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Audit Sampling

1. Which of the following statements is correct concerning statistical sampling for


control testing?
a. The expected population occurrence rate has little or no effect on determining
sample size except for very small populations.
b. As the population size doubles, the sample size also should double.
c. The population size has little or no effect on determining sample size except
for very small populations.
d. For a given tolerable rate, a larger sample size should be selected as the
expected population deviation rate decreases.

2. An auditor wishes to determine if the error rate on travel reimbursement claims


is within the five-percent tolerance level set by management. What sampling plan
should the auditor use?
a. Variables sampling.
b. Judgment sampling.
c. Attribute sampling
d. Probability Proportional to Size sampling.

3. An important difference between a statistical sample and a non-statistical


(judgmental) sample is that with a statistical sample:
a. No judgment is required, everything is by formula.
b. A smaller sample size can be used.
c. Population estimates with measurable reliability can be made.
d. More accurate results are obtained.

4. Which of the following sampling plans would be designed to estimate a numerical


measurement of a population, such as a peso value?
a. Numerical sampling.
b. Sampling for variables.
c. Discovery sampling.
d. Sampling for attributes

5. Which of the following statements is correct concerning the auditor's use of


statistical sampling?
a. An assumption of PPS sampling is that the underlying accounting population is
normally distributed.
b. An auditor needs to estimate the peso amount of the standard deviation of the
population to use classical variables sampling.
c. A classical variables sample needs to be designed with special considerations
to include negative balances in the sample.
d. The selection of zero balances usually does not require special sample design
considerations when using PPS sampling.

6. In order to quantify the risk that sample evidence leads to erroneous conclusions
about the sampled population
a. Each item in the sampled population must have an equal chance of being
selected.
b. Each item in the sampled population must have a chance of being selected
proportional to its book value.
c. The precise number of items in the population must be known.
d. Each item in the sampled population must have an equal or known probability of
being selected.
7. Which of the following statements is not true regarding audit risk assessment?
a. The auditor studies the business and industry and applies analytical
procedures as a basis for assessing inherent risk.
b. When control risk and inherent risk are high, the auditor increases detection
risk to maintain overall audit risk at the desired level.
c. The auditor studies and evaluates internal control policies and procedures for
assessing control risk.
d. The auditor designs substantive audit procedures to reduce detection risk to
an acceptable level.

8. Which of the following factors does an auditor generally need to consider in


planning a particular audit sample for a control test?
a. Number of items in the population.
b. Total dollar amount of the items to be sampled.
c. Tolerable error.
d. Estimated standard deviation of the population.

9. Random numbers can be used to select a sample only when each item in the
population:
a. Can be assigned to a specific stratum.
b. Is independent of outside influence.
c. Can be identified with a unique number.
d. Is expected to be within plus or minus three standard deviations of the
population mean.

10. The tolerable occurrence rate for a control test is generally


a. Lower than the expected occurrence rate in the related accounting records.
b. Identical to the expected occurrence rate in the related accounting records.
c. Higher than the expected occurrence rate in the related accounting records.
d. Unrelated to the expected occurrence rate in the related accounting records.

11. An advantage of statistical over non-statistical sampling is that statistical


sampling:
a. Permits use of a smaller sample size than would be necessary with non-
statistical sampling.
b. Is compatible with a wider variety of sample selection methods than is non-
statistical sampling.
c. Allows auditors to inject their subjective judgment in determining sample size
and selection process in order to audit items of greatest value and highest
risk.
d. Enables auditors to objectively measure the reliability of their sample
results.

12. Of the following statements, which one best differentiates statistical sampling
from non-statistical sampling?
a. Non-statistical sampling has greater applicability to large populations than
statistical sampling.
b. Statistical sampling is a mathematical approach to inference, whereas non-
statistical sampling is a more subjective approach.
c. Non-statistical sampling is more subjective, but produces greater consistency
in the application of audit judgment.
d. Nonstatistical sampling has greater applicability to populations that lend
themselves to random selection.
13. Attribute sampling, as applied to control testing, can assist the auditor in
several ways. Which of the following tasks is not enhanced by sampling?
a. Examining the documents.
b. Determining the number of documents to examine in testing for a specific
attribute.
c. Selecting the documents to be tested.
d. Evaluating the sample results.

