+ that voucher ordinaril# should e replaced # another voucher in the random sample if the voucher A. Constitutes a deviation 3. ;as een properl# voided C. Cannot e located 5. Aepresents an immaterial dollar amount

8-'

"". .hich of the following statements is correct concerning statistical sampling in compliance testing0 A. The population si)e has little or no effect on determining sample si)e e4cept for ver# small populations 3. The e4pected population deviation rate has little or no effect on determining sample si)e e4cept for ver# small populations C. As the population si)e dou les+ the sample si)e also should dou le 5. !or a given tolera le deviation rate+ a larger sample si)e should e selected as the e4pected population deviation rate decreases

"&. $n determining the sample si)e for a test of controls+ an auditor should consider the e4pected deviation rate+ desired confidence level+ and the A. Tolera le deviation rate 3. Ais% of incorrect acceptance C. Bature and cause of deviations 5. 7opulation si)e

"'. $n attri utes sampling+ a 108 change in which of the following factors normall# will have the least effect on the si)e of a statistical sample0 A. 7opulation si)e 3. Tolera le deviation rate C. =4pected population deviation rate 5. Standard deviation

"(. The computed upper deviation rate is A. The ma4imum rate of deviations that the auditor is willing to accept efore deciding not to rel# on the control 3. The rate of deviations that the auditor e4pects to occur in the population C. A point estimate of the population deviation rate 5. The sum of the sample deviation rate and an appropriate allowance for sampling ris%.

8-(

"*. $n attri utes sampling+ population si)e has little or no effect on sample si)e once the population e4ceeds appro4imatel# A. (00 3. (+000 C. 100+000 5. 1+000+000

",. A control is deemed to e more important than thought at the time that attri utes sampling parameters were set. The auditor is most li%el# to respond # A. 5ecreasing the ris% of assessing control ris% too high 3. $ncreasing population si)e C. 5ecreasing the tolera le deviation rate 5. 5ecreasing the e4pected deviation rate

"8. $f auditors conducting attri utes sampling found that the client deviated from a prescri ed control in nine of the first 10 items e4amined+ the auditor is most li%el# to A. $ncrease sample si)e 3. $ncrease the computed upper deviation rate C. 5ecrease the tolera le deviation rate 5. Stop the test and increase control ris%

"-. .hen testing automated $T controls+ the auditor is most li%el# to do all of the following e4cept A. =4amine the $T software 3. $ncrease sample si)e ecause the tolera le deviation rate tends to e higher for automated $T controls C. Test one or a few of each t#pe of transaction 5. Test general controls over s#stem and program changes

8-*

&0. $n which of the following cases would the auditor e most li%el# to conclude that all of the items in an account under consideration should e e4amined rather than tested on a sample asis0 A. Tolera le deviation is large and e4pected deviation is low 3. Tolera le deviation is small and e4pected deviation is high C. Tolera le deviation is large and e4pected deviation is high 5. Tolera le deviation is small and e4pected deviation is low

&1. .hich of the following factors does an auditor generall# need to consider in planning a particular audit sample for a test of controls0 A. Bum er of items in the population 3. Total dollar amount of the items to e sampled C. 5esired confidence level 5. Ais% of assessing control ris% too high

&". As a result of tests of controls+ an auditor incorrectl# assessed control ris% too low and decreased su stantive testing. This assessment occurred ecause the true deviation rate in the population was A. ?ore than the ris% of assessing control ris% too low ased on the auditor>s sample 3. ?ore than the deviation rate in the auditor>s sample C. :ess than the ris% of assessing control ris% too low ased on the auditor>s sample 5. :ess than the deviation rate in the auditor>s sample

&&. As a result of tests of controls+ an auditor over relied on internal control and decreased su stantive testing. This overreliance occurred ecause the true deviation rate in the population was A. :ess than the ris% of assessing control ris% too low on the auditor>s sample 3. :ess than the deviation rate in the auditor>s sample C. ?ore than the ris% of assessing control ris% too low on the auditor>s sample 5. ?ore than the deviation rate in the auditor>s sample

8-,

&'. $f the e4pected deviation rate e4ceeds the tolera le deviation rate+ the auditor is most li%el# to A. ;ave a large sample si)e 3. Set control ris% at the ma4imum without sampling C. Set control ris% at the minimum without sampling 5. 7ic% a lower ris% of assessing control ris% too low to increase sample si)e

&(. !or an attri utes sampling plan+ the tolera le deviation rate is '8+ the computed upper deviation rate is ,8+ the sample deviation rate is &8 and the desired confidence level is -(8. .hat is the allowance for sampling ris% included in the computed upper deviation rate0 A. "8 3. &8 C. '8 5. (8

&*. 3ased on a (8 ris% of assessing control ris% too low+ how would an auditor interpret a computed upper deviation rate of ,80 A. The auditor is willing to accept a deviation rate of ,8 efore deciding not to rel# on the control 3. There is a (8 chance that the deviation rate in the population is less than ,8 C. There is a (8 chance that the deviation rate in the population e4ceeds ,8 5. There is a -(8 chance that the deviation rate in the population e@uals ,8

&,. Auditors who prefer statistical to nonstatistical sampling elieve that the principal advantage of statistical sampling flows from its uni@ue a ilit# to A. 5efine the precision re@uired to provide audit satisfaction 3. ?athematicall# measure uncertaint# C. =sta lish conclusive audit evidence with decreased audit effort 5. 7romote a more legall# defensi le procedural approach

