MULTIPLE CHOICE
1. 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. Eliminate subjectivity in the evaluation of sampling results.
c. Reduce the level of tolerable error to a relatively low amount.
d. Minimize the failure to detect a material misstatement due to non-sampling
risk.
2. 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. Larger.
c. Unchanged.
d. Indeterminate.
3. 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 attributes.
d. Sampling for variables.
4. 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. Precision.
b. Accuracy.
c. Confidence level.
d. Standard error.
5. 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. Each item in the sampled population must have an equal or known probability
of being selected.
d. The precise number of items in the population must be known.
6. 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.
7. 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. Estimated standard deviation of the population.
d. Tolerable error.
8. 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.
9. The tolerable occurrence rate for a control test is generally
a. Lower than the expected occurrence rate in the related accounting records.
b. Higher than the expected occurrence rate in the related accounting records.
c. Identical to the expected occurrence rate in the related accounting records.
d. Unrelated to the expected occurrence rate in the related accounting records.
10. An advantage of statistical over non-statistical sampling is that statistical
sampling:
a. Enables auditors to objectively measure the reliability of their sample results
b. Permits use of a smaller sample size than would be necessary with non-statistical
sampling
c. Is compatible with a wider variety of sample selection methods than is non-statistical
sampling.
d. 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.
11. An auditor samples cash disbursement records for significant errors of
$5 or more. Upon finding one such error, these records are scheduled for a complete
review. This conclusion is most likely based on a
a. Cluster sample.
b. Discovery sample.
c. Systematic sample.
d. Stratified sample.
12. Of the following statements, which one best differentiates statistical
sampling from nonstatistical sampling?
a. Statistical sampling is a mathematical approach to inference, whereas nonstatistical
sampling is a more subjective approach.
b. Nonstatistical sampling has greater applicability to large populations than
does statistical sampling.
c. Nonstatistical 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. In examining cash disbursements, an auditor plans to choose a sample using
systematic selection with a random start. The primary advantage of such a systematic
selection is that population items
a. Which include errors will not be overlooked when the auditor exercises compatible
reciprocal options.
b. May occur in a systematic pattern, thus making the sample more representative.
c. May occur more than once in a sample.
d. Do not have to be prenumbered in order for the auditor to use the technique.
14. When planning an attribute sampling application, the difference between
the expected occurrence rate and the tolerable occurrence rate is the planned
a. Precision.
b. Reliability.
c. Dispersion.
d. Skewness.
15. If certain forms are not consecutively numbered
a. Selection of a random sample probably is not possible.
b. Systematic sampling may be appropriate.
c. Stratified sampling should be used.
d. Random number tables cannot be used.
16. In an attribute sampling application, holding other factors constant, sample
size will increase as which of the following becomes smaller?
a. Reliability level.
b. Population.
c. Planned precision.
d. Expected rate of occurrence.
17. Which of the following sampling methods is most useful to auditors when
testing for internal control effectiveness?
a. Stratified random sampling.
b. Attribute sampling.
c. Variables sampling.
d. Unrestricted random sampling with replacement.
18. 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. Determining the number of documents to examine in testing for a specific
attribute.
b. Selecting the documents to be tested.
c. Examining the documents.
d. Evaluating the sample results.
19. Which of the following is an element of sampling risk?
a. Choosing an audit procedure that is inconsistent with the audit objective.
b. Choosing a sample size that is too small to achieve the sampling objective.
c. Failing to detect an error on a document that has been inspected by the auditor
d. Failing to perform audit procedures that are required by the sampling plan.
20. 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. Do purchased parts meet established quality standards?
c. Are proper labor rates being used to compute payroll?
d. Are account distributions (debits and credits) correct?
21. 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 materiality of the attribute(s) to be tested.
c. The amount of any substantive errors.
d. The limit used in audits of similar clients.
22. 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 higher the expected occurrence rate, other factors remaining unchanged,
the larger will be the sample size.
c. 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.
d. The lower the acceptable risk of underassessment of control risk, the smaller
will be the sample size.
23. 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. Overassessment of control risk.
c. Incorrect rejection.
d. Incorrect acceptance.
24. 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. Larger.
c. Unchanged.
d. Indeterminate.
25. 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. Vendors' invoices.
c. Canceled checks.
d. Receiving reports.