14. Which of the following is an element of sampling risk?


a. Choosing an audit procedure that is inconsistent with the audit objective.
b. Failing to detect an error on a document that has been inspected by the
auditor.
c. Choosing a sample size that is too small to achieve the sampling objective.
d. Failing to perform audit procedures that are required by the sampling plan.

15. Which of the following would not be an attribute of interest to an auditor


performing control tests?
a. Do selling prices agree with published price lists?
b. Are proper labor rates being used to compute payroll?
c. Do purchased parts meet established quality standards?
d. Are account distributions (debits and credits) correct?

16. The precision limit for control testing necessary to justify lowering the
assessed control risk level depends primarily on which of the following?
a. The cause of the errors.
b. The amount of any substantive errors.
c. The materiality of the attribute(s) to be tested.
d. The limit used in audits of similar clients.

17. Which of the following statements concerning sample size is true?


a. An increase in the tolerable occurrence rate, other factors remaining
unchanged, increases sample size.
b. The more critical the attribute being tested, the higher will be the tolerable
occurrence rate set by the auditor, and the larger will be the sample size.
c. The higher the expected occurrence rate, other factors remaining unchanged,
the larger will be the sample size.
d. The lower the acceptable risk of underassessment of control risk, the smaller
will be the sample size.

18. In the examination of the financial statements of Delta Company, the auditor
determines that in performing a test of internal control effectiveness, the rate
of error in the sample does not support the auditor's preconceived notion of a
tolerable occurrence rate when, in fact, the actual error rate in the population
does meet the auditor's notion of effectiveness. This situation illustrates the
risk of
a. Underassessment of control risk.
b. Incorrect rejection.
c. Overassessment of control risk.
d. Incorrect acceptance.

19. If all other factors in a sampling plan are held constant, changing the risk of
underassessment from five percent to three percent would cause the sample size to
be:
a. Smaller.
b. Unchanged.
c. Larger.
d. Indeterminate.

20. In a variables sampling application, which of the following will result when the
confidence level is changed from 90% to 95%?
a. Standard error of the mean will not be affected.
b. Non-sampling error will decrease.
c. Sample size will increase.
d. Point estimate of the arithmetic mean will increase.

21. An auditor wishes to estimate inventory shrinkage by weighing a sample of


inventory items. From past experience, the auditor knows that a few specific
items are subject to unusually large amounts of shrinkage. In using statistical
sampling, the auditor's best course of action is to
a. Eliminate any of the items known to be subject to unusually large amounts of
shrinkage.
b. Increase the sample size to lessen the effect of the items subject to
unusually large amounts of shrinkage.
c. Stratify the inventory population so that items subject to unusually large
amounts of shrinkage are reviewed separately.

d. Continue to draw new samples until a sample is drawn which includes none of
the items known to be subject to large amounts of shrinkage.

22. In conducting a substantive test of an account balance, an auditor hypothesizes


that no material error exists. The risk that sample results will support the
hypothesis when a material error actually does exist is the risk of
a. Incorrect rejection.
b. Alpha error.
c. Incorrect acceptance.
d. Type I error.

23. An auditor performs a test to determine whether all merchandise for which the
client was billed was received. The population for this test consists of all
a. Merchandise received.
b. Canceled checks.
c. Vendors' invoices.
d. Receiving reports.

24. Although mathematically based, statistical sampling does not replace audit
judgment. In utilizing statistical sampling techniques, the auditor must apply
judgment in all but which of the following tasks?
a. Selecting a tolerable rate of error.
b. Determining an acceptable risk of under assessing control risk.
c. Calculating the actual error rate.
d. Assessing the materiality of control weaknesses.