8-8

&8. .hich of the following est descri es the distinguishing feature of statistical sampling0 A. $t re@uires the e4amination of a smaller num er of supporting documents 3. $t provides a means for measuring mathematicall# the degree of uncertaint# that results from e4amining onl# part of a population C. $t reduces the pro lems associated with the auditor>s /udgment concerning materialit# 5. $t is evaluated in terms of two parameters: statistical mean and random selection

&-. Statistical sampling provides a techni@ue for A. =4actl# defining materialit# 3. Creatl# reducing the amount of su stantive testing C. =liminating /udgment in testing 5. ?easuring the sufficienc# of evidential matter

'0. Auditors who prefer statistical sampling to nonstatistical sampling ma# do so ecause statistical sampling helps the auditor A. ?easure the sufficienc# of the evidential matter o tained 3. =liminate su /ectivit# in the evaluation of sampling results C. Aeduce the level of tolera le misstatement to a relativel# low amount 5. ?inimi)e the failure to detect a material misstatement due to nonsampling ris%

'1. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods A. Afford greater assurance than a nonstatistical sample of e@ual si)e 3. 7rovide an o /ective asis for @uantitativel# evaluating sample ris%s C. Can more easil# convert the sample into a dual-purpose test useful for su stantive testing 5. =liminate the need to use /udgment in determining appropriate sample si)es

8--

'". An auditor who uses statistical sampling for attri utes in testing internal controls is most li%el# to reduce the planned reliance on a prescri ed control when the A. Sample deviation rate plus the allowance for sampling ris% e@uals the tolera le deviation rate 3. Sample deviation rate is less than the e4pected population deviation rate used in planning the sample C. Tolera le deviation rate less the allowance for sampling ris% e4ceeds the sample deviation rate 5. Sample deviation rate plus the allowance for sampling ris% e4ceeds the tolera le deviation rate

'&. $f the si)e of the sample to e used in a particular test of controls has not een determined # utili)ing statistical concepts+ ut the sample has een chosen in accordance with random selection procedures A. Bo inferences can e drawn from the sample 3. The auditor has committed a nonsampling error C. 5epending on the si)e of the sample chosen+ the auditor ma# actuall# achieve desired precision 5. The auditor will have to evaluate the results # reference to the principles of discover# sampling

''. .hen performing a test of controls with respect to control over cash receipts+ an auditor ma# use a s#stematic sampling techni@ue with a start at an# randoml# selected item. The iggest disadvantage of this t#pe of sampling is that the items in the population A. ?ust e s#stematicall# replaced in the population after sampling 3. ?a# s#stematicall# occur more than once in the sample C. ?ust e recorded in a s#stematic pattern efore the sample can e drawn 5. ?a# occur in a s#stematic pattern+ thus destro#ing the sample randomness

'(. !or attri utes sampling+ of the three factors that enter into sample si)e determination+ which two factors can the auditor ad/ust to reflect the importance of the control0 A. Tolera le deviation rate and confidence level 3. =4pected deviation rate and confidence level C. 7opulation si)e and tolera le deviation rate 5. Tolera le deviation rate and e4pected deviation rate

8-10

'*. .hich of the following com inations guarantees a larger sample si)e0 A. 5ecrease the desired confidence level and decrease the tolera le deviation rate 3. $ncrease the desired confidence level and decrease the tolera le deviation rate C. 5ecrease the desired confidence level and increase the e4pected deviation rate 5. $ncrease the tolera le deviation rate and increase the e4pected deviation rate

',. !or a large population of cash dis ursement transactions+ Smith+ C7A is testing controls # using attri ute sampling techni@ues. Anticipating an e4pected deviation rate of & percent+ Smith found from a ta le that the re@uired sample si)e is '00 with a tolera le deviation rate of ( percent and a desired confidence level of -( percent. $f Smith anticipated an e4pected deviation rate of onl# " percent ut wanted to maintain the same tolera le deviation rate and confidence level+ the sample si)e would e closest to A. "00 3. '00 C. (&& 5. 800

'8. $n non-statistical sampling for tests of controls+ increasing the desired confidence level results in a A. ;igher tolera le deviation rate 3. :ower e4pected deviation rate C. :arger sample si)e 5. Smaller sample si)e

'-. To determine the sample si)e for a test of controls+ an auditor should consider the tolera le deviation rate+ the desired confidence level+ and the A. =4pected population deviation rate. 3. Computed upper precision limit. C. Ais% of assessing control ris% too high. 5. Ais% of incorrect re/ection.

8-11

(0. .hich of the following statements is correct concerning statistical sampling in tests of controls0 A. As the population si)e increases+ the sample si)e should increase proportionatel# 3. 5eviations from specific internal control procedures at a given rate ordinaril# result in misstatements at a lower rate C. There is an inverse relationship etween the e4pected population deviation rate and the sample si)e 5. $n determining tolera le deviation rate+ an auditor considers detection ris% and the sample si)e

(1. !or an attri utes sampling plan+ the tolera le deviation rate is '8+ the computed upper deviation rate is ,8+ the sample deviation rate is &8+ and the ris% of assessing control ris% too low is (8. .hich of the following is true0 A. The auditor must increase control ris% ecause the ris% of assessing control ris% too low is greater than the tolera le deviation rate 3. The auditor is li%el# to increase control ris% ecause the ris% of assessing control ris% too low is greater than the tolera le deviation rate C. The auditor must increase control ris% ecause the computed upper deviation rate is greater than the tolera le deviation rate 5. The auditor is li%el# to increase control ris% ecause the computed upper deviation rate is greater than the tolera le deviation rate

(". .hich of the following ris%s is related to effectiveness of testing0 A. The ris% of incorrect re/ection. 3. $nherent ris%. C. The ris% of incorrect acceptance. 5. Bone of the a ove.

