PRACTICE EXAMINATION IN

AUDITING THEORY

(Audit Sampling)
Audit Sampling for Tests of Controls and
Substantive Tests of Transactions

1. A sample in which the characteristics of the sample are the same as those of the population is a(n)
a. variables sample.
b. representative sample.
c. attributes sample.
d. random sample.

2. When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to
be using
a. audit sampling.
b. representative sampling.
c. poor judgment.
d. none of the above.

3. One of the ways to eliminate nonsampling risk is through

a. proper supervision and instruction of the client’s employees.
b. proper supervision and instruction of the audit team.
c. the use of attributes sampling rather than variables sampling.
d. controls which ensure that the sample drawn is random and representative.

4. One cause of nonsampling risk is

a. ineffective use of audit procedures.
b. testing less than the entire population.
c. use of extensive tests of controls.
d. any of the above.

5. When the auditor goes through a population and selects items for the sample without regard to their size,
source, or other distinguishing characteristics, it is called
a. block sample selection.
b. haphazard selection.
c. systematic sample selection.
d. statistical selection.

6. When the auditor intends to evaluate a sample statistically, the only acceptable selection method is
a. probabilistic selection.
b. judgmental selection.
c. haphazard selection.
d. block sample selection.

7. A sample in which every possible combination of items in the population has an equal chance of constituting
the sample is a
a. random sample.
b. statistical sample.
c. judgment sample.
d. representative sample.

8. The process which requires the calculation of an interval and then selects the items based on the size of the
interval is
a. statistical sampling.
b. random sample selection.
c. systematic sample selection.
d. computerized sample selection.

9. In systematic sample selection, the population size is divided by the number of sample items desired in order
to determine the
a. interval.
b. tolerable exception rate.
c. computed upper exceptions rate.
d. mean.

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10. Sampling risk may be controlled by
a. adjusting the sample size.
b. always using random sampling .
c. using whatever sample selection technique is appropriate for the population.
d. a and c.

11. Which of the following material occurrences would be least likely to attract the auditor’s attention?
a. Deviations from client’s established control procedures.
b. Deviations from client’s budgeted values.
c. Monetary errors or irregularities in populations of transaction data.
d. Monetary errors or irregularities in populations of account balance details.

12. Which of the following statements is correct?

a. A sample of all items of a population will eliminate sampling risk, but increase nonsampling risk.
b. The use of an appropriate sample selection technique ensures a representative sample.
c. The auditor’s failure to recognize an exception is a significant cause of sampling risk.
d. The use of inappropriate audit procedures is a significant cause of nonsampling risk.

13. The risk which the auditor is willing to take of accepting a control as being effective when it is not is the
a. finite correction factor.
b. tolerable exception rate.
c. acceptable risk of assessing control risk too low.
d. estimated population exception rate.

14. The exception rate the auditor will permit in the population and still be willing to usethe assessed level of
control risk is called the
a. tolerable exception rate.
b. estimated population exception rate.
c. acceptable risk of overreliance.
d. sample exception rate.

15. If the auditor decides to assess control risk at the maximum level, tests of controls are
a. increased in number.
b. reduced in number.
c. not performed.
d. unchanged from prior planned settings.

16. Attributes sampling would be an appropriate method to use on which one of the following procedures in an
audit program?
a. Review sales transactions for large and unreasonable amounts.
b. Observe whether the duties of the accounts receivable clerk are separate from handling cash.
c. Examine a sample of duplicate sales invoices for credit approval by the credit manager.
d. Review the aged schedule of accounts receivable to determine if receivables from officers are included.

17. When the computed upper exception rate is greater than the tolerable exception rate, it is necessary for the
auditor to take specific action. Which of the following courses of action would be most difficult to defend if
the auditor is ever subject to review by a court?
a. Revise and relax the tolerable exception rate (TER) or the acceptable risk of assessing control risk too low
(ARACR).
b. Expand the sample size.
c. Revise the assessed control risk.
d. Write a letter to management.

18. Sampling risk is

a. the risk that an auditor reaches an incorrect conclusion because the sample is not representative of the
population.
b. the risk that an auditor reaches the correct conclusion after considering the nonsampling risk introduced
by auditor judgment.
c. a and b.
d. neither a nor b.

19. Which of the following factors is generally not considered in determining sample size for a test of controls?
a. Expected population exception rate.
b. Risk of assessing control risk too low.

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 c. Tolerable exception rate.
d. Population size.

