Since 1977

AUDITING THEORY L. R. CABARLES/J. D. MAGLINAO

AT.2813—Determining the Extent of Testing MAY 2020

Suggested Readings:
1. PSA 530, Audit Sampling
2. Chapter 11, Auditing: A Risk-Based Approach, Part 1-Theory 2019 Issue—1st Edition by Cabarles/Ocampo/Valdez

DISCUSSION QUESTIONS
Introduction a. variables sample.
1. In performing tests of controls and tests of details, the b. representative sample.
extent and selection of items to test include c. attributes sample.
a. All items. d. random sample.
b. Specific non-representative items.
c. Audit sampling. 8. Which of the following would cause a sampling error
d. All of the above. (or sampling risk) in an audit of financial statements?
a. Selecting a non-representative sample
2. Evaluate whether each of the following statements b. Selecting inappropriate audit procedures
qualifies as sampling: c. Applying audit procedures improperly
1.1 – Test performed on 100% of the items within a d. Interpreting results inappropriately
population
1.2 – Selecting items over a certain amount 9. The risk that the auditor’s conclusion based on a
1.3 – Selecting items for the total population on the sample may be different from the conclusion if the
basis that was expected to be representative entire population were subjected to the same audit
a. 1.1, 1.2, 1.3 qualify procedure
b. 1.1 and 1.2 qualify; 1.3 does not qualify a. Sampling risk
c. 1.1 and 1.2 do not qualify; 1.3 qualifies b. Confidence levels
d. 1.1, 1.2, 1.3 do not qualify c. Statistical sampling
d. Tolerable rate and the expected rate of deviation
Testing All Items (100%)
3. Performing 100% testing is least likely possible in 10. At times a sample may indicate in the case of a test of
which of the following? controls, that controls are more effective than they
a. Large value but small in number accounts. actually are. This situation illustrates the risk of
b. Assertions with assessed significant risks. a. Over-reliance.
c. Testing customer credit approvals. b. Under-reliance.
d. Use of CAATs. c. Incorrect precision.
d. Incorrect rejection.
Testing Specific Non-representative Items
4. Testing specific items does not include selecting 11. At times a sample may indicate in the case of a test of
a. High value or key items. details that a material misstatement does not exist
b. Items to obtain certain information. when in fact it does. This situation illustrates the risk
c. Items to test the operation of certain control of
activities. a. Incorrect rejection
d. Representative sample to conclude for an entire b. Incorrect acceptance
population. c. Over reliance
d. Under reliance
Audit Sampling
5. This involves the application of audit procedures to less 12. The risk likelihood of assessing control risk too low
than 100 percent of items within a population of audit (risk of over reliance) and risk of incorrect acceptance
relevance such that all sampling units have a chance of relate to the
selection a. Efficiency of the audit
a. Audit sampling. b. Effectiveness of the audit
b. Specific selection. c. Preliminary estimates of materiality levels
c. Audit simulation. d. Allowable risk of tolerable misstatements
d. Audit population.
13. Sampling risk may be controlled by:
6. Which of the following causes an inappropriate Increasing the sample Using an appropriate
conclusion or audit risk? size sample selection
a. Sampling risk. method
b. Non-sampling risk. a. Yes Yes
c. Both a and b. b. Yes No
d. Neither a nor b. c. No Yes
d. No No
7. A sample in which the characteristics of the sample are
the same as those of the population is a(n):

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EXCEL PROFESSIONAL SERVICES, INC.
14. To determine if a sample is truly representative, an
auditor must:
a. conduct multiple samples of the same population.
b. never use sampling because of the expense
involved.
c. audit the entire population.
d. use systematic sample selection.