(&. .hich of the following ris%s is related to efficienc# of testing0 A. The ris% of incorrect re/ection. 3. $nherent ris%. C. The ris% of incorrect acceptance. 5. Bone of the a ove.

8-1"

('. The term precision relates to: A. The difference etween confidence level and estimated error. 3. The difference etween confidence level and tolera le error. C. The difference etween e4pected and tolera le deviation rate. 5. The difference etween e4pected and sample deviation rate.

((. Audit sampling is commonl# used for which t#pe of audit evidence: A. $n@uir#. 3. Anal#tical procedures. C. Aeperformance. 5. O servation.

(*. Audit sampling is not used for which t#pe of audit evidence: A. $n@uir#. 3. $nspection of tangi le assets. C. Aeperformance. 5. Aecalculation.

(,. .h# must an auditor use sampling0 .hat tradeoffs occur when an auditor uses sampling0

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(8. DTechnolog# has steadil# reduced the num er of situations in which audit sampling is necessar# and in the future technolog# will pro a l# eliminate the need for auditors to rel# on sampling.D 5efend or refute the preceding statement.

*1. .hen determining the sample si)e of accounts receiva le to test+ what are three factors that are important for #ou to consider0

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*". Eour manager+ Sall#+ elieves that nonstatistical sampling is the est method to use on the audit of EaEa Corporation. Eou+ however+ elieve that statistical sampling is # far the est method. $n addition+ #ou have a great deal of training in the proper use of sampling techni@ues. 7repare an argument to convince Sall# wh# statistical sampling should e used.

*&. $ndicate which of the following audit procedures+ used as tests of controls+ do not involve audit sampling. 1. O serving and evaluating segregation of duties. ". Testing of whether sales invoices are supported # authori)ed customer orders and shipping documents. &. Aeviewing client>s procedures for accounting for the numerical se@uence of shipping documents. '. =4amining sales orders for proper credit approval. (. Aecomputing the information on copies of sales invoices. *. Comparing the average da#s outstanding in accounts receiva le with industr# averages.

*'. !or a particular audit+ the sample si)e for testing controls over the revenue c#cle is relativel# large. .hat can #ou infer a out the desired confidence level+ the tolera le deviation rate+ and the e4pected population deviation rate0

8-1(

*(. 3efore performing sampling procedures in an audit of controls+ Sue set the tolera le deviation rate at '.08. After the procedures+ she computes a computed upper deviation rate of (.'8. .hat can Sue conclude a out the client>s controls0

**. Eour uncle 3o + a C7A+ has recentl# started auditing and he wants #our advice on some tests of sales transactions he is conducting. 3o selected a hapha)ard sample of 1( sales with a total oo% value of F,(+000. $n his sample+ he found a total of F(00 in net overstatement errors. The total sales alance per oo%s is F10+000+000. Overall materialit# for the engagement is F&00+000. Tolera le misstatement for sales is F,0+000. $f the sample results indicate that 3o >s est estimate of total misstatement in sales is F&(+000+ could 3o safel# conclude that no additional wor% is needed in this area0 $nclude in #our answer a clear discussion of how sample results are compared to tolera le misstatement.

*,. $dentif# the t#pes of audit evidence that are tested using audit sampling techni@ues.

8-1*

Chapter 08 Audit Sampling: An Overview and Application to Tests of Controls Answer Ge#

1. Auditing standards permit oth statistical and nonstatistical methods of audit sampling. T!"#

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: )

AACSB: Comm"nications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: *

AACSB: Comm"nications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: *

8-1,

AACSB: Comm"nications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Com+rehension i!!ic"lty: #asy $earning %&'ecti(e: *

(. Confidence level and sampling ris% are related to sample si)e. T!"#

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: #asy $earning %&'ecti(e: *

*. The larger the sample+ the lower the confidence level and the lower the sampling ris%. FA$S#

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: #asy $earning %&'ecti(e: *

AACSB: Analytic AICPA BB: Ind"stry AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: *

8-18

AACSB: Analytic AICPA BB: Ind"stry AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: *

-. Attri ute sampling is used to estimate the proportion of a population that possesses a specified characteristic. T!"#

AACSB: Analytic AICPA BB: Ind"stry AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: ,

10. .ith a nonstatistical sampling application+ the auditor relies on professional /udgment rather than the laws of pro a ilit# to reach a conclusion a out the audit test. T!"#

AACSB: Analytic AICPA BB: Ind"stry AICPA FN: Risk Analysis Bloom's: Com+rehension i!!ic"lty: #asy $earning %&'ecti(e: , $earning %&'ecti(e: -

8-1-

11. .hich of the following est illustrates the concept of sampling ris%0 A% A randoml# chosen sample ma# not e representative of the population as a whole 1regarding the characteristic eing tested2. 3. An auditor ma# select audit procedures that are not appropriate to achieve the specific o /ective. C. An auditor ma# fail to recogni)e errors in the documents e4amined for the chosen sample. 5. The documents related to the chosen sample ma# not e availa le for inspection.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Com+rehension i!!ic"lty: #asy $earning %&'ecti(e: *

1". 6ones+ C7A+ elieves the industr#-wide deviation rate of client illing errors is &8 and has esta lished a tolera le deviation rate of (8. $n the review of client invoices 6ones should use A. 5iscover# sampling &% Attri utes sampling C. Stratified sampling 5. 9aria les sampling

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: ecision .aking Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: / $earning %&'ecti(e: ,

1&. The tolera le deviation rate for a test of controls is generall# A. :ower than the e4pected rate of deviations in the related accounting records &% ;igher than the e4pected rate of deviations in the related accounting records C. $dentical to the e4pected rate of deviations in the related accounting records 5. <nrelated to the e4pected rate of deviations in the related accounting records

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: #asy $earning %&'ecti(e: / $earning %&'ecti(e: 0

8-"0

1'. The ris% of incorrect acceptance relates to the A% =ffectiveness of the audit 3. =fficienc# of the audit C. 7reliminar# estimates of materialit# levels 5. Tolera le misstatement

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: *

1(. The li%elihood of assessing control ris% too high is the ris% that the sample selected to test controls A% 5oes not support the auditor>s planned assessed level of control ris% when the true operating effectiveness of internal control /ustifies such an assessment 3. Contains misstatements that could e material to the financial statements when aggregated with misstatements in other account alances or transactions classes C. Contains proportionatel# fewer deviations from prescri ed internal controls than e4ist in the alance or class as a whole 5. 5oes not support the tolera le misstatement for some or all of management>s assertions

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Com+rehension i!!ic"lty: #asy $earning %&'ecti(e: *

1*. !or which of the following audit tests would an auditor most li%el# use attri utes sampling0 A. ?a%ing an independent estimate of the amount of :$!O inventor# 3. =4amining invoices in support of the valuation of fi4ed asset additions C. Selecting accounts receiva le alances for confirmation '% $nspecting emplo#ee time cards for proper approval # supervisors

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: ecision .aking Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: ,

8-"1

1,. ;arve# 6ones+ C7A+ uses statistical sampling to test control procedures. .hat is a enefit of using statistical sampling0 A% $t provides a means of mathematicall# measuring the sampling ris% that result from e4amining onl# a part of the data 3. $t eliminates the use of /udgment re@uired of 6ones ecause the A$C7A has esta lished numerical criteria for this t#pe of testing C. $t increases 6ones> %nowledge of the client>s prescri ed procedures and their limitations 5. $t is re@uired # generall# accepted auditing standards

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: ecision .aking Bloom's: Com+rehension i!!ic"lty: #asy $earning %&'ecti(e: , $earning %&'ecti(e: 1

18. $n addition to evaluating the fre@uenc# of deviations in tests of controls+ an auditor should also consider certain @ualitative aspects of the deviations. The auditor most li%el# would give roader consideration to the implications of a deviation if it was A. The onl# deviation discovered in the sample 3. $dentical to a deviation discovered during the prior #ear>s audit C. Caused # an emplo#ee>s oversight '% $nitiall# concealed # a forged document

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: #asy $earning %&'ecti(e: 0

8-""

1-. An underl#ing feature of random- ased selection of items is that each A. Stratum of the accounting population e given e@ual representation in the sample 3. $tem in the accounting population e randoml# ordered C% $tem in the accounting population should have an opportunit# to e selected 5. $tem must e s#stematicall# selected using replacement

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: 0

"0. An auditor plans to e4amine a sample of "0 chec%s for countersignatures as prescri ed # the client>s internal control procedures. One of the chec%s in the chosen sample of "0 cannot e found. The auditor should consider the reasons for this limitation and A. =valuate the results as if the sample si)e had een 1&% Treat the missing chec% as a deviation for the purpose of evaluating the sample C. Treat the missing chec% in the same manner as the ma/orit# of the other 1- chec%s 1i.e.+ countersigned or not2 5. Choose another chec% to replace the missing chec% in the sample

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: 0

8-"&

"1. An auditor is testing internal control procedures that are evidenced on an entit#>s vouchers. To select the vouchers for testing+ the auditor o tains random num ers etween the first and last voucher num er in the period. $f a random num er matches the num er of a voided voucher+ that voucher ordinaril# should e replaced # another voucher in the random sample if the voucher A. Constitutes a deviation &% ;as een properl# voided C. Cannot e located 5. Aepresents an immaterial dollar amount

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: 0

"". .hich of the following statements is correct concerning statistical sampling in compliance testing0 A% The population si)e has little or no effect on determining sample si)e e4cept for ver# small populations 3. The e4pected population deviation rate has little or no effect on determining sample si)e e4cept for ver# small populations C. As the population si)e dou les+ the sample si)e also should dou le 5. !or a given tolera le deviation rate+ a larger sample si)e should e selected as the e4pected population deviation rate decreases

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: 0

8-"'

"&. $n determining the sample si)e for a test of controls+ an auditor should consider the e4pected deviation rate+ desired confidence level+ and the A% Tolera le deviation rate 3. Ais% of incorrect acceptance C. Bature and cause of deviations 5. 7opulation si)e

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: 0

"'. $n attri utes sampling+ a 108 change in which of the following factors normall# will have the least effect on the si)e of a statistical sample0 A% 7opulation si)e 3. Tolera le deviation rate C. =4pected population deviation rate 5. Standard deviation

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: 0

"(. The computed upper deviation rate is A. The ma4imum rate of deviations that the auditor is willing to accept efore deciding not to rel# on the control 3. The rate of deviations that the auditor e4pects to occur in the population C. A point estimate of the population deviation rate '% The sum of the sample deviation rate and an appropriate allowance for sampling ris%.

8-"(

"*. $n attri utes sampling+ population si)e has little or no effect on sample si)e once the population e4ceeds appro4imatel# A% (00 3. (+000 C. 100+000 5. 1+000+000

",. A control is deemed to e more important than thought at the time that attri utes sampling parameters were set. The auditor is most li%el# to respond # A. 5ecreasing the ris% of assessing control ris% too high 3. $ncreasing population si)e C% 5ecreasing the tolera le deviation rate 5. 5ecreasing the e4pected deviation rate

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: #asy $earning %&'ecti(e: 0

"8. $f auditors conducting attri utes sampling found that the client deviated from a prescri ed control in nine of the first 10 items e4amined+ the auditor is most li%el# to A. $ncrease sample si)e 3. $ncrease the computed upper deviation rate C. 5ecrease the tolera le deviation rate '% Stop the test and increase control ris%

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: 0 $earning %&'ecti(e: 2

8-"*

"-. .hen testing automated $T controls+ the auditor is most li%el# to do all of the following e4cept A. =4amine the $T software &% $ncrease sample si)e ecause the tolera le deviation rate tends to e higher for automated $T controls C. Test one or a few of each t#pe of transaction 5. Test general controls over s#stem and program changes

AACSB: Technology AICPA BB: $e(eraging Technology AICPA FN: $e(eraging Technology Bloom's: A++lication i!!ic"lty: .oderate $earning %&'ecti(e: /

&0. $n which of the following cases would the auditor e most li%el# to conclude that all of the items in an account under consideration should e e4amined rather than tested on a sample asis0 A. Tolera le deviation is large and e4pected deviation is low &% Tolera le deviation is small and e4pected deviation is high C. Tolera le deviation is large and e4pected deviation is high 5. Tolera le deviation is small and e4pected deviation is low

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: 0

&1. .hich of the following factors does an auditor generall# need to consider in planning a particular audit sample for a test of controls0 A. Bum er of items in the population 3. Total dollar amount of the items to e sampled C% 5esired confidence level 5. Ais% of assessing control ris% too high

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: .oderate $earning %&'ecti(e: *

8-",

&". As a result of tests of controls+ an auditor incorrectl# assessed control ris% too low and decreased su stantive testing. This assessment occurred ecause the true deviation rate in the population was A. ?ore than the ris% of assessing control ris% too low ased on the auditor>s sample &% ?ore than the deviation rate in the auditor>s sample C. :ess than the ris% of assessing control ris% too low ased on the auditor>s sample 5. :ess than the deviation rate in the auditor>s sample

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: *

&&. As a result of tests of controls+ an auditor over relied on internal control and decreased su stantive testing. This overreliance occurred ecause the true deviation rate in the population was A. :ess than the ris% of assessing control ris% too low on the auditor>s sample 3. :ess than the deviation rate in the auditor>s sample C. ?ore than the ris% of assessing control ris% too low on the auditor>s sample '% ?ore than the deviation rate in the auditor>s sample

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: *

8-"8

&'. $f the e4pected deviation rate e4ceeds the tolera le deviation rate+ the auditor is most li%el# to A. ;ave a large sample si)e &% Set control ris% at the ma4imum without sampling C. Set control ris% at the minimum without sampling 5. 7ic% a lower ris% of assessing control ris% too low to increase sample si)e

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: / $earning %&'ecti(e: 0

&(. !or an attri utes sampling plan+ the tolera le deviation rate is '8+ the computed upper deviation rate is ,8+ the sample deviation rate is &8 and the desired confidence level is -(8. .hat is the allowance for sampling ris% included in the computed upper deviation rate0 A. "8 3. &8 C% '8 5. (8

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: .oderate $earning %&'ecti(e: / $earning %&'ecti(e: 0 $earning %&'ecti(e: 2

8-"-

&*. 3ased on a (8 ris% of assessing control ris% too low+ how would an auditor interpret a computed upper deviation rate of ,80 A. The auditor is willing to accept a deviation rate of ,8 efore deciding not to rel# on the control 3. There is a (8 chance that the deviation rate in the population is less than ,8 C% There is a (8 chance that the deviation rate in the population e4ceeds ,8 5. There is a -(8 chance that the deviation rate in the population e@uals ,8

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: .oderate $earning %&'ecti(e: / $earning %&'ecti(e: 0 $earning %&'ecti(e: 2

&,. Auditors who prefer statistical to nonstatistical sampling elieve that the principal advantage of statistical sampling flows from its uni@ue a ilit# to A. 5efine the precision re@uired to provide audit satisfaction &% ?athematicall# measure uncertaint# C. =sta lish conclusive audit evidence with decreased audit effort 5. 7romote a more legall# defensi le procedural approach

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: .eas"rement Bloom's: Com+rehension i!!ic"lty: .oderate $earning %&'ecti(e: ,

&8. .hich of the following est descri es the distinguishing feature of statistical sampling0 A. $t re@uires the e4amination of a smaller num er of supporting documents &% $t provides a means for measuring mathematicall# the degree of uncertaint# that results from e4amining onl# part of a population C. $t reduces the pro lems associated with the auditor>s /udgment concerning materialit# 5. $t is evaluated in terms of two parameters: statistical mean and random selection