20. Which of the following statement is correct with respect to the quantification of sampling risk?
a. Sampling risk cannot be quantified.
b. Sampling risk can only be quantified when nonstatistical sample selection techniques are used to select
the sample.
c. Sampling risk can be quantified only when probabilistic sampling techniques are used to select the
sample.
d. None of the above.

21. When using the directed sample selection technique, the auditor may use which of the following criteria?
a. Items most likely to contain misstatements.
b. Items containing selected population characteristics.
c. Large Peso coverage.
d. Any of the above.

22. Nonsampling errors occur when audit tests do not uncover existing exceptions in the
a. population.
b. sample.
c. planning stage.
d. financial statements.

23. One of the ways to reduce sampling risk is to

a. carefully design the audit procedures to be used.
b. use variables sampling rather than attributes sampling.
c. provide proper supervision and instruction of the audit team.
d. use an appropriate method of selecting sample items from the population.

24. Which of the following statements is correct with respect to the evaluation of sample results?
a. It is acceptable to make nonstatistical evaluations only when probabilistic sample selection is used.
b. It is acceptable to make nonstatistical evaluations only if the auditor cannot quantify sampling risk.
c. It is never acceptable to evaluate a nonprobabilistic sample as if it were a statistical one.
d. All of the above are correct.

25. Which of the following statements is a valid criticism of the use of non-statistical sampling methods?
a. Many audit tests, such as footing of journals, must be performed outside a statistical sampling context.
b. The cost of performing random selection or testing often exceeds the benefits.
c. Non-statistical sampling does not differ substantially from statistical sampling methods.
d. Conclusions may be drawn in more precise ways when using statistical sampling methods.

26. Which of the following methods of sample selection is appropriately used when selecting a random sample?
a. Use of random number tables.
b. Use computer generated random numbers.
c. Auditor’s random selection of items.
d. a and b, but not c.

27. Correspondence is established between the random number table and the population by
a. identifying each item in the population with a unique number.
b. deciding the number of digits to use in the random number table and their association with the
population numbering system.
c. defining which digits the auditor uses in a column and the method of reading the table.
d. selecting a random starting point on the table.

28. The acceptable risk of assessing control risk too low will normally be assessed at a ____ level when auditing a
public company.
a. higher
b. compensating
c. lower
d. nominal

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29. Which of the following statements is not correct (select all that apply)?
a. It is acceptable to pick a starting point on a random number table by using a “blind stab” method.
b. It is impossible to draw a six-digit random number from a table that is separated into columns of five
digits.
c. The only reason for selecting a random starting point on a random number table is to eliminate the
predictability of the sample.
d. When selecting a three-digit number from a table that is separated into columns of five digits, it is
permissible to use the first three digits, the middle three digits, or the last three digits.

30. Which of the following is not one of the types of computer tools used to generate random samples?
a. Electronic spreadsheet programs.
b. Random number generators.
c. Generalized audit software.
d. Random application search software.

31. Auditors are concerned with which type of exceptions in populations of accounting data?
a. Deviations from client established controls.
b. Monetary misstatements in transaction data.
c. Monetary misstatements in account balance details.
d. Auditors are concerned with all of these exceptions.

32. In using audit sampling for exception rates, the auditor is primarily interested in determining the _____ the
exception rate might be.
a. lowest.
b. most.
c. average range in which.
d. none of the above.

33. The highest estimated exception rate in the population at a given acceptable risk of assessing control risk too
low is
a. the upper exception rate.
b. estimated population exception rate.
c. the computed upper exception rate.
d. the tolerable exception rate.

34. The advantage of systematic sample selection is that

a. it is easy to use.
b. there is limited possibility of it being biased.
c. it is unnecessary to determine if the population is arranged randomly.
d. all three of the above.

35. A statistical method used to estimate the proportion of items in a population containing a characteristic of
interest is
a. attributes sampling.
b. variables sampling.
c. estimation sampling.
d. population-proportional-to-size sampling.

36. The exception rate that the auditor will permit in the population and still be willing to use the assessed
control risk is called the
a. acceptable exception rate.
b. estimated population exception rate.
c. sample exception rate.
d. tolerable exception rate.

37. The auditor’s best estimate of the population exception rate is the
a. sample exception rate.
b. tolerable exception rate (TER).
c. experience of the previous year.
d. computed upper exception rate (CUER).

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38. Place the following steps in their proper order:

1. Analyze exceptions
2. Select the sample
3. Define attributes and exception conditions
4. State the objectives of the audit test
5. Define the sampling unit

a. 1,3,2,4,5.
b. 4,3,1,2,5.
c. 4,3,5,2,1.
d. 1,2,3,4,5.