15. In practice, auditors _________ know if a sample is
truly a representative one.
a. sometimes
b. often
c. routinely
d. never
16. The risk that the auditor does not recognize
misstatements or deviations included in the sample for
what they are
a. Sampling risk
b. Confidence levels
c. Statistical sampling
d. Nonsampling risk
17. Which of the following is not an element of
nonsampling risk?
a. The auditor uses inappropriate procedures in
auditing accounts receivable
b. The use of unreasonable small sample size
c. Misinterpretations of audit evidence
d. Auditor fails to recognize the error in the sample
The 10-Step Audit Sampling Process
18. Which of the following is not one of the basic phases in
audit sampling?
a. Planning the sample.
b. Selecting the sample and performing the tests.
c. Evaluating the results of the sample.
d. Each of the above is a phase in audit sampling.
Step 1—Define the objective (purpose) of test
19. In defining the objective of tests of controls or tests of
details, an auditor should consider which of the
following to perform the appropriate audit procedures
and obtain relevant audit evidence?
a. Financial statements assertions.
b. Materiality.
c. Population.
d. Sampling risk.
Step 2—Define the deviation or misstatement
20. In performing tests of controls, a deviation refers to
a. A departure from adequate control performance.
b. A difference between the recorded amount and the
amount the auditor determines to be appropriate.
c. A voided sample.
d. The presence of characteristics of control.
Step 3—Identify the relevant population
Step 4—Determine the relevant sampling unit
21. Population is
a. A process that divides population into sub-
populations which have an identifying
characteristic and reduces the variability of items
within each stratum and allows sample size to be
reduced without increasing sampling risk
b. A selection that treats each sampling unit as the
individual monetary units that make up the
population.
c. The individual items constituting a population.
d. The entire set of data from which a sample is
selected and about which the auditor wishes to
draw conclusions.
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22. The sampling units might be
a. Physical items (for example, checks listed on
deposit slips, credit entries on bank statements,
sales invoices or debtors’ balances).
b. Monetary units.
c. Either a or b.
d. Neither a nor b.
23. In identifying the relevant population, an auditor
should consider
a. Direction of testing.
b. Completeness.
c. For tests of details, stratification or value-weighted
selection.
d. All of the above.
24. In performing vouching, an auditor should obtain a
sample from a population of
a. Records.
b. Supporting documents.
c. Actual items.
d. Any of the above.
25. To ensure completeness of a population in audit
sampling, an auditor may test boundaries and totality
of population by
a. The first and last numbers of prenumbered
documents, or the beginning and ending days of
an audit period.
b. Accounting for numerical sequence of prenumbered
documents.
c. Footing population items and comparing to control
total.
d. All of the above.
26. In statistical sampling methods used in substantive
testing, an auditor most likely would stratify a
population into meaningful groups which have similar
characteristics (often monetary value) if
a. Probability proportional to size (PPS) sampling is
used
b. The population has highly variable recorded
amounts
c. The auditor’s estimated tolerable misstatement is
extremely small.
d. The standard deviation of recorded amount is
relatively small.
27. When selecting a stratified sample, the sample size is:
a. determined for the unstratified population and then
apportioned to each stratum.
b. determined for each stratum and selected from
that stratum.
c. determined for each stratum and selected
randomly from the entire unstratified population.
d. always larger than if unstratified sampling had
been used.
28. When using monetary-unit sampling, the recorded
amount population is a definition of all the items in
the:
a. population.
b. population which the auditor has included in the
sample.
c. population which contain errors.
d. sample which contain errors.
29. An auditor is applying probability-proportional-to-size
(PPS) sampling (a.k.a., combined attributes-variables
(CAV) sampling, cumulative monetary amount (CMA)
sampling, dollar-unit sampling (DUS), monetary unit
sampling (MUS), and value-weighted selection). If the
population consists of 200 items and is represented by
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P1,000,000 what is the probability the auditor will
select for testing an account recorded at P100,000?
a. .005.
b. .100.
c. .025.
d. Not determinable from the facts given.