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: .eas"rement Bloom's: Knowledge i!!ic"lty: .oderate $earning %&'ecti(e: ,

8-&0

&-. Statistical sampling provides a techni@ue for A. =4actl# defining materialit# 3. Creatl# reducing the amount of su stantive testing C. =liminating /udgment in testing '% ?easuring the sufficienc# of evidential matter

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: .eas"rement Bloom's: Com+rehension i!!ic"lty: .oderate $earning %&'ecti(e: ,

'0. Auditors who prefer statistical sampling to nonstatistical sampling ma# do so ecause statistical sampling helps the auditor A% ?easure the sufficienc# of the evidential matter o tained 3. =liminate su /ectivit# in the evaluation of sampling results C. Aeduce the level of tolera le misstatement to a relativel# low amount 5. ?inimi)e the failure to detect a material misstatement due to nonsampling ris%

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: .eas"rement Bloom's: Com+rehension i!!ic"lty: .oderate $earning %&'ecti(e: ,

'1. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods A. Afford greater assurance than a nonstatistical sample of e@ual si)e &% 7rovide an o /ective asis for @uantitativel# evaluating sample ris%s C. Can more easil# convert the sample into a dual-purpose test useful for su stantive testing 5. =liminate the need to use /udgment in determining appropriate sample si)es

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Com+rehension i!!ic"lty: .oderate $earning %&'ecti(e: ,

8-&1

'". An auditor who uses statistical sampling for attri utes in testing internal controls is most li%el# to reduce the planned reliance on a prescri ed control when the A. Sample deviation rate plus the allowance for sampling ris% e@uals the tolera le deviation rate 3. Sample deviation rate is less than the e4pected population deviation rate used in planning the sample C. Tolera le deviation rate less the allowance for sampling ris% e4ceeds the sample deviation rate '% Sample deviation rate plus the allowance for sampling ris% e4ceeds the tolera le deviation rate

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: , $earning %&'ecti(e: 0

'&. $f the si)e of the sample to e used in a particular test of controls has not een determined # utili)ing statistical concepts+ ut the sample has een chosen in accordance with random selection procedures A. Bo inferences can e drawn from the sample 3. The auditor has committed a nonsampling error C% 5epending on the si)e of the sample chosen+ the auditor ma# actuall# achieve desired precision 5. The auditor will have to evaluate the results # reference to the principles of discover# sampling

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: 3ard $earning %&'ecti(e: , $earning %&'ecti(e: 0

8-&"

''. .hen performing a test of controls with respect to control over cash receipts+ an auditor ma# use a s#stematic sampling techni@ue with a start at an# randoml# selected item. The iggest disadvantage of this t#pe of sampling is that the items in the population A. ?ust e s#stematicall# replaced in the population after sampling 3. ?a# s#stematicall# occur more than once in the sample C. ?ust e recorded in a s#stematic pattern efore the sample can e drawn '% ?a# occur in a s#stematic pattern+ thus destro#ing the sample randomness

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Com+rehension i!!ic"lty: .oderate $earning %&'ecti(e: 0

'(. !or attri utes sampling+ of the three factors that enter into sample si)e determination+ which two factors can the auditor ad/ust to reflect the importance of the control0 A% Tolera le deviation rate and confidence level 3. =4pected deviation rate and confidence level C. 7opulation si)e and tolera le deviation rate 5. Tolera le deviation rate and e4pected deviation rate

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: 0

'*. .hich of the following com inations guarantees a larger sample si)e0 A. 5ecrease the desired confidence level and decrease the tolera le deviation rate &% $ncrease the desired confidence level and decrease the tolera le deviation rate C. 5ecrease the desired confidence level and increase the e4pected deviation rate 5. $ncrease the tolera le deviation rate and increase the e4pected deviation rate

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: 0

8-&&

',. !or a large population of cash dis ursement transactions+ Smith+ C7A is testing controls # using attri ute sampling techni@ues. Anticipating an e4pected deviation rate of & percent+ Smith found from a ta le that the re@uired sample si)e is '00 with a tolera le deviation rate of ( percent and a desired confidence level of -( percent. $f Smith anticipated an e4pected deviation rate of onl# " percent ut wanted to maintain the same tolera le deviation rate and confidence level+ the sample si)e would e closest to A% "00 3. '00 C. (&& 5. 800

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: .oderate $earning %&'ecti(e: 0 $earning %&'ecti(e: 2

'8. $n non-statistical sampling for tests of controls+ increasing the desired confidence level results in a A. ;igher tolera le deviation rate 3. :ower e4pected deviation rate C% :arger sample si)e 5. Smaller sample si)e

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: .oderate $earning %&'ecti(e: -

8-&'

'-. To determine the sample si)e for a test of controls+ an auditor should consider the tolera le deviation rate+ the desired confidence level+ and the A% =4pected population deviation rate. 3. Computed upper precision limit. C. Ais% of assessing control ris% too high. 5. Ais% of incorrect re/ection.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: .oderate $earning %&'ecti(e: / $earning %&'ecti(e: 0

(0. .hich of the following statements is correct concerning statistical sampling in tests of controls0 A. As the population si)e increases+ the sample si)e should increase proportionatel# &% 5eviations from specific internal control procedures at a given rate ordinaril# result in misstatements at a lower rate C. There is an inverse relationship etween the e4pected population deviation rate and the sample si)e 5. $n determining tolera le deviation rate+ an auditor considers detection ris% and the sample si)e

