Test Bank For Loose Leaf For Auditing Assurance Services A Systematic Approach 11th Ed Edition Download

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Services: A Systematic Approach 11th ed. Edition
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Auditing & Assurance Services: A Systematic Approach, 11e (Messier)
Chapter 9 Audit Sampling: An Application to Substantive Tests of Account Balances
1) The purpose of audit sampling is to draw inferences about the entire population from the
results of a sample.
Answer: TRUE
Difficulty: 1 Easy
Topic: Sampling for Substantive Tests of Details of Account Balances
Learning Objective: 09-01 Understand the similarities and differences between audit sampling
for tests of controls and substantive tests of details of account balances.
Bloom's: Understand
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Risk Analysis
2) The size of the upper limit on misstatement is largely dependent on the sample size, which is
inversely related to the desired confidence level.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Analyze
3) Monetary-unit sampling is based on attribute sampling concepts.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
1
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
4) Confidence level is inversely related to sample size.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Analyze
5) Expected misstatement is directly related to sample size.
Answer: TRUE
Difficulty: 1 Easy
Topic: Monetary-Unit Sampling
Learning Objective: 09-02 Learn to apply monetary-unit sampling.
Bloom's: Analyze
6) Monetary-unit sampling is commonly used by auditors to test controls.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
AICPA: FN Risk Analysis; BB Industry
7) The objective of monetary-unit sampling is to test the assertion that no material misstatements
exist in an account balance or class of transactions.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Understand
AICPA: FN Risk Analysis; BB Industry
2
8) Haphazard selection allows the auditor to select items with bias.
Answer: FALSE
Difficulty: 1 Easy
Topic: Nonstatistical Sampling for Tests of Account Balances
Learning Objective: 09-04 Learn to apply nonstatistical sampling techniques and work through
an example.
Bloom's: Understand
9) After a sample is drawn randomly, the allowance for sampling risk must be statistically
quantified within a specified level of confidence when using nonstatistical sampling techniques.
Answer: FALSE
Difficulty: 2 Medium
an example.
Bloom's: Apply
10) Classical variables sampling uses normal distribution theory to evaluate the characteristics of
a population based on sample data.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classical Variables Sampling
Learning Objective: 09-05 Learn to apply classical variables sampling.
Bloom's: Remember
3
11) The risk of incorrect acceptance and the risk of overreliance (Type II Errors) relate to the:
A) preliminary estimates of materiality levels.
B) allowable risk of tolerable error.
C) efficiency of the audit.
D) effectiveness of the audit.
Answer: D
Difficulty: 1 Easy
Topic: Sampling for Substantive Tests of Details of Account Balances; Monetary-Unit Sampling
for tests of controls and substantive tests of details of account balances.; 09-02 Learn to apply
monetary-unit sampling.
Bloom's: Remember
12) 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. Such a situation illustrates the risk of:
A) incorrect rejection.
B) incorrect acceptance.
C) assessing control risk too high.
D) assessing control risk too low.
Answer: A
Difficulty: 1 Easy
monetary-unit sampling.; 09-03 Work through an extended example of monetary-unit sampling.
Bloom's: Understand
4
13) A number of factors influence 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) Greater reliance on internal controls.
B) Greater reliance on analytical procedures.
C) Smaller expected frequency of misstatements.
D) Smaller measure of tolerable misstatements.
Answer: D
Difficulty: 1 Easy
Bloom's: Analyze
AICPA: BB Critical Thinking; FN Measurement
14) Which of the following sample planning factors would influence the sample size for a
substantive test of details for a specific account?
A) Expected amount of misstatement but not the measure of tolerable misstatement.
B) Expected amount of misstatement and the measure of tolerable misstatement.
C) Measure of tolerable misstatement but not the expected amount of misstatement.
D) Neither the expected amount of misstatement nor the measure of tolerable misstatement.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
5
15) In statistical or nonstatistical sampling methods used in substantive testing, an auditor most
likely would stