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6. In order to quantify the risk that sample evidence leads to erroneous conclusions
about the sampled population
a. Each item in the sampled population must have an equal chance of being
selected.
b. Each item in the sampled population must have a chance of being selected
proportional to its book value.
c. The precise number of items in the population must be known.
d. Each item in the sampled population must have an equal or known probability of
being selected.
7. Which of the following statements is not true regarding audit risk assessment?
a. The auditor studies the business and industry and applies analytical
procedures as a basis for assessing inherent risk.
b. When control risk and inherent risk are high, the auditor increases detection
risk to maintain overall audit risk at the desired level.
c. The auditor studies and evaluates internal control policies and procedures for
assessing control risk.
d. The auditor designs substantive audit procedures to reduce detection risk to
an acceptable level.
9. Random numbers can be used to select a sample only when each item in the
population:
a. Can be assigned to a specific stratum.
b. Is independent of outside influence.
c. Can be identified with a unique number.
d. Is expected to be within plus or minus three standard deviations of the
population mean.
12. Of the following statements, which one best differentiates statistical sampling
from non-statistical sampling?
a. Non-statistical sampling has greater applicability to large populations than
statistical sampling.
b. Statistical sampling is a mathematical approach to inference, whereas non-
statistical sampling is a more subjective approach.
c. Non-statistical sampling is more subjective, but produces greater consistency
in the application of audit judgment.
d. Nonstatistical sampling has greater applicability to populations that lend
themselves to random selection.
13. Attribute sampling, as applied to control testing, can assist the auditor in
several ways. Which of the following tasks is not enhanced by sampling?
a. Examining the documents.
b. Determining the number of documents to examine in testing for a specific
attribute.
c. Selecting the documents to be tested.
d. Evaluating the sample results.
16. The precision limit for control testing necessary to justify lowering the
assessed control risk level depends primarily on which of the following?
a. The cause of the errors.
b. The amount of any substantive errors.
c. The materiality of the attribute(s) to be tested.
d. The limit used in audits of similar clients.
18. In the examination of the financial statements of Delta Company, the auditor
determines that in performing a test of internal control effectiveness, the rate
of error in the sample does not support the auditor's preconceived notion of a
tolerable occurrence rate when, in fact, the actual error rate in the population
does meet the auditor's notion of effectiveness. This situation illustrates the
risk of
a. Underassessment of control risk.
b. Incorrect rejection.
c. Overassessment of control risk.
d. Incorrect acceptance.
19. If all other factors in a sampling plan are held constant, changing the risk of
underassessment from five percent to three percent would cause the sample size to
be:
a. Smaller.
b. Unchanged.
c. Larger.
d. Indeterminate.
20. In a variables sampling application, which of the following will result when the
confidence level is changed from 90% to 95%?
a. Standard error of the mean will not be affected.
b. Non-sampling error will decrease.
c. Sample size will increase.
d. Point estimate of the arithmetic mean will increase.
d. Continue to draw new samples until a sample is drawn which includes none of
the items known to be subject to large amounts of shrinkage.
23. An auditor performs a test to determine whether all merchandise for which the
client was billed was received. The population for this test consists of all
a. Merchandise received.
b. Canceled checks.
c. Vendors' invoices.
d. Receiving reports.
24. Although mathematically based, statistical sampling does not replace audit
judgment. In utilizing statistical sampling techniques, the auditor must apply
judgment in all but which of the following tasks?
a. Selecting a tolerable rate of error.
b. Determining an acceptable risk of under assessing control risk.
c. Calculating the actual error rate.
d. Assessing the materiality of control weaknesses.
29. If an auditor, planning to use statistical sampling, is concerned with the number
of a client's sales invoices that contain mathematical errors, the auditor would
most likely utilize
a. Random sampling with replacement.
b. Sampling for variables.
c. Sampling for attributes.
d. Stratified random sampling.
31. Several risks are inherent in the evaluation of audit evidence which has been
obtained through the use of statistical sampling. Which of the following risks
is an example of the risk of underassessment of control risk?
a. Failure to properly define the population to be sampled.
b. Failure to draw a random sample from the population.
c. Failure to accept the statistical hypothesis that internal control is
unreliable when, in fact, it is.
d. Failure to accept the statistical hypothesis that a book value is not
materially misstated when the true book value is not materially misstated.
33. If all other factors specified in an attribute sampling plan remain constant,
changing the specified precision from 6% to 10%, and changing the specified
reliability from 97% to 93% would cause the required sample size to
a. Increase.
b. Remain the same.
c. Decrease.
d. Change by 4%.