39. If an auditor, without statistical sampling, selects a sample of one hundred items from a population and finds
two exceptions, the auditor
a. can conclude that the sample exception rate is 2%.
b. can conclude that the population exception rate is 2%.
c. can calculate the highest exception rate expected in the population.
d. cannot make any conclusions about either the sample or the population.

40. For which of the following audit procedures is audit sampling inappropriate?
a. Review sales transactions for large and unusual amounts.
b. Examine a sample of duplicate sales invoices for credit approval.
c. Compare the quantity on duplicate sales invoices with the quantity on related shipping documents.
d. Audit sampling is appropriate for each of the above procedures.

41. Which of the following statements regarding the process of defining the population is not correct?
a. The auditor can define the population to include whatever data is desired.
b. The auditor may generalize only about that population which has been sampled.
c. The population represents the body of data about which the auditor wishes to generalize.
d. The auditor can randomly sample from whatever part of the population that he or she chooses.

42. Which of the following is the exception rate that the auditor expects to find before testing?
a. Sample exception rate.
b. Estimated population exception rate.
c. Computed exception rate.
d. Tolerable exception rate.

43. The tolerable exception rate (TER) has a significant effect on sample size. The relationship of TER to sample
size is
a. direct (larger TER = larger sample).
b. inverse (larger TER = smaller sample).
c. variable (sometimes larger, sometimes smaller).
d. not determinable.

44. The acceptable risk of accessing control risk too low (ARACR) has a significant effect on sample size. The
relationship of ARACR to sample size is
a. variable (sometimes larger, sometimes smaller).
b. direct (larger ARACR = larger sample).
c. inverse (larger ARACR = smaller sample).
d. nonexistent.

45. The acceptable risk of assessing control risk too low (ARACR) is a measure of the level of risk that
a. the auditor is willing to take.
b. is predicted by the random number table.
c. is predicted by the statistical frequency table.
d. is generated as a result of the auditor’s knowledge of the true population exception rate.

46. In attributes sampling, an advance estimate of the estimated population exception rate is necessary to plan
the appropriate sample size. The relationship of expected population exception rate (EPER) to sample size is
a. direct (small EPER = small sample).
b. inverse (small EPER = large sample).
c. a variable (sometimes small, sometimes large) dependent on other factors present.
d. indeterminate.

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47. The initial sample size is so called because
a. there is always another sample to be done.
b. the auditor must take several samples to ensure randomness.
c. the auditor must take several samples to ensure that the final sample is representative of the population.
d. the exceptions must be evaluated before deciding whether the sample is sufficiently large to achieve the
objectives.

48. Statistical theory proves that in most types of populations to which attributes sampling applies, the
population size is
a. not a consideration in determining sample size.
b. a minor consideration in determining sample size.
c. a major consideration in determining sample size.
d. the determining factor in establishing sample size.

49. The sample exception rate equals

a. the number of exceptions in the population divided by the sample size.
b. the number of items in the population multiplied by the number of exceptions in the sample.
c. the number of exceptions in the sample divided by the sample size.
d. the number of exceptions in the population divided by the population size.

50. Before the population can be considered acceptable based on the acceptable risk of assessing control risk too
low (ARACR), the computed upper exception rate (CUER) must be
a. greater than or equal to the TER.
b. greater than the TER.
c. less than or equal to the TER.
d. less than the tolerable exception rate (TER).

51. Which of the following combinations of attributes and exception conditions is inappropriate.
a. Existence of sales invoice number in the sales journal – No record of sales invoice number in the sales
journal.
b. Credit is approved – Lack of initials indicating credit approval.
c. Quantity on customer order agree with duplicate sales invoice – Quantity on customer order do not agree
with quantity on duplicate sales invoice.
d. Evidence that pricing are checked – Lack of initials on duplicate sales invoice indicating that extensions
were checked.

52. Which of the following statements is not true?

a. Random selection is statistical measurement.
b. It is acceptable to use random selection procedures without drawing statistical conclusions.
c. It would be inappropriate to draw a statistical conclusion unless the sample were randomly selected.
d. Random selection is a part of statistical sampling.

53. An auditor selects a sample from the file of shipping documents to determine whether invoices were
prepared. This test is performed to satisfy the audit objective of
a. accuracy.
b. existence.
c. control.
d. completeness.

54. An example of sampling for attributes would be estimating the

a. quantity of specific inventory items.
b. probability of losing a patent infringement case.
c. percentage of overdue accounts receivable.
d. Peso value of accounts receivable.