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: 3ard $earning %&'ecti(e: / $earning %&'ecti(e: 0

8-&(

(1. !or an attri utes sampling plan+ the tolera le deviation rate is '8+ the computed upper deviation rate is ,8+ the sample deviation rate is &8+ and the ris% of assessing control ris% too low is (8. .hich of the following is true0 A. The auditor must increase control ris% ecause the ris% of assessing control ris% too low is greater than the tolera le deviation rate 3. The auditor is li%el# to increase control ris% ecause the ris% of assessing control ris% too low is greater than the tolera le deviation rate C. The auditor must increase control ris% ecause the computed upper deviation rate is greater than the tolera le deviation rate '% The auditor is li%el# to increase control ris% ecause the computed upper deviation rate is greater than the tolera le deviation rate

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: 3ard $earning %&'ecti(e: 0 $earning %&'ecti(e: 2

(". .hich of the following ris%s is related to effectiveness of testing0 A. The ris% of incorrect re/ection. 3. $nherent ris%. C% The ris% of incorrect acceptance. 5. Bone of the a ove.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: *

8-&*

(&. .hich of the following ris%s is related to efficienc# of testing0 A% The ris% of incorrect re/ection. 3. $nherent ris%. C. The ris% of incorrect acceptance. 5. Bone of the a ove.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: *

('. The term precision relates to: A. The difference etween confidence level and estimated error. 3. The difference etween confidence level and tolera le error. C% The difference etween e4pected and tolera le deviation rate. 5. The difference etween e4pected and sample deviation rate.

AACSB: Comm"nications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: *

((. Audit sampling is commonl# used for which t#pe of audit evidence: A% $n@uir#. 3. Anal#tical procedures. C. Aeperformance. 5. O servation.

AACSB: Comm"nications AICPA BB: Ind"stry AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: /

8-&,

(*. Audit sampling is not used for which t#pe of audit evidence: A% $n@uir#. 3. $nspection of tangi le assets. C. Aeperformance. 5. Aecalculation.

AACSB: Comm"nications AICPA BB: Ind"stry AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: /

(,. .h# must an auditor use sampling0 .hat tradeoffs occur when an auditor uses sampling0 An auditor must use sampling ecause to e4amine ever# accounting record and all the supporting documentation would ta%e too much time and mone#. An audit of a large compan# without sampling would not e possi le. As a result of sampling+ the auditor can onl# provide a reasona le+ not an a solute+ assurance that the financial statements are fairl# presented. !urther+ the mar%et would not pa# for the minor incremental assurance that came from e4amining all transactions and records.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: ecision .aking Bloom's: Com+rehension i!!ic"lty: #asy $earning %&'ecti(e: )

8-&8

(8. DTechnolog# has steadil# reduced the num er of situations in which audit sampling is necessar# and in the future technolog# will pro a l# eliminate the need for auditors to rel# on sampling.D 5efend or refute the preceding statement. Technolog# will not li%el# eliminate the need for auditors to rel# on sampling to some degree ecause 112 man# control processes re@uire human involvement to operate effectivel#+ 1"2 man# testing procedures re@uire the auditor to ph#sicall# e4amine certain items 1such as tangi le assets2+ and 1&2 in man# cases auditors are re@uired to o tain and e4amine evidence from third parties. $n a large population+ these situations all re@uire oth sampling and an auditor>s Dhands-onD attention.

AACSB: Technology AICPA BB: $e(eraging Technology AICPA FN: $e(eraging Technology Bloom's: Synthesis i!!ic"lty: .oderate $earning %&'ecti(e: )

(-. 5efine T#pe $ and T#pe $$ errors. A T#pe $ error is e@uivalent to incorrectl# re/ecting a population. $n terms of an audit+ this means that the sample supports a conclusion that an effective control is not operating effectivel# or an account is materiall# misstated when in fact it is not. $n terms of internal control+ this ris% is referred to as the ris% of underreliance or the ris% of assessing the control ris% too high. This error relates to the efficienc# of the audit. A T#pe $$ error is a ris% of incorrect acceptance. $n terms of an audit+ this means that the sample supports a conclusion that an ineffective control is operating effectivel# or an account is not materiall# misstated when in fact it is not. $n terms of internal control+ this ris% is referred to as the ris% of overreliance or the ris% of assessing the control ris% too low. This error relates to the effectiveness of the audit.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: /

8-&-

*0. 5efine sampling ris% and nonsampling ris%. Sampling ris% refers to the possi ilit# that the sample drawn is not representative of the population and that+ as a result+ the auditor will reach an incorrect conclusion a out the account alance or class of transactions ased on the sample. Bonsampling ris% is the ris% of auditor error and arises from the possi ilit# that the auditor ma# sample the wrong population to test an assertion+ fail to detect a misstatement when appl#ing an audit procedure or misinterpret an audit result. The uncertaint# related to nonsampling ris% can e controlled # ade@uate training+ proper planning+ and effective supervision.