25. To determine sample size in an attribute sampling application, what must be


specified?
a. Population mean, expected error rate, precision.
b. Precision, reliability, standard deviation.
c. Precision, reliability, expected occurrence rate.
d. Population mean, standard deviation, precision.
26. Which of the following statements regarding statistical sampling in auditing is
true?
a. Inasmuch as audits are test-based, generally accepted auditing standards
require the use of statistical sampling methods whenever the auditor decides
to examine only part of a population.
b. Although statistical sampling may be applied to control testing, it is
required for substantive testing purposes.
c. Sampling methods are used by auditors in both control testing and substantive
testing.
d. Statistical sampling methods are more appropriate for control testing when the
auditor elects to reprocess transactions, than when controls are tested by
means of document examination.

27. The application of statistical sampling techniques is least related to which of


the following generally accepted auditing standards?
a. The work is to be adequately planned and assistants, if any, are to be
properly supervised.
b. A sufficient understanding of the internal control system is to be obtained to
plan the audit and to determine the nature, timing, and extent of tests to be
performed.
c. In all matters relating to the assignment, an independence in mental attitude
is to be maintained by the auditor or auditors.
d. Sufficient competent evidential matter is to be obtained through inspection,
observation, inquiries, and confirmations to afford a reasonable basis for an
opinion regarding the financial statements under examination.

28. The major weakness of nonstatistical (judgmental) sampling is it


a. Usually requires larger sample sizes than statistical sampling.
b. Frequently results in samples that are not representative of the population.
c. Does not allow sampling risk to be objectively measured.
d. Gives less accurate point estimates of parameters than statistical sampling.

29. If an auditor, planning to use statistical sampling, is concerned with the number
of a client's sales invoices that contain mathematical errors, the auditor would
most likely utilize
a. Random sampling with replacement.
b. Sampling for variables.
c. Sampling for attributes.
d. Stratified random sampling.

30. Anadvantage of using statistical over non-statistical sampling methods in tests


ofcontrols is that the statistical methods
a.Afford greater assurance than a non-statistical sample of equal size.
b.Can more easily convert the sample into a dual-purpose test useful for
substantive testing.
c. Provide an objective basis for quantitatively evaluating sample risks.
d. Eliminate the need to use judgment in determining appropriate sample sizes.

31. Several risks are inherent in the evaluation of audit evidence which has been
obtained through the use of statistical sampling. Which of the following risks
is an example of the risk of underassessment of control risk?
a. Failure to properly define the population to be sampled.
b. Failure to draw a random sample from the population.
c. Failure to accept the statistical hypothesis that internal control is
unreliable when, in fact, it is.
d. Failure to accept the statistical hypothesis that a book value is not
materially misstated when the true book value is not materially misstated.

32. As a result of tests of controls, an auditor under-assessed control risk and


decreased substantive testing. This underassessment occurred because the true
occurrence rate in the population was
a. Less than the risk of underassessment in the auditor's sample.
b. Less than the occurrence rate in the auditor's sample.
c. More than the occurrence rate in the auditor's sample.
d. More than the risk of underassessment in the auditor's sample.

33. If all other factors specified in an attribute sampling plan remain constant,
changing the specified precision from 6% to 10%, and changing the specified
reliability from 97% to 93% would cause the required sample size to
a. Increase.
b. Remain the same.
c. Decrease.
d. Change by 4%.

34. Use of the difference estimation sampling technique to estimate dollar amounts is
inappropriate when
a. The total book value is known and corresponds to the sum of all the individual
book values.
b. There are some observed differences between audited values and book values.
c. A book value for each sample item is unknown.
d. The audited values are nearly proportional to the book value.

35. Select the description which illustrates sampling risk.


a. Applying audit procedures which are inappropriate for the audit objectives.
b. Failing to recognize errors or deviations in the documents examined.
c. Choosing a sample which has proportionately more errors than the population
d. Arriving at incorrect statistical conclusions due to computational errors.

36. A bank auditor is interested in estimating the average account balance of its
depositors based on a sample. This substantive test is an example of
a. Attribute sampling.
b. Discovery sampling.
c. Variables sampling.
d. Acceptance sampling.