55. The acceptable risk of assessing control risk too low is

a. the risk that the auditor is willing to take of accepting a control as ineffective when it is effective.
b. the risk that the auditor is willing to take of accepting a control as effective when it is ineffective.
c. the auditor’s measure of sampling risk.
d. b and c, but not a.

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56. When using statistical sampling, the auditor would probably require a smaller sample if the
a. population increases.
b. desired reliability decreases.
c. desired precision interval narrows.
d. expected exception rate increases.

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

58. A principal advantage of statistical methods of attributes sampling over nonstatistical methods is that they
provide a scientific basis for planning the
a. risk of assessing control risk too low.
b. tolerable exception rate.
c. expected population exception rate.
d. sample size.

59. In performing a review of his client’s cash disbursements, a CPA uses systematic sample selection with a
random start. The primary disadvantage of systematic sample selection is that population items
a. may occur twice in the sample.
b. must be reordered in a systematic pattern before the sample can be drawn.
c. may occur in a systematic pattern, thus negating the randomness of the sample.
d. must be replaced in the population after sampling to permit valid statistical inference.

60. Which of the following need not be known to evaluate the results of a sample for a particular attribute?
a. Exception rate in the sample.
b. Size of the sample.
c. Acceptable risk of assessing control risk too low.
d. Actual number of exceptions in the sample.

61. In estimation sampling for attributes, which one of the following must be known in order to appraise the
results of the auditor’s sample?
a. Estimated Peso value of the population.
b. Standard exception of the values in the population.
c. Actual exception rate of the attribute in the population.
d. Sample size.

62. Which of the following statements is not correct regarding probabilistic and nonprobabilistic sample
selection?
a. In probabilistic selection, every population item has a known chance of being selected.
b. It is not acceptable to make nonstatistical evaluations using probabilistic selection.
c. Probabilistic selection is required for all statistical sampling methods.
d. Both methods are acceptable and commonly used.

63. Nonprobabilistic sample selection methods are not based on strict mathematical probabilities; therefore,
a. the extent to which a sample is representative may be difficult to determine.
b. they are discouraged by the AICPA.
c. they are forbidden by the Statements on Auditing Standards.
d. they are not as good as statistical sampling.

64. Which of the following statements regarding block sampling is not true?
a. Block sampling is the selection of several items in sequence.
b. It is acceptable to use block sampling for tests of transactions only if a reasonable number of blocks are
used.
c. A “reasonable number” for most situations is probably at least six blocks from six different months.
d. Once the first item in the block is selected, the remainder of the block is chosen automatically.

65. A means of reducing the potential bias in systematic sample selection is to

a. use multiple starts.
b. use a random number table.
c. include a large block of the population.

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 d. include only the high-Peso-value items.

66. Unless a precise statement of what constitutes an attribute is made in advance, the staff person who
performs the audit procedure will have no guidelines
a. to use when evaluating the results of analytical review procedures.
b. to determine what documents to obtain and review for the observation tests.
c. for identifying deviations.
d. for performing all three of the above.

67. When deciding on the acceptable risk of assessing control risk too low, the auditor should
a. rely on his/her professional judgment.
b. err on the side of being conservative.
c. consult the professional standards.
d. do any of the above.

68. The finite correction factor has the effect of significantly changing the sample size only when
a. less than 10% of the population is included in the sample.
b. 5% or more of the population is included in the sample.
c. greater than 5% but less than 10% of the population is included in the sample.
d. more than 10% of the population is included in the sample.

69. Of the four factors which determine the initial sample size (population size, tolerable exception rate,
acceptable risk of overreliance, and expected population exception rate), which combination of two factors
has the greatest effect on sample size?
a. Population size times expected population exception rate.
b. Expected population exception rate plus acceptable risk of overreliance.
c. Tolerable exception rate minus expected population exception rate.
d. Acceptable risk of overreliance minus tolerable exception rate.

70. Which of the following statements is true?

a. The audit procedures will vary as a result of using either statistical or nonstatistical sampling.
b. The audit procedures will be the same for either statistical or nonstatistical sampling, but they must be
performed differently for each.
c. Statistical sampling requires quantitative audit procedures, whereas nonstatistical sampling requires
judgmental audit procedures.
d. The same audit procedures are performed in the same manner for either statistical or nonstatistical
sampling.

71. When audit procedures have been completed for an attributes sampling application, the auditor must
generalize from the sample to the population. Which of the following statements would be incorrect
regarding this process?
a. The auditor would use an attributes sampling table to determine the computed upper exception rate.
b. The computed upper exception rate is the highest exception rate at a given ARACR.
c. It would be wrong for the auditor to conclude that the population exception rate is exactly the same as
the sample exception rate.
d. In selecting the table corresponding to the risk of overreliance, it should be the same as the ARACR used
for determining the initial sample size.