26. 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 underassessing control risk.
c. Calculating the actual error rate.
d. Assessing the materiality of control weaknesses.
27. 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.
28. 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.
29. 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. In all matters relating to the assignment, an independence in mental attitude
is to be maintained by the auditor or auditors.
c. 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
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
30. The major weakness of nonstatistical (judgmental) sampling is it
a. Usually requires larger sample sizes than statistical sampling.
b. Does not allow sampling risk to be objectively measured.
c. Frequently results in samples that are not representative of the population.
d. Gives less accurate point estimates of parameters than statistical sampling.
31. An auditor is testing credit authorization procedures by examining sales
invoices for credit approval by the credit department. The procedures will be
considered to be working adequately if 96% of all sales invoices either indicate
approval or are cash sales. The auditor selects a random sample of 100 invoices.
In this situation, which of the following outcomes illustrates underassessment?
a. The auditor finds five deviations and concludes that procedures work inadequately.
The actual population deviation rate is 2%.
b. The auditor finds no deviations and concludes that procedures work adequately.
The true population deviation rate is 5%.
c. The auditor finds no deviations and concludes that the procedures work adequately.
The true population deviation rate is 2%.
d. The auditor finds five deviations and concludes that procedures work inadequately.
The true population deviation rate is 6%.
32. 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 attributes.
c. Sampling for variables.
d. Stratified random sampling.
33. An advantage of using statistical over non-statistical sampling methods
in tests of controls is that the statistical methods
a. Afford greater assurance than a non-statistical sample of equal size.
b. Provide an objective basis for quantitatively evaluating sample risks.
c. Can more easily convert the sample into a dual-purpose test useful for substantive
testing.
d. Eliminate the need to use judgment in determining appropriate sample sizes.
34. 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.
35. As a result of tests of controls, an auditor underassessed 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 risk of underassessment in the auditor's sample.
d. More than the occurrence rate in the auditor's sample.
36. 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%.
37. Which of the following factors is generally not considered in determining
the sample size for a test of controls?
a. Population size.
b. Tolerable rate.
c. Risk of underassessment.
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. Discovery sampling.
d. Attribute sampling.
39. An auditor desired to test credit approval on 10,000 sales invoices processed
during the year. The auditor designed a statistical sample that would provide
a 1% risk of assessing control risk too low (99% confidence) that not more than
7% of the sales invoices lacked approval. The auditor estimated from previous
experience that about 2 1/2% of the sales invoices lacked approval. A sample
of 200 invoices was examined and 7 of them were lacking approval. The auditor
then determined the upper occurrence limit to be 8%. In the evaluation of this
sample, the auditor decided to increase the level of the preliminary assessment
of control risk because the
a. Tolerable rate (7%) was less than the achieved upper occurrence limit (8%).
b. Expected occurrence rate (7%) was more than the percentage of errors in the
sample (3 1/2%).
c. Achieved upper occurrence limit (8%) was more than the percentage of errors
in the sample (3 1/2%).
d. Expected occurrence rate (2 1/2%) was less than the tolerable rate (7%).
40. To evaluate the sample results for an attributes sampling application,
a measure of precision is required. Which of the following statements is true
regarding precision?
a. Precision is subtracted from the tolerable rate of error to determine the
acceptability of sample results.
b. Precision is added to the tolerable rate of error to determine the acceptability
of sample results.
c. Precision is subtracted from the sample occurrence rate and the result is
compared to the tolerable rate of error.
d. Precision is added to the sample occurrence rate and the result is compared
to the tolerable rate of error.
41. 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.
42. Which of the following statements is correct concerning statistical sampling
for control testing?
a. The population size has little or no effect on determining sample size except
for very small populations
b. The expected population occurrence rate has little or no effect on determining
sample size except for very small populations.
c. As the population size doubles, the sample size also should double.
d. For a given tolerable rate, a larger sample size should be selected as the
expected population deviation rate decreases.
43. 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. Attribute sampling.
c. Judgment sampling.
d. PPS sampling.
44. The auditor samples cash disbursements for minor errors of $5 or less.
The parameter to be estimated is the error rate, which might be as high as 10%.
The auditor is most likely to use
a. Block sampling.
b. Variables sampling.
c. Attributes sampling.
d. Discovery sampling.
45. 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. More accurate results are obtained.
d. Population estimates with measurable reliability can be made.