37. Which of the following factors is generally not considered in determining the
sample size for a test of controls?
a. Tolerable rate.
b. Risk of underassessment.
c. Population size.
d. Expected population occurrence rate

38. The expected population occurrence rate of client billing errors is 3%. The
auditor has established a tolerable rate of 5%. In the review of client invoices
the auditor should use
a. Stratified sampling.
b. Variable sampling.
c. Attribute sampling.
d. Discovery sampling.
39. An auditor who uses statistical sampling for attributes in testing internal
controls should increase the assessed level of control risk when the
a. Sample occurrence rate is less than the expected occurrence rate used in
planning the sample.
b. Tolerable rate less the allowance for sampling risk exceeds the sample
occurrence rate.
c. Sample occurrence rate plus the allowance for sampling risk exceeds the
tolerable rate.
d. Sample occurrence rate plus the allowance for sampling risk equals the
tolerable rate.

40. The measure of variability of a statistical sample that serves as an estimate of


the population variability is the
a. Basic precision.
b. Range.
c. Standard deviation.
d. Interval.

41. An auditor selects a statistical sample from a large inventory of replacement


parts. Which of the following audit objectives would be most appropriate if the
sampling method used is probability proportional to size (PPS)?
a. The auditor plans to estimate the total dollar value of the inventory when a
recorded book value does not exist.
b. The auditor wishes to accept or reject the hypothesis that the proportion of
defective parts in the population is less than 5%.
c. The auditor plans to make a statement concerning the total dollar amount of
error in the population from the recorded book value.

d. The auditor wishes to estimate the proportion of defective parts in the


population.

42. Precision is defined as the range (plus or minus) within which the true answer
most likely falls. Reliability, also referred to as the confidence level, is the
likelihood that the sample range contains the true value. Of the following
statements concerning precision and reliability, which one is not true?
a. Precision is set by the auditor and is a function of materiality and risk.
b. An increase in control risk, other parameters remaining unchanged, causes a
narrowing of the precision range.
c. The narrower the range of precision, the smaller the sample size.
d. Overall audit risk is the complement of reliability.

43. In an application of mean per unit sampling, the following information has been
obtained:
Reported book value P 600,000
Point estimate (estimated total value) 591,000
Allowance for sampling risk (precision) +- 22,000
Tolerable error +- 45,000

The appropriate conclusion would be that the reported book value is


a. Acceptable only if the risk of incorrect rejection is at least twice the risk
of incorrect acceptance.
b. Not acceptable.
c. Acceptable.
d. Acceptable only if the risk of incorrect acceptance is at least twice the risk
of incorrect rejection.

44. Sampling risk refers to the possibility that:


a. The auditor may use a less than optimal statistical method for the
circumstances, e.g. difference estimation instead of ratio estimation.
b. The auditor may fail to recognize an error that is included in the sample.
c. Even though a sample is properly chosen, it may not be representative of the
population.
d. The confidence level and/or precision established by the auditor are not
appropriate.

45. The primary reason for an auditor to use statistical sampling is to


a. Obtain a smaller sample than would be required by non-statistical sampling
techniques.
b. Obtain a sample more representative of the population than would be obtained
by non-statistical sampling techniques.
c. Allow the auditor to quantify, and therefore control, the risk of making an
incorrect decision based on sample evidence.
d. Meet requirements of Statements on Auditing Standards.

46. The variability of a population, as measured by the standard deviation, is the


a. Degree of asymmetry of a distribution.
b. Tendency of the means of large samples (at least 30 items) to be normally
distributed.
c. Extent to which the individual values of the items in the population are
spread about the mean.
d. Measure of the closeness of a sample estimate to a corresponding population
characteristic.