72. A CPA examining inventory may appropriately apply sampling for attributes to estimate the
a. average price of inventory items.
b. percentage of slow-moving inventory items.
c. Peso value of inventory.
d. physical quantity of inventory items.

73. 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.

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74. If the result obtained from a particular sample will be critical (that is, the auditor would not be able to render
an unqualified opinion unless every item in the population were examined), which of the following is the most
important to the auditor?
a. Acceptable risk of assessing control risk too low.
b. Estimated population exception rate.
c. Tolerable exception rate.
d. Size of the population.

75. The tolerable rate of exceptions for tests of controls is generally

a. lower than the estimated population exception rate in the related accounting records.
b. higher than the estimated population exception rate the related accounting records.
c. identical to the estimated population exception rate in the related accounting records.
d. unrelated to the estimated population exception rate in the related accounting records.

76. An advantage of using statistical sampling techniques is that such techniques

a. mathematically measure sampling risk.
b. eliminate the need for judgmental decisions.
c. define the values of precision and reliability required to provide audit satisfaction.
d. have been established in the courts to be superior to judgmental sampling.

77. Auditors who prefer statistical to nonstatistical sampling believe that the principal advantage of statistical
sampling flows from its unique ability to
a. provide a mathematical measurement of uncertainty.
b. promote a more legally defensible procedural approach.
c. define the precision required to provide audit satisfaction.
d. establish conclusive audit evidence with decreased audit effort.

78. Which of the following is an advantage of systematic sample selection over random number sampling?
a. It provides a stronger basis for statistical conclusions.
b. It enables the auditor to use the more efficient “sampling with replacement” tables.
c. There may be correlation between the location of items in the population, the feature of sampling
interest, and the sampling interval.
d. It does not require establishment of correspondence between random numbers and items in the
population.

79. What is an auditor’s evaluation of a statistical sample for attributes when a test of 100 documents results in
four exceptions if the tolerable exception rate is 5%, the expected population exception rate is 3%, and the
allowance for sampling risk is 2%?
a. Accept the sample results as support for planned reliance on the control because the tolerable rate less
the allowance for sampling risk equals the expected population exception rate.
b. Modify planned reliance on the control because the sample exception rate plus the allowance for
sampling risk exceeds the tolerable rate.
c. Modify planned reliance on the control because the tolerable rate plus the allowance for sampling risk
exceeds the expected population exception rate.
d. Accept the sample results as support for planned reliance on the control because the sample deviation
rate plus the allowance for sampling risk exceeds the tolerable rate.

80. In the evaluation of the results of an attributes sample, the fact that the exception rate in the sample was 2%
rather than the estimated population exception rate of 4% would cause the computed upper exception rate
to
a. be less than the tolerable exception rate.
b. equal the tolerable exception rate.
c. exceed the tolerable exception rate.
d. cannot be determined from the information given.

81. If the size of the sample to be used in a particular test of attributes has not been determined by using
statistical concepts, but the sample has been chosen in accordance with random selection procedures,
a. no inferences can be drawn from the sample.
b. the auditor has committed a nonsampling error.
c. the auditor may or may not achieve the tolerable exception rate at the acceptable risk of assessing
control risk too low.
d. the auditor will have to evaluate the results by reference to the principles of discovery sampling.

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Audit Sampling for Test of Details

1. When monetary-unit sampling has been concluded and the population is not considered acceptable, which one
of the following courses of action would not be appropriate?
a. Increase the sample size to see if this may satisfy the auditor’s tolerable misstatement requirements.
b. Increase the tolerable misstatement amounts so that the error bounds are acceptable.
c. Request the client to correct the population.
d. Refuse to give an unqualified opinion.

2. Both sampling and nonsampling risks are associated with

a. tests of controls.
b. substantive tests of transactions.
c. tests of details of balances.
d. all of the above.

3. Tolerable misstatements for overstatements and understatements

a. may be different amounts.
b. must be different amounts.
c. must be set at the same amount.
d. will be determined by the statistical tables.

4. Monetary-unit sampling is most commonly used when

a. zero or few exceptions are expected.
b. a Peso result is desired.
c. the population data are maintained on computer files.
d. all of the above.

5. Tests for rates of occurrence are appropriately used in all but which of the following situations?
a. Testing of internal controls.
b. Substantive testing of transactions.
c. Substantive testing of details of balances.
d. Tests for rates of occurrence are appropriate for all of the above.