34. Use of the difference estimation sampling technique to estimate dollar amounts is
inappropriate when
a. The total book value is known and corresponds to the sum of all the individual
book values.
b. There are some observed differences between audited values and book values.
c. A book value for each sample item is unknown.
d. The audited values are nearly proportional to the book value.
36. A bank auditor is interested in estimating the average account balance of its
depositors based on a sample. This substantive test is an example of
a. Attribute sampling.
b. Discovery sampling.
c. Variables sampling.
d. Acceptance sampling.
37. Which of the following factors is generally not considered in determining the
sample size for a test of controls?
a. Tolerable rate.
b. Risk of underassessment.
c. Population size.
d. Expected population occurrence rate
38. The expected population occurrence rate of client billing errors is 3%. The
auditor has established a tolerable rate of 5%. In the review of client invoices
the auditor should use
a. Stratified sampling.
b. Variable sampling.
c. Attribute sampling.
d. Discovery sampling.
39. An auditor who uses statistical sampling for attributes in testing internal
controls should increase the assessed level of control risk when the
a. Sample occurrence rate is less than the expected occurrence rate used in
planning the sample.
b. Tolerable rate less the allowance for sampling risk exceeds the sample
occurrence rate.
c. Sample occurrence rate plus the allowance for sampling risk exceeds the
tolerable rate.
d. Sample occurrence rate plus the allowance for sampling risk equals the
tolerable rate.
42. Precision is defined as the range (plus or minus) within which the true answer
most likely falls. Reliability, also referred to as the confidence level, is the
likelihood that the sample range contains the true value. Of the following
statements concerning precision and reliability, which one is not true?
a. Precision is set by the auditor and is a function of materiality and risk.
b. An increase in control risk, other parameters remaining unchanged, causes a
narrowing of the precision range.
c. The narrower the range of precision, the smaller the sample size.
d. Overall audit risk is the complement of reliability.
43. In an application of mean per unit sampling, the following information has been
obtained:
Reported book value P 600,000
Point estimate (estimated total value) 591,000
Allowance for sampling risk (precision) +- 22,000
Tolerable error +- 45,000
47. Management has asked the internal auditing staff to evaluate the efficiency of
the accounts payable system, particularly whether it would be economically
feasible to reduce the number of discounts lost through slow payment. The audit
staff decides that it needs to determine the amount currently being lost and can
do so by taking a sample from payments made in the last six months, examining
each, and recording the amount, if any, of the discount lost. This information
can be used to project the total amount of discounts lost for the period. This
proposed plan is an example of
a. Attribute sampling.
b. Acceptance sampling.
c. Variables sampling.
d. Discovery sampling.
50. If all other factors in a sampling plan are held constant, changing the measure
of tolerable error to a smaller value would cause the sample size to be:
a. Smaller.
b. Unchanged.
c. Larger.
d. Indeterminate.
51. Which of the following sampling plans would be designed to estimate a numerical
measurement of a population, such as a dollar value?
a. Numerical sampling.
b. Discovery sampling.
c. Sampling for variables.
d. Sampling for attributes.
52. Based on a random sample, it is estimated that four percent, plus or minus two
percent, of a firm's invoices contain errors. The plus or minus two percent is
known as the estimate's:
a. Accuracy.
b. Confidence level.
c. Precision.
d. Standard error.
55. In sampling for variables, which of the following must be known in order to
estimate the appropriate sample size required to meet the auditor's needs in a
given situation?
a. The total amount of the population.
b. The desired standard deviation.
c. The desired confidence level.
d. The estimated rate of error in the population.
56. Which of the following best illustrates the concept of sampling risk?
a. An auditor may select audit procedures that are not appropriate to achieve the
specific objective.
b. An auditor may fail to recognize errors in the documents examined for the
chosen sample.
c. A randomly chosen sample may not be representative of the population as a
whole on the characteristic of interest.
d. The documents related to the chosen sample may not be available for
inspection.
57. Which of the following statements concerning alpha and beta risk is true?
a. As alpha risk increases, beta risk decreases.
b. As inherent risk and/or control risk increase, beta risk should also increase.
c. As inherent risk and/or control risk increase, beta risk should decrease.
d. As a "rule of thumb," the auditor generally sets beta risk equal to or less
than 10%, inasmuch as it is the basis for the audit opinion.
60. A number of factors influences the sample size for a substantive test of details
of an account balance. All other factors being equal, which of the following
would lead to a larger sample size?
a. Lowering of assessed level of control risk.
b. Lowering of assessed inherent risk through use of analytical review
procedures.
c. Smaller measure of tolerable error.
d. Smaller expected frequency of errors.