*1. .hen determining the sample si)e of accounts receiva le to test+ what are three factors that are important for #ou to consider0 Three important inputs to determine sample si)e are 112 desired level of assurance in the results 1or confidence level2+ 1"2 accepta le defect rate 1or tolera le error2+ and 1&2 historical defect rate 1or estimated error2.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: A++lication i!!ic"lty: #asy $earning %&'ecti(e: *

8-'0

*". Eour manager+ Sall#+ elieves that nonstatistical sampling is the est method to use on the audit of EaEa Corporation. Eou+ however+ elieve that statistical sampling is # far the est method. $n addition+ #ou have a great deal of training in the proper use of sampling techni@ues. 7repare an argument to convince Sall# wh# statistical sampling should e used. Statistical sampling permits the auditor to use the most efficient sample si)e and to @uantif# the sampling ris% for the purpose of reaching a statistical conclusion a out the population. The ma/or advantages of statistical sampling versus nonstatistical sampling are that it helps the auditor 112 design an efficient sample+ 1"2 measure the sufficienc# of evidence o tained+ and 1&2 @uantif# sampling ris%2. 5isadvantages include the additional costs of 112 training auditors in the proper use of sampling techni@ues+ 1"2 designing and conducting the sampling application+ and 1&2 lac% of consistent application across audit teams due to the comple4it# of the underl#ing concepts. !ortunatel#+ this audit includes an auditor with training in statistical sampling+ which will reduce these disadvantageous costs. Bonstatistical sampling ma# result in testing that is not as effective as statistical sampling due to a lac% of %nowledge of statistical principles and theor#.

AACSB: Comm"nications AICPA BB: Critical Thinking AICPA FN: .eas"rement Bloom's: A++lication i!!ic"lty: .oderate $earning %&'ecti(e: ,

8-'1

*&. $ndicate which of the following audit procedures+ used as tests of controls+ do not involve audit sampling. 1. O serving and evaluating segregation of duties. ". Testing of whether sales invoices are supported # authori)ed customer orders and shipping documents. &. Aeviewing client>s procedures for accounting for the numerical se@uence of shipping documents. '. =4amining sales orders for proper credit approval. (. Aecomputing the information on copies of sales invoices. *. Comparing the average da#s outstanding in accounts receiva le with industr# averages. 1. 5oes not involve sampling. ". $nvolves sampling. &. 5oes not involve sampling. '. $nvolves sampling. (. $nvolves sampling. *. 5oes not involve sampling.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: ecision .aking Bloom's: A++lication i!!ic"lty: .oderate $earning %&'ecti(e: *

*'. !or a particular audit+ the sample si)e for testing controls over the revenue c#cle is relativel# large. .hat can #ou infer a out the desired confidence level+ the tolera le deviation rate+ and the e4pected population deviation rate0 There is a direct relationship etween the confidence level and sample si)e. Therefore+ one can infer from a large sample si)e that the auditor would li%e a higher confidence level. The tolera le deviation rate+ on the other hand is inversel# related to the sample si)e. Therefore+ the tolera le deviation rate must have een relativel# low. The e4pected population deviation rate has a direct relationship to sample si)e+ so there must e a larger e4pected population deviation rate.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Analysis i!!ic"lty: #asy $earning %&'ecti(e: 0

8-'"

*(. 3efore performing sampling procedures in an audit of controls+ Sue set the tolera le deviation rate at '.08. After the procedures+ she computes a computed upper deviation rate of (.'8. .hat can Sue conclude a out the client>s controls0 Sue must conclude that the controls are not operating at an accepta le level+ ecause the computed upper deviation rate e4ceeds the tolera le deviation rate.

**. Eour uncle 3o + a C7A+ has recentl# started auditing and he wants #our advice on some tests of sales transactions he is conducting. 3o selected a hapha)ard sample of 1( sales with a total oo% value of F,(+000. $n his sample+ he found a total of F(00 in net overstatement errors. The total sales alance per oo%s is F10+000+000. Overall materialit# for the engagement is F&00+000. Tolera le misstatement for sales is F,0+000. $f the sample results indicate that 3o >s est estimate of total misstatement in sales is F&(+000+ could 3o safel# conclude that no additional wor% is needed in this area0 $nclude in #our answer a clear discussion of how sample results are compared to tolera le misstatement. Bo+ 3o cannot safel# conclude that no additional wor% is needed. 3o has not considered sampling ris%. ;is est estimate is a pro/ected misstatement to the population. ;e has onl# sampled 1( transactions which amounted to less than 18 of the alance. 3ecause this is a relativel# small sample+ the ris% that the sample is not representative of the population is significant. $f the true misstatement rate in the remainder of the population is higher+ total misstatement could easil# e4ceed tolera le misstatement. The approach that should e ta%en is to pro/ect the misstatement 1that is+ calculate the est estimate of total misstatement in the population2 and incorporate an amount in consideration of sampling ris%. There is an inverse relationship etween sample si)e and sampling ris%. .ithout statistical methods+ /udgments a out sampling ris% are difficult to ma%e. Thus+ sampling ris% must e considered.

AACSB: Comm"nications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Bloom's: Synthesis i!!ic"lty: .oderate $earning %&'ecti(e: *

8-'&

*,. $dentif# the t#pes of audit evidence that are tested using audit sampling techni@ues. Some audit procedures involve sampling+ while others do not. The following t#pes of audit evidence can e tested using audit sampling techni@ues: 1. $nspection of tangi le assets ". $nspection of records or documents &. Aeperformance '. Aecalculation (. Confirmation

AACSB: Comm"nications AICPA BB: Ind"stry AICPA FN: Risk Analysis Bloom's: Knowledge i!!ic"lty: #asy $earning %&'ecti(e: /

8-''

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