6. Which of the following is not a type of statistical method that provides results in Peso terms?
a. Variables sampling.
b. Attributes sampling.
c. Monetary-unit sampling.
d. Sampling with probability proportional to size.

7. When auditors sample for tests of details of balances, the objective is to determine
a. whether the account balance being audited is fairly stated.
b. whether the transactions being audited are free of misstatements.
c. whether the controls being tested are operating effectively.
d. whether the transactions and account balances being audited are fairly stated.

8. The auditor must consider the possibility that the true population misstatement is greater than the amount of
misstatement that is tolerable when the auditor is performing
a. statistical sampling.
b. nonstatistical sampling.
c. monetary-unit sampling.
d. all of the above.

9. What is the purpose of stratification as used in applying stratified sampling to a population?

a. To avoid items that may contain misstatements.
b. To emphasize certain items and deemphasize others.
c. Either a or b.
d. Neither a nor b.

10. If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance
a. is reduced.
b. is increased.
c. is not changed.
d. may be reduced or increased depending upon other circumstances.

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11. In selecting the items to include in the sample, the auditor must
a. use a method that will guarantee that all items in the population are represented in the sample.
b. have reasonable assurance of obtaining a representative sample.
c. be assured of the randomness of the population.
d. be assured that each item chosen in the sample is a material amount.

12. In estimating the population misstatement, the first step in projecting from the sample to the population is to
a. make a point estimate.
b. revise the upper error bound.
c. calculate the precision interval.
d. determine the population mean.

13. The relationship between required sample size and the acceptable risk of incorrect acceptance is
a. inverse.
b. direct.
c. proportional.
d. indeterminate.

14. The final step in the evaluation of the audit results is the decision to
a. accept the population as fairly stated or to require further action.
b. determine sampling error and calculate the estimated total population error.
c. project the point estimate.
d. determine the error in each sample.

15. The most commonly used method of statistical sampling for tests of details of balances is
a. attributes sampling.
b. variables sampling.
c. discovery sampling.
d. monetary-unit sampling.

16. The primary factor affecting the auditor’s decision about ARIA is
a. assessed control risk.
b. assessed inherent risk.
c. the interaction between control risk and inherent risk.
d. sample size.

17. When using monetary-unit sampling, the recorded Peso population is a definition of
a. all the items in the population.
b. the items in the population which the auditor has included in the sample.
c. the items in the population which contain errors.
d. the items in the sample which contain errors.

18. If acceptable audit risk is reduced, ARIA should be

a. increased.
b. reduced.
c. unaffected.
d. modified.

19. In monetary-unit sampling, the relationship between the tolerable misstatement size and the required sample
size is
a. direct; that is, larger tolerable misstatement leads to larger sample size.
b. inverse; that is, larger leads to smaller.
c. varied; that is, sometimes larger = larger, and sometimes larger = smaller.
d. indeterminable.

20. The risk the auditor is willing to take of accepting a balance as correct when the true error in the balance is
greater than the tolerable misstatement is
a. the upper bound.
b. the tolerable risk.
c. the acceptable risk of incorrect acceptance.
d. the lower bound.

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21. Which of the following is the auditor least likely to consider when estimating misstatements in the population?
a. Prior experience with the client.
b. Results of current year tests of controls.
c. Results of analytical procedures already performed.
d. Acceptable audit risk.

22. An accounts receivable population contains a total of four customers. The accounts, the amounts, and the
cumulative total are shown below. Monetary-unit sampling is to be used.

Account Recorded Cumulative

Name Amount Total
Blue P 357 P 357
Brown 281 638
Gray 60 698
Green 574 1,272

Based on the information above, the population size is

a. 4.
b. 574.
c. 1,272.
d. not relevant.

23. An auditor using nonstatistical sampling cannot formally measure sampling error and therefore must
subjectively consider the possibility that the true population misstatement exceeds a tolerable amount. Which
of the following factors should not be considered by the auditor in making this assessment?
a. The Peso difference between the point estimate and tolerable misstatement.
b. The extent to which items in the population have been audited 100 percent.
c. The sample size.
d. All of the above should be considered.

24. When using systematic selection procedures with monetary-unit sampling of accounts receivable, the interval
is determined by
a. consulting a random number table.
b. dividing the population size by the desired sample size.
c. dividing the sample size by the account with the largest Peso value.
d. dividing the population size by the account receivable with the largest Peso value.

25. In a probability-proportional-to-size (PPS) sample, all population physical audit units with an amount equal to
or greater than the amount of the interval will automatically be included in the sample if the auditor uses
a. random selection.
b. systematic selection.
c. block selection.
d. stratified selection.