Step 5—Select the appropriate sampling approach
30. The two general approaches to audit sampling are
a. Random and nonrandom
b. Statistical and nonstatistical
c. Precision and reliability
d. Risk and nonrisk
31. An advantage of statistical sampling—which applies the
laws of probability to selecting sample items for
examination and evaluating sample results—over
nonstatistical sampling is that statistical sampling
helps an auditor to
a. Minimize the failure to detect errors and
irregularities.
b. Eliminate the risk of nonsampling errors.
c. Reduce the level of audit risk and materiality to a
relatively low amount.
d. Mathematically measures sampling risk.
32. A nonstatistical sampling plan can:
a. Overstate the estimate of sampling risk
b. Misdirect an auditor to unreliable sampling units
c. Replicate the results of a statistical sampling plan
d. Understate the degree of audit assurance desired
Test of Controls
33. Which of the following sampling methods is most
useful to auditors when performing tests of controls?
a. Discovery sampling.
b. Attribute estimation/sampling.
c. Variable sampling.
d. Unrestricted random sampling with replacement.
34. It refers to the statistical sampling plan that does not
use a fixed sample size for tests of controls. It is
sometimes called “stop-or-go” sampling because the
plan allows the audit team to stop after examining a
relatively small sample and evaluate the results. If the
results are clearly acceptable or clearly unacceptable,
the audit team can draw its conclusion; if the results
are inconclusive, the audit team can go forward and
examine additional items.
a. Ratio estimation sampling
b. Sequential sampling
c. MUS sampling
d. Variables sampling
35. If the auditor is concerned that a population may
contain exceptions, the determination of a sample size
sufficient to include at least one such exception is a
characteristic of
a. Discovery sampling.
b. Variables sampling.
c. Random sampling.
d. PPS sampling.
36. Discovery sampling should be used to estimate
whether a population contains
a. Errors of any kind.
b. Noncritical errors.
c. Critical deviations.
d. No errors.
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Test of Details
37. Which of the following sampling methods would be
used to estimate a numerical measurement of a
population, such as a peso value?
a. Attributes sampling
b. Stop-or-go sampling
c. Variables sampling
d. Random sampling
38. The following are the classical variables techniques,
except:
a. Ratio estimation
b. Mean-per-Unit (MPU) estimation
c. Value weighted selection
d. Difference estimation
39. The auditor selected samples of 200 with recorded
amount or P208,000, from population of 1,000
inventory items with total recorded amount of
P1,040,000. After performing the necessary audit
procedures, the auditor determined that the adjusted
amount of the samples is P196,000. Which of the
following illustrates difference estimation approach to
projecting sample misstatement to population?
a. Average audited amount of 200 samples divided by
200, equals P980. The estimated inventory balance
is then calculated as P980,000 (P980 X 1,000).
b. The difference of P12,000 is divided by the number
of sample items (200) to yield an average
difference of P60. The auditor then multiplies the
average difference by the number of items in the
population to calculate a total difference of
P60,000 (P60 X 1,000) and the difference is
subtracted from the total recorded amount to
obtain an estimated inventory balance of
P980,000.
c. The ratio of the sum of the sample’s audited
amounts to the sum of the sample’s recorded
amounts would have been 0.94 (P196,000 /
P208,000). The auditor would multiply the total
recorded amount for the population by this ratio
(0.94) to obtain an estimate of the inventory
balance of P978,000 (P1,040,000 X 0.94).
d. None of the above.
40. Classical variables sampling uses the laws of
probability, the normal distribution theory, and the
central limit theorem to estimate range of
a. The amount of misstatement in the account
balance or class of transactions.
b. The true balance for an account balance or class of
transactions.
c. Either a or b.
d. Neither a nor b.
41. The distinguishing feature of Monetary-unit sampling
(MUS) is that it tends to select higher transactions or
components within an account balance for
examination. MUS is not particularly effective at
detecting:
a. overstatements.
b. understatements.
c. errors in current assets.
d. errors in noncurrent assets.
42. Which of the following is not a problem with monetary-
unit selection?
a. Population items with a zero recorded balance.
b. Accounts with negative balances.
c. Accounts with small recorded balances that are
significantly understated.
d. Population items that should have a zero balance
but do not.
