Test bank auditing and assurance principles ch09 statistical sampling for testing control procedures

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.. Which of the following factor

Statistical Sampling for Testing Control

Procedures 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

ANSWER: B 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

ANSWER: B 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

ANSWER: D 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

ANSWER: A 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

ANSWER: C 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 ANSWER: B 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

ANSWER: D 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

ANSWER: C 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

ANSWER: B 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

ANSWER: A 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

ANSWER: B 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 ANSWER: A

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

ANSWER: D 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

ANSWER: A 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 ANSWER: B

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

ANSWER: C 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

ANSWER: B 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 ANSWER: C 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

ANSWER: B 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? ANSWER: B

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

ANSWER: B 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 ANSWER: B 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 ANSWER: B

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

ANSWER: B 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

ANSWER: B 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 ANSWER: C 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

ANSWER: C 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

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

ANSWER: C

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

independ-ence 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

d Sufficient competent evidential matter is to be

obtained through inspection, observation, inquiries,

and confirmations to afford a reasonable basis for

under examination

ANSWER: B

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 ANSWER: B

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

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%

ANSWER: B 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

ANSWER: B 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

ANSWER: B 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

ANSWER: C 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 ANSWER: D 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%

ANSWER: C 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 ANSWER: A