26. Which of the following actions would be inappropriate when the auditor concludes that the misstatements in a
population may be larger than tolerable misstatement after considering sampling error, the population is not
considered acceptable?
a. Increase the sample size.
b. Conclude that the difference is most likely a consequence of nonsampling risk rather than sampling risk.
c. Request the client to adjust the account balance.
d. Perform expanded audit tests in the affected audit areas.

27. Monetary unit sampling is also referred to as all of the following except
a. attributal sampling.
b. Peso unit sampling.
c. cumulative monetary amount sampling.
d. sampling with probability proportional to size.

28. The appropriate assumption to make regarding the overall percent of error in those population items containing
an error is
a. determined using random number tables.
b. set after a quantitative analysis of client’s internal control system.
c. based on the auditor’s personal judgment in the circumstances.
d. based on statistical analysis using confidence limits.

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29. In the absence of convincing information to the contrary, most auditors believe it is desirable to assume an
overall percent of error in those items containing an error of
a. 100% for both overstatements and understatements.
b. between 5% and 10% for both overstatements and understatements.
c. 20% for overstatements and 200% for understatements.
d. 10% for both overstatements and understatements.

30. When errors are found, a common assumption in practice is to assume

a. a 100% assumption for all errors.
b. that the population errors are larger than the sample errors.
c. that the population errors are smaller than the sample errors.
d. that the actual sample errors are representative of the population errors.

31. Assume that an auditor is interested in using monetary unit sampling to audit a client’s accounts receivable
balance. The balance is composed of 1,502 customer’s accounts. In addition, there are 73,019 invoices that total
P8,276,912. For purposes of applying monetary unit sampling to the client’s accounts receivable, the population
is
a. 1,502.
b. 8,276,912.
c. 73,019.
d. There is insufficient information to determine the population size.

32. Which balance-related audit objective cannot be assessed using monetary unit sampling?
a. Accuracy.
b. Completeness.
c. Existence.
d. All of the above can be assessed using monetary unit sampling.

33. The confidence limits in variables sampling are similar to the monetary-unit sampling’s
a. point estimate.
b. misstatement bounds.
c. standard deviation.
d. standard error of the mean.

34. The method used to measure the estimated total error amount in a population when there is both a recorded
value and an audited value for each item in the sample is
a. difference estimation.
b. mean-per-unit estimation.
c. ratio estimation.
d. monetary-unit sampling.

35. The variables sampling method which generally results in smaller sample sizes than any other method is
a. ratio estimation.
b. difference estimation.
c. monetary-unit sampling.
d. mean-per-unit estimation.

36. The auditor is concerned with the audited value rather than the error amount of each item in the sample when
using
a. difference estimation.
b. mean-per-unit estimation.
c. ratio estimation.
d. monetary-unit sampling.

37. Probability proportional to size samples can be obtained in an efficient manner using all but which of the
following?
a. Hand selection by the auditor.
b. Computer software.
c. Random number tables.
d. Systematic sampling techniques.

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38. The average audited value of items in the sample multiplied times the population size is the
a. point estimate.
b. recorded book value.
c. upper confidence limit.
d. computed precision interval.

39. Which of the following items does not have to be calculated, or estimated, in applying monetary unit sampling?
a. A point estimate for misstatements.
b. A sample size.
c. Acceptable risk of incorrect acceptance.
d. All of the above must be calculated.

40. While performing a substantive test of details during an audit, the auditor determined that the sample results
supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not
materially misstated. This situation illustrates the risk of
a. incorrect rejection.
b. incorrect acceptance.
c. assessing control risk too low.
d. assessing control risk too high.

41. An auditor using nonstatistical sampling cannot

a. draw a random sample.
b. determine a point estimate for the population.
c. mathematically measure the precision of the point estimate.
d. do any of the three above.

42. In monetary-unit sampling, the values of the estimated likely maximum misstatements are referred to as the
a. point estimates.
b. precision intervals.
c. confidence intervals.
d. misstatement bounds.

43. When using monetary-unit sampling, evaluating the likelihood of unrecorded items in the population
a. is unnecessary.
b. is impossible.
c. is possible but difficult.
d. is an automatic outcome of the process.

44. What is the most common “percent of misstatement assumption” used in applying monetary unit sampling?
a. 20 percent for overstatements and 100 percent for understatements.
b. 200 percent for overstatements and 100 percent for understatements.
c. 100 percent for overstatements and 100 percent for understatements.
d. 10 percent for overstatements and 10 percent for understatements.