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Step 6—Determine the sufficient sample size d. Unrelated to the expected rate of errors in the
Test of Controls related accounting records.
43. When sampling for attributes, which of the following
would decrease sample size? 49. Which of the following statements is most likely
a b c d incorrect regarding high expected deviation rate and
Operating Increase Decrease Increase Decrease high expected misstatement relating to sampling used
effectiveness for tests of controls and tests of details, respectively?
of controls a. If the expected rate of deviation is unacceptably
Tolerable rate Decrease Increase Increase Increase high, the auditor will normally decide not to
of deviation perform tests of controls.
Expected Increase Decrease Decrease Decrease b. If the expected misstatement is high, the auditor
control will normally decide not to perform tests of details.
deviation c. If the expected misstatement is high, 100%
Risk of over Decrease Increase Increase Decrease examination may be appropriate when performing
reliance tests of details.
d. If the expected misstatement is high, use of a
44. Which of the following statements is correct concerning large sample size may be appropriate when
statistical sampling in tests of controls? performing tests of details
a. There is an inverse relationship between the
sample size and the expected control deviation Test of Details
rate. 50. In substantive testing, which of the following would
b. As the population size doubles, the sample size increase sample size?
should also double. a b c d
c. The qualitative aspects of deviations are not Assessment Increase Increase Increase Decrease
considered by the auditor. of control risk
d. There is an inverse relationship between the Reliance on Increase Decrease Decrease Increase
sample size and the tolerable rate of deviation. other
substantive
45. The tolerable rate of deviation is the maximum rate of procedures
Tolerable Decrease Increase Decrease Increase
deviations permissible by the audit team without
misstatement
modifying the planned assessed level of control risk. In
Expected Increase Decrease Increase Decrease
determining the tolerable rate of deviation, the audit
amount of
team should consider misstatement
a. The planned assessed level of control risk. Risk of Decrease Increase Decrease Increase
b. The degree of assurance desired by the audit incorrect
evidence in the sample. acceptance
c. If a control is judged to be more important and
would result in a more significant reduction in 51. Determine which of the following would lead to a larger
substantive testing, the tolerable rate of deviation sample size for substantive test of details of an
should be established at lower levels. account balance. Assume all other factors being equal.
d. All of the above. a. Smaller measure of tolerable misstatement
b. Greater reliance of analytical procedures
46. In determining the acceptable level of the risk of c. Greater reliance on internal controls
overreliance (i.e., the sampling risk), an auditor should d. Smaller expected frequency of errors
consider
a. The planned assessed level of control risk. 52. When planning a test of details using MUS sampling,
b. The degree of reliance that the audit team wishes tolerable misstatement is usually set
to place on the client’s internal control. a. higher than planning materiality.
c. As the planned level of control risk is lower, it b. lower than planning materiality.
becomes quite important for the audit team to c. either higher or lower than planning materiality.
reduce the exposure to the risk of overreliance. d. the same as materiality.
d. All of the above.
53. Tolerable misstatement may be _____ amount than
47. How is the expected population deviation rate performance materiality?
determined? a. higher, lower or the same.
a. Rate of deviations from prior engagements b. high or lower.
adjusted, if any, for controls improvement or c. lower or the same.
deterioration during the current year. d. the same.
b. Use a small sample (referred to as a pilot sample)
to estimate the rate of deviations in case of initial 54. In determining the acceptable level of the risk of
audit. incorrect acceptance (i.e., the sampling risk), for
c. Either a or b. example 10%, an auditor should consider
d. Neither a nor b. a. The audit risk.
b. The risks of material misstatement (i.e., inherent
48. The tolerable rate of deviations for a test of controls is risk and control risk).
generally c. The analytical procedures risk.
a. Lower than the expected rate of errors in the d. All of the above.
related accounting population.
b. Higher than the expected rate of errors in the Step 7—Select the representative sample items
related accounting records. 55. The audit team’s basic goal in selecting a sample is to
c. Identical to the expected rate of errors in the increase the likelihood that it is representative of the
related accounting records. population, thereby reducing sampling risk. For
example, if the audit team is examining a sample of

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EXCEL PROFESSIONAL SERVICES, INC.
sales invoices, this sample should include sales
invoices that
a. Have been prepared throughout the year.
b. Represent both large and small amounts.
c. Have been prepared by different individuals
involved in the invoice preparation process and
represent different customers or geographic areas.
d. All of the above.
56. Identify the sample selection method used, following
the same order:
I. Selecting items using a constant interval between
selections; the first interval having a random start.
II. Selecting items from the entire population with no
intention to include or exclude specific units
III. All items in the population or within each stratum
have a known chance of selection
a. Systematic, random, haphazard.
b. Systematic, haphazard, random.
c. Haphazard, systematic, random.
d. Random, systematic, haphazard.
57. An underlying feature of random-based selection of
items is that each
a. Stratum of the accounting population be given
equal representation in the sample.
b. Item in the accounting population be randomly
ordered.
c. Item in the accounting population should have an
opportunity to be selected.
d. Item must be systematically selected using
replacement.
58. 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.
59. In systematic sample selection, the population size is
divided by the number of sample items desired in
order to determine the:
a. sampling interval.
b. tolerable exception rate.
c. computed upper exceptions rate.
d. mean.
60. 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 value.
d. dividing the population size by the account
receivable with the largest value.
61. One unique feature of using systematic random
selection in MUS is that the sampling unit is defined as
an individual amount within a population. The audit
team examines the logical unit (e.g., a transaction, a
customer balance, etc.) that contains the individual
sampling unit that is selected for examination. 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.
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d. ignore the possibility that a unit may be included in
a sample more than once.
62. Which of the following sample selection techniques is
least desirable for use by an auditor?
a. Systematic selection
b. Stratified selection
c. Block selection
d. Sequential selection
Step 8—Perform the testing and evaluate evidence
63. An auditor is testing internal control procedures that
are evidenced on an entity’s vouchers by matching
random numbers with voucher numbers. If a random
number matches the number of a voided voucher, that
voucher ordinarily should be replaced by another
voucher in the random sample if the voucher
a. Constitutes a deviation.
b. Has been properly voided.
c. Cannot be located.
d. Represents an immaterial peso amount.
64. An auditor plans to examine a sample of 20 purchase
orders for proper approvals as prescribed by the
client’s internal control procedures. One of the
purchase orders in the chosen sample of 20 cannot be
found, and the auditor is unable to use alternative
procedures to test whether that purchase order was
properly approved. The auditor should
a. Chose another purchase order to replace the
missing purchase order in the sample.
b. Consider this test of control invalid and proceed
with substantive tests since internal control cannot
be relied upon.
c. Treat the missing purchase order as a deviation for
the purpose of evaluating the sample.
d. Select a completely new set of 20 purchase orders.
Step 9—Evaluate the test results and reach conclusion
65. Anomalous error means
a. An error (deviation or misstatement) that arises
from an isolated event that has not recurred other
than on specifically identifiable occasions and is
therefore not representative of errors in the
population.
b. An deviation or misstatement (error) that the
auditor expects to be present in the population.
c. Rate of deviation from prescribed internal control
procedures set by the auditor in respect of which
the auditor seeks to obtain an appropriate level of
assurance that the rate of deviation set by the
auditor is not exceeded by the actual rate of
deviation in the population.
d. Monetary amount set by the auditor in respect of
which the auditor seeks to obtain an appropriate
level of assurance that the monetary amount set
by the auditor is not exceeded by the actual
misstatement in the population.
66. Regardless of the results of the attributes sampling
application, the audit team should conduct a
qualitative evaluation of deviations to determine their
nature and cause. A qualitative evaluation of
deviations attempts to answer questions such as:
a. Do deviations represent a pervasive error made
consistently on all transactions or an isolated
mistake made on a specific transaction?
b. Are deviations intentional or unintentional in
nature? Do deviations represent a
misunderstanding of instructions or careless
attention to duties?
c. Do deviations have implications with regard to the
effectiveness of other controls?
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d. All of the above.
67. Which of the following statements regarding projecting
the results of audit sampling is incorrect?
a. For tests of details, the auditor shall project
misstatements found in the sample to the
population.
b. When a misstatement has been established as an
anomaly, it may be excluded when projecting
misstatements to the population.
c. Projected misstatement may not be sufficient to
determine an amount to be recorded.
d. For tests of controls, projection of deviations is
necessary.
Test of Controls
Use the following information for the next two questions:
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 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
½% 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 achieved upper
precision limit to be 8%.
68. The allowance for sampling risk was
a. 5 ½% c. 3 ½%
b. 4 ½% d. 1%
69. In the evaluation of this sample, the auditor decided to
increase the level of preliminary assessment of control
risk (CR is high) because the
a. Tolerable rate (7%) was less than the achieved
upper precision limit (8%).
b. Expected deviation rate (7%) was more than the
percentage of errors in the sample (3 ½%).
c. Achieved upper precision limit (8%) was more than
the percentage of error in the sample 3-1/2%).
d. Expected deviation rate (2 - ½ %) was less than
the tolerable rate (7%).
DO-IT-YOURSELF (DIY) DRILL
1. Which of the following is not an aspect of sampling
risk?
a. Risk of assessing control risk too high
b. Risk of not identifying a misstatement included in a
sample
c. Risk of incorrect acceptance
d. Risk of sampling results indicating that a
population is materially misstated when it is not
2. Which of the following is true about sampling and
nonsampling risks?
a. Sampling risk can be reduced by increasing the
sample size
b. Sampling risk cannot be eliminated
c. Nonsampling risk can be eliminated by proper
engagement planning, supervision and review
d. Nonsampling risk arises from the possibility that
the auditor’s conclusion, based on a sample may
be different from the conclusion reached if the
entire population were subjected to the same audit
procedure
3. In performing substantive tests, the auditor is
concerned with errors of sampling
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70. When the upper precision limit exceeds the tolerable
rate of deviation, the auditor may
a. Reduce reliance on internal control.
b. Expand the sample to examine a larger number of
items by at least the number of items in the
original sample, as a rule of thumb.
c. Either a or b.
d. Neither a nor b.
Test of Details
71. An auditor is evaluating the results of a variables
sampling plan. Which of the following is not relevant to
the auditor's judgment about the sample?
a. Management's explanations for why errors in the
sample occurred.
b. Projecting the sample error to the population.
c. Considering the effects of sampling risk.
d. Qualitative information that lends insight into
errors found.
72. Which one of the following is a proper course of action
for the auditor when the upper misstatement limit
exceeds the tolerable misstatement?
a. Analyze the detected misstatements for some
common problems.
b. The auditor can ask the client to correct the known
misstatements or investigate misstatements that
have been identified and the potential for further
misstatements and to make any necessary
adjustments.
c. The auditor can expand the sample. If enough
additional items are examined and no additional
misstatements are detected, the recalculated
upper limit on misstatements could fall below the
tolerable misstatement to enable the audit team
could conclude that the financial statements were
not materially misstated
d. All of the above.
Step 10—Complete documentation
- now do the DIY drill -
The risk of incorrect rejection (Alpha error or Type I
error)
The risk of incorrect acceptance (Beta error or Type II
error)
Which of the following is true about alpha and beta
errors?
a. The alpha error is of greater concern to the
auditor than beta error
b. The beta error is of greater concern to the auditor
than alpha error
c. The alpha error and the beta error are of equal
importance to the auditor
d. Neither the alpha error nor beta error need be
considered by the auditor
4. 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. That include irregularities will not be overlooked
when the auditor exercises compatible reciprocal
options.
b. May occur in a systematic pattern, thus making the
sample more representative.
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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.
