Sampling Methods

1. The internal auditor suspects that the invoices from a small

number of vendors contain serious errors and therefore limits
the sample to those vendors only. A major disadvantage of
selecting such a directed sample of items to examine is the
a. Difficulty in obtaining sample items
b. Inability to quantify the sampling error related to the total
population of vendor invoices
c. Absence of a normal distribution
d. Tendency to sample a greater number of units
2. When sampling is used, sufficiency of audit evidence is
achieved when
a. Each item in the population has a chance of being selected
b. The standard deviation in the sample is less than or equal to
the corresponding statistic for the population
c. The evidence gathered is directly related to the assertion the
auditor is attempting to verify
d. There is reasonable assurance that the items selected are
representative of the sampled population
3. 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 that is 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
4. Each time an internal auditor draws a conclusion based on
evidence from a sample, an additional risk, sampling risk, is
introduced. An example of sampling risk is
a. Projecting the results of sampling beyond the population
tested
b. Using an improper audit procedure with a sample
c. Incorrectly applying an audit procedure to sample data
d. Drawing an erroneous conclusion from sample data

5. Several risks are inherent in the evaluation of audit evidence

that has been obtained through the use of statistical sampling.
an example of a beta or Type II error related to sampling risk is
the failure to
a. Properly define the population to be sampled
b. Draw a random sample from the population
c. Reject the statistical hypothesis that a book value is not
materially misstated when the true book value is materially
misstated
d. Accept the statistical hypothesis that a book value is not
materially misstated when the true book value is not materially
misstated
6. A confidence level of 90% means that
a. The expected error rate is equal to 10%
b. The point estimate obtained is within 10% of the true
population value
c. There are 90 chances out of 100 that the sample results will
not vary from the true characteristics of the population by
more than a specified amount
d. A larger sample size is required than if the desired
confidence level were equal to 95%
7. In statistical sampling, setting the appropriate confidence
level and desired sample precision are decisions made by the
auditor that will affect sample size for a substantive test.
Which of the following should not be a factor in the choice of
desired precision?
a. The sampling risk
b. The size of an account balance misstatement considered
material
c. The audit resources available for execution of the sampling
plan
d. The objectives of the audit test being conducted
8. An auditor's statistical sample drawn from a population of
invoices indicates a mean value of $150 and sampling
precision of +/- $30 at a 95% confidence level. Which of the
following statements correctly interprets these sample data?
a. In repeated sampling, the point estimate of the true
population mean will be $150 about 95% of the time

b. The probability is 95% that the true population mean is $150

c. In repeated sampling, intervals with precision +/- $30 around
the sample mean will always contain the true population mean
d. The probability is 95% that the range $120 to $180 contains
the true population mean
9. An auditor draws a random sample of 225 items from a
population of 10,000 and calculates the sample standard
deviation at $386. Sampling precision is calculated as +/$50.40 with a confidence level of 95%. If a sample of 900 items
had been drawn and if the same sample standard deviation of
$386 had been calculated, the sample precision would have
been approximately
a. $200
b. $100
c. $25
d. $13
10. The accounting department reports the accounts payable
balance as $175,000. You are willing to accept that balance if it
is within $15,000 of the actual balance. Using a variables
sampling plan, you compute a 95% confidence interval of
$173,000 to $190,000. You would therefore
a. Find it impossible to determine the acceptability of the
balance
b. Accept the balance but with a lower level of confidence
c. Take a larger sample before totally rejecting the balance and
requiring adjustments
d. Accept the $175,000 balance because the confidence
interval is within the materiality limits 11. 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. Confidence interval
12. The variability of a population, as measured by the
standard deviation, is the
a. Extent to which the individual values of the items in the
population are spread about the mean

b. Degree of asymmetry of a distribution

c. Tendency of the means of large samples (at least 30 items)
to be normally distributed
d. Measure of the closeness of a sample estimate to a
corresponding population characteristic
13. The auditor can change the standard error of the mean for
a statistical sample by
a. Stratifying the population
b. Increasing the size of the sample
c. Decreasing the size of the sample
d. All of the above
14. An auditor draws a random sample of invoices and
computes the mean invoice amount. The auditor then
computes the standard error of the mean. This information can
be used to
a. Measure the variability of a specific item within the sample
b. Determine the standard deviation of the sample
c. Measure the variability that exists among all possible invoice
samples of the same size
d. Perform difference estimation and avoid a large sample
15. In conducting a substantive test of an account balance, an
auditor hypothesizes that no material misstatement exists. The
risk that sample results will support the hypothesis when a
material misstatement actually does exist is the risk of
a. Incorrect rejection
b. Alpha error
c. Incorrect acceptance
d. Type I error
16. In appraising the results of a statistical sample, the finite
population correction factor
a. Can be greater than one
b. Has less effect as the sample becomes a larger proportion of
the population
c. Is needed when sampling is performed with replacement
d. Is applied to reduce the size of the sample
17. An internal auditor of a manufacturing company analyzes