45. The statistical methods used to evaluate monetary-unit samples

a. neither exclude nor include units twice.
b. permit the inclusion of a unit in the sample more than once.
c. do not permit a unit to be included in the sample more than once.
d. ignore the possibility that a unit may be included in a sample more than once.

46. Which of the following is not a problem with monetary-unit selection?

a. Population items with a zero recorded balance.
b. Population items that should have a zero balance but do not.
c. Accounts with negative balances.
d. Accounts with small recorded balances that are significantly understated.

47. The statistical results when monetary-unit sampling is used are referred to as
a. confidence intervals.
b. balances.
c. computed upper and lower deviation rate.
d. misstatement bounds.

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48. Because tables are used in the calculation of misstatement bounds, the point estimate and sampling error are
not calculated. This is because
a. they are extraneous and not needed.
b. this method determines the amount of error exactly, and doesn’t need to develop a range.
c. their calculation is impossible with this method.
d. the tables include both the point estimate and the sampling error to derive the upper bound.

49. Monetary-unit sampling, just like attributes sampling, requires that the auditor evaluate the nature and cause
of the errors discovered. An important part of error analysis is deciding
a. if the error represents sampling risk.
b. whether an adjusting entry is needed.
c. the type of opinion to express on this engagement.
d. whether any modification of the audit risk model is needed.

50. There are many kinds of statistical estimates that an auditor may find useful, but basically every accounting
estimate is either of a quantity or of an error rate. The statistical terms that roughly correspond to “quantities”
and “error rate,” respectively, are
a. attributes and variables.
b. variables and attributes.
c. constants and attributes.
d. constants and variables.

51. If the auditor believes that there will be more than just a few exceptions discovered, and desires an accurate
estimate of the Peso value of the exceptions, he or she will use
a. attributes sampling.
b. monetary-unit sampling.
c. block sampling.
d. variables sampling.

52. Stratified sampling is applicable to difference, mean-per-unit, and ratio estimation, but it is most commonly
used with
a. ratio estimation.
b. discovery sampling.
c. difference estimation.
d. mean-per-unit estimation.

53. An important statistic to consider when using a statistical sampling audit plan is the population variability. The
population variability is measured by the
a. sample mean.
b. standard deviation.
c. standard error of the sample mean.
d. estimated population total minus the actual population.

54. Using statistical sampling to assist in verifying the year-end accounts payable balance, an auditor has
accumulated the following data:
Balance
Number of Book determined by
accounts balance the auditor
Population: 4,100 P5,000,000 ?
Sample: 200 P 250,000 P300,000

Using the ratio estimation technique, the auditor’s estimate of year-end accounts payable balance would be
a. P5,050,000.
b. P5,125,000.
c. P6,000,000.
d. P6,150,000.

55. Why do auditors find MUS appealing?

a. MUS increases the likelihood of selecting high Peso items.
b. MUS is easy to use in the audit environment.
c. MUS provides a statistical, rather than a nonstatistical, conclusion.
d. All of the above.

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56. In the application of statistical techniques to the estimation of Peso amounts, a preliminary sample is usually
taken primarily for the purpose of estimating the population
a. mode.
b. range.
c. median.
d. variability.

Factors influencing sample size for tests of control a b

57. An increase in the auditor’s intended reliance on accounting and internal

Increase Decrease
control systems.

58. An increase in the rate of deviation from the prescribed control procedure
Increase Decrease
that the auditor is willing to accept. Tolerable error.

59. An increase in the rate of deviation from the prescribed control procedure
Increase Decrease
that the auditor expects to find in the population. Expected error.

60. An increase in the auditors required confidence level (or conversely, a

decrease in the risk that the auditor will conclude that the control risk is Increase Decrease
lower than actual control risk in the population.

Negligible
61. An increase in the number of sampling units un the population
effect

Factors influencing sample size for substantive procedures a b

62. An increase in the auditor’s assessment of inherent risk. Increase Decrease

63. An increase in the auditor’s assessment of control risk. Increase Decrease

64. An increase in the use of other substantive procedures directed at the same
Increase Decrease
financial statement assertion

65. An increase in the auditor’s required confidence level (or conversely, a

decrease in the risk that the auditor will conclude that a material error does Increase Decrease
not exist, when in fact it does not exist).

66. An increase in the total error that the auditor is willing to accept. Tolerable
Increase Decrease
error.

67. An increase in the amount of error that auditor expects to find in the
Increase. Decrease
population. Expected error.

68. Stratification of the population when appropriate Increase Decrease

Negligible
69. The number of sampling units in the population
effect

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