47. Management has asked the internal auditing staff to evaluate the efficiency of
the accounts payable system, particularly whether it would be economically
feasible to reduce the number of discounts lost through slow payment. The audit
staff decides that it needs to determine the amount currently being lost and can
do so by taking a sample from payments made in the last six months, examining
each, and recording the amount, if any, of the discount lost. This information
can be used to project the total amount of discounts lost for the period. This
proposed plan is an example of
a. Attribute sampling.
b. Acceptance sampling.
c. Variables sampling.
d. Discovery sampling.

48. During an audit involving testing of accounts receivable balances, an auditor


decides to specify a precision interval of P 100,000 instead of the P 200,000
precision interval that was called for in the sampling plan contained in the
audit program. Which of the following would be a result of the auditor's
decision to narrow the precision interval?
a. A decrease in the required sample size.
b. An increase in the population standard deviation.
c. An increase in the required sample size.
d. A decrease in the population standard deviation.

49. Auditors who prefer statistical sampling to non-statistical sampling may do so


because statistical sampling helps the auditor
a. Measure the sufficiency of the evidential matter obtained.
b. Reduce the level of tolerable error to a relatively low amount.
c. Eliminate subjectivity in the evaluation of sampling results.
d. Minimize the failure to detect a material misstatement due to non-sampling
risk.

50. If all other factors in a sampling plan are held constant, changing the measure
of tolerable error to a smaller value would cause the sample size to be:
a. Smaller.
b. Unchanged.
c. Larger.
d. Indeterminate.

51. Which of the following sampling plans would be designed to estimate a numerical
measurement of a population, such as a dollar value?
a. Numerical sampling.
b. Discovery sampling.
c. Sampling for variables.
d. Sampling for attributes.

52. Based on a random sample, it is estimated that four percent, plus or minus two
percent, of a firm's invoices contain errors. The plus or minus two percent is
known as the estimate's:
a. Accuracy.
b. Confidence level.
c. Precision.
d. Standard error.

53. To determine the number of items to be selected in a sample for a particular


substantive test of details, the auditor should consider all of the following
except
a. Tolerable error.
b. Expected error.
c. Characteristics of the population.
d. Allowable risk of incorrect acceptance.

54. Sample size


a. Decreases with the use of higher confidence levels.
b. Remains unchanged with changes in confidence levels.
c. Increases with the use of higher confidence levels.
d. Increases with the use of lower confidence levels.

55. In sampling for variables, which of the following must be known in order to
estimate the appropriate sample size required to meet the auditor's needs in a
given situation?
a. The total amount of the population.
b. The desired standard deviation.
c. The desired confidence level.
d. The estimated rate of error in the population.

56. Which of the following best illustrates the concept of sampling risk?
a. An auditor may select audit procedures that are not appropriate to achieve the
specific objective.
b. An auditor may fail to recognize errors in the documents examined for the
chosen sample.
c. A randomly chosen sample may not be representative of the population as a
whole on the characteristic of interest.
d. The documents related to the chosen sample may not be available for
inspection.

57. Which of the following statements concerning alpha and beta risk is true?
a. As alpha risk increases, beta risk decreases.
b. As inherent risk and/or control risk increase, beta risk should also increase.
c. As inherent risk and/or control risk increase, beta risk should decrease.
d. As a "rule of thumb," the auditor generally sets beta risk equal to or less
than 10%, inasmuch as it is the basis for the audit opinion.

58. Statistical samples as compared to non-statistical samples permit the auditor to


a. Eliminate non-sampling errors of every type.
b. Obtain smaller sample sizes in all cases.
c. Quantify and control sampling risk.
d. Use less complex formulas than those required to evaluate non-statistical
samples.

59. Probability-proportional-to-size (PPS) sampling is less efficient if


a. Computerized account balances are being audited.
b. Statistical inferences are to be made.
c. The audit objective is oriented to understatements.
d. The account contains a large number of transactions.

60. A number of factors influences the sample size for a substantive test of details
of an account balance. All other factors being equal, which of the following
would lead to a larger sample size?
a. Lowering of assessed level of control risk.
b. Lowering of assessed inherent risk through use of analytical review
procedures.
c. Smaller measure of tolerable error.
d. Smaller expected frequency of errors.