cost variances incurred in the manufacturing process to

determine their statistical significance. Which of the following
techniques is most likely to be used for this purpose?
a. Markov chains
b. Monte Carlo method
c. Application of probability theory
d. Sensitivity analysis
18. In the audit of a health insureance claims processing
department, a sample is taken to test for the presence of
fictitious payees, though none are suspected. The most
appropriate sampling plan is
a. Attiribute sampling
b. Discovery sampling
c. Variables sampling
d. Stop or go sampling
19. An auditor for the state highway and safety department
needs to estimate the average highway weight of tractor trailer
trucks using the state's highway system. Which estimation
method must be used?
a. Mean per unit
b. Difference
c. Ratio
d. Probability proportional to size
20. When would difference estimation of ratio estimation
methods be inappropriate?
a. If differences between the book values and audit values of a
population are rare
b. If the average difference between the audit value and book
value of a population is small
c. If differences between the book value and audit value of a
population are numerous
d. If the average difference between the audit value and book
value of a population is large
21. An internal auditor is preparing to sample accounts
receivable for overstatement. A statistical sampling method
that automatically provides stratification when using
systematic selection is

a. Attribute sampling
b. Ratio-estimation sampling
c. Dollar-unit sampling
d. Mean-per-unit sampling
22. Which of the following best describes an inherent limitation
of the probability proportional to size sampling method?
a. It can only be used for substantive testing of asset accounts
b. It is complicated and always requires the use of a computer
system to perform the calculations
c. Misstatement rates must be large and the misstatements
must be overstatements
d. Misstatement rates must be small and the misstatements
must be overstatements
23. An internal auditor plans to test the accuracy of recorded
quantities on hand in an inventory file against the actual
quantities on hand. Under which of the following conditions
would the auditor be least likely to use a stop or go sampling
plan?
a. The population to be sampled is very large
b. The auditor expects the population to contain a high rate of
deviations
c. The auditor plans to draw a relatively small sample size
d. The auditor plans to determine an upper precision limit for
the estimated percentage of deviations contained in the
population
24. A statistical sampling technique that will minimize sample
size whenever a low rate of noncompliance is expected is
a. Ratio estimation sampling
b. Difference estimation sampling
c. Stratified mean per unit sampling
d. Stop or go sampling
25. An auditor planning an attribute sample from a large
number of invoice items intends to estimate the actual rate of
deviations. Which factor below is the most important for the
auditor to consider?
a. Audit objective
b. Population size

c. Desired confidence level

d. Population variance
26. When planning an attribute sampling application, the
difference between the expected deviation rate and the
maximum tolerable rate is the planned
a. Precision
b. Reliability
c. Dispersion
d. Skewness
27. A test of 200 invoices randomly selected by the auditor
revealed that 35 had not been approved for payment. At the
95% confidence level, what precision can be assigned?
a. 6.9%
b. 5.3%
c. 9.1%
d. 3.5%
28. Very small random samples (fewer than 30) should
normally be avoided when using a variables sampling plan
because
a. The estimated standard deviation of the population will
increase disproportionately
b. The skew of the distribution of sample means cannot be
determined
c. The estimated population mean value will increase
disproportionately
d. The size of the sampling risk will increase disproportionately
29. In applying variables sampling, an auditor attempts to
a. Estimate a qualitative charactristic of interest
b. Determine various rates of occurrence for specified
attributes
c. Discover at least one instance of a critical deviation
d. Predict a monetary population value within a range of
precision
30. An internal auditor is using variables estimation as the
statistical sampling technique to estimate the monetary value
of a large inventory of parts. Given a sample standard

deviation of $400, a sample size of 400, and a 95% two-tail

confidence interval, what precision can the auditor assign to
the estimate of the mean dollar value of a part?
a. +/- $39
b. +/- $2
c +/- $52
d. +/- $20
31. In an application of mean per unit sampling, the following
information has been obtained:
reported book value: $600,000
point estimate (estimated total value): $591,000
allowance for sampling risk (precision): +/- 22,000
tolerable misstatement: +/- 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. Acceptable
c. Not acceptable
d. Acceptable only if the risk of incorrect acceptance is at least
twice the risk of incorrect rejection.
32. A statistical sample from an inventory containing a total of
10,000 items produced a sample mean equal to $25 and a
standard error of the mean equal to $1. What is the interval
estimate of the total value of the inventory at the 95.5%
confidence level (C=2.0)?
a. $230,000 to $270,000
b. $240,000 to $260,000
c. $240,450 to $259, 550
d. $250,000 to $270,000
33. An auditor's finding was stated as follows: "Twenty of one
hundred randomly selected items tested revealed that $200 of
cash discounts on purchases were lost." This variables
sampling finding is deficient because the
a. Recommendation specifies no action
b. Sampling methodology is not defined
c. Amount is not material