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. In testing payroll transactions, an auditor discovers
that four out of a statistical sample of one hundred
selected time cards were not signed by the appropriate
supervisor. To evaluate the materiality or significance
of this control deficiency, the auditor should
a. Compare the tolerable deviation rate with the
expected deviation rate.
b. Compute an upper precision limit and compare
with the tolerable rate.
c. Evaluate the amount of the four time cards in
relation to the financial statements.
d. Report the deviations and let management assess
the significance because they are in the best
position to know.
7. Assuming the tolerable deviation rate is 5 percent, the
expected population rate is 3 percent, and the
allowance for sampling risk is 2 percent, what should
an auditor conclude if tests of 100 randomly selected
documents reveal 4 deviations?
a. Accept the sample results as support for assessing
control risk below the maximum because the
tolerable rate less the allowance for sampling risk
equals the expected population deviation rate.
b. Assess control risk at the maximum because the
sample deviation rate plus the allowance for
sampling risk exceeds the tolerable rate.
c. Assess control risk at the maximum because the
tolerable rate plus the allowance for sampling risk
exceeds the expected population deviation rate.
d. Accept the sample results as support for assessing
control risk below the maximum because the
sample deviation rate plus the allowance for
sampling risk exceeds the tolerable rate.
8. Statistical sampling techniques may be used to sample
“attributes” as well as “variables”. An example of a
“variable” that can be tested using statistical sampling
technique would be:
a. The number of errors in the client-prepared aging
schedule of accounts receivable.
b. The balance in the accounts receivable account.
c. Compliance with the requirement that each
voucher be initialed by the treasurer before a
check is prepared for payment of the voucher.
d. The number of entries improperly posted to a job
order cost card.
9. How would increases in tolerable misstatement and
assessed level of control risk affect the sample size in
a substantive test of details?
Increase in tolerable Increase in assessed
misstatement level of control risk
a. Increase sample size Increase sample size
b. Increase sample size Decrease sample size
c. Decrease sample size Increase sample size
d. Decrease sample size Decrease sample size
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10. Statistical sampling provides a technique for
a. Exactly defining materiality.
b. Greatly reducing the amount of substantive testing.
c. Eliminating judgment in testing.
d. Measuring the sufficiency of evidential matter.
11. The expected population deviation 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. c. Discovery sampling.
b. Variable sampling. d. Attribute sampling.
12. Which of the following is not generally considered in
determining sample size for tests of controls?
a. Expected population exception rate.
b. Risk of assessing control risk too low.
c. Tolerable exception rate.
d. Population size.
13. Which of the following would be an example of
sampling error?
a. The auditor chose a random sample, calculated a
sample error rate of 4%, and concluded that the
population error rate was 4%. The true population
error rate was 6%.
b. The auditor selected a non-random sample and
generalized the sample results to the population
using statistical methods.
c. The auditor chose a non-random sample to focus
on transactions for only 2 months of the year.
d. The auditor chose a random sample and divided
the number of errors in the sample by the number
of accounts in the sample to calculate the sample
error rate.
14. Some conditions leading to a larger sample size in
substantive testing:
- Reliance on internal control
1.1 higher reliance
1.2 lower reliance
- Reliance on other substantive tests related or same
audit objectives as class of transactions
2.1 higher reliance
2.2 lower reliance
- Measure of tolerable errors for a specific audit
objective
3.1 larger measure
3.2 smaller measure
- Expected size and frequency of errors
4.1 larger errors or higher frequency
4.2 smaller errors or lower frequency
a. Combination of 1.2, 2.2, 3.2, 4.1
b. Combination of 1.1, 2.1, 3.2, 4.1
c. Combination of 1.2, 2.2, 3.1, 4.2
d. Combination of 1.1, 2.1, 3.1, 4.2
15. Which of the following statements is correct concerning
statistical sampling in tests of controls?
a. The population size has little or no effect on
determining sample size except for very small
population.
b. The expected control deviation 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. A large sample size should be selected as the
expected control deviation decreases.
J - end of AT.2813 - J
AT.2813