d. Probable effect on the entire population is not provided

34. Sample selection using dollar unit sampling for inventory
valuation will most likely result in selectgion of a sample with
characteristics roughly equivalent to one provided by
a. Mean per unit or direct extenstion unstratified sampling
plans
b. Variables sampling plans with substantial stratification by
dollar amount
c. Selection of inventory records using a random starting point
for the record selection
d. Difference or ratio estimation plans applied on an
unstratified basis
35. When an internal auditor uses dollar unit statistical
sampling to examine the total value of invoices, each invoice
a. Has an equal probability of being selected
b. Can be represented by no more than one dollar unit
c. Has an unknown probability of being selected
d. Has a probability proportional to its dollar value of being
selected
36. Which of the following would be an improper technique
when using dollar unit statistical sampling in an audit of
accounts receivable?
a. Combining negative and positive dollar error item amounts
in the appraisal of a sample
b. Using a sampling technique in which the same account
balance could be selected more than once
c. Selecting a random starting point and then sampling every
nth dollar unit (systematic sampling)
d. Defining the sampling unit in the population as an individual
dollar value and not as an individual account balance
37. The use of probability proportional to size sampling is
inefficient if
a. Bank accounts are being audited
b. Statistical inferences are to be made
c. Each account is of equal importance
d. The number of sampling units is large

Sampling
1. B
2. D
3. C
4. D
5. C
6. C
7. C
8. D
9. C
10.D
11. C
12.A
13.D
14.C
15.C
16.D
17.C
18.B
19.A

20.A
21.C
22.D
23.B
24.D
25.A
26.A
27.B
28.D
29.D
30.A
31.B
32.A
33.D
34.B
35.D
36.A
37.C

Sample Selection
1. A simple random sample requires that
a. The population be unbiased
b. Every item in the population have an equal chance of being
selected
c. The distribution or original data be approximately normal
d. The expected deviation rate be low (less than 5%)
2. An auditor wishes to sample 200 sales receipts from a
population of 5,000 receipts issued during the last year. The
receipts have preprinted serial numbers and are arranged in
chronological (and the serial number) order. The auditor
randomly chooses a receipt from the first 25 receipts and then
selects every 25th receipt thereafter. Ths ampling procedure
described here is called
a. Systematic random sampling
b. Dollar unit sampling
c. Judgment interval sampling
d. Variables sampling
3. Internal auditing is conducting an operational audit of the
organization's mailroom activities to determine whether the
use of express mail service is limited to cases of necessity. To

test cost-effectiveness, the auditor selects the 100 most recent

express mial transactions for review. A major limitation of such
a sampling technique is that it
a. Does not allow a statistical generalization about all express
mail transactions
b. Results in a sample size that is too small to project to the
population
c. Does not evaluate existing controls in this area
d. Does not describe the population from which it was drawn
4. To use stratified sampling to evaluate a large,
heterogeneous inventory, which of the following would least
likely be used as a criterion to classify inventory items into
strata?
a. Dollar value
b. Number of items
c. Turnover volume
d. Storage locations
5. Which of the following is not a criterion for a good stratified
random sampling plan?
a. Every item must belong to one and only one stratum
b. The original population of items must be normally
distributed
c. An identifiable means of subdividing a heterogeneous
population into groups with more homogeneous characteristics
must be available
d. The number of items in each group must be known or
determinable
6. In a regional survey of suburban households to obtain data
on television viewing habits, a statistical sample of suburban
areas is first selected. Within the chosen areas, statistical
samples of whole blocks are selected, and within the selected
blocks, random samples of households are selected. This type
of sample selection can best be described as
a. Attribute sampling
b. Stratified sampling
c. Cluster sampling
d. Interval sampling

7. You seek to determine the misstatements made in recording

sales invoices. Which of the following factors will usually be
most significant in determining the number of sales invoices to
select for testing?
a. The total number of invoices for the period
b. The estimated loss being incurred by the division
c. The dollars of sales considered to be material
d. The precision desired
8. In an audit of a governmental agency, you are searching for
expenditures that are improperly classified. Assuming a
statistical sampling plan is adopted, which of the factors listed
below most directly affects the number of items that you seek
to review?
a. Magnitude of the dollar budget for the agency
b. Number of items you found misclassified in last year's audit
c. Quality of the internal control structure
d. Estimated deviation rate
Sample Selection and Sample Size
1. B
2. A
3. A
4. B
5. B
6. C
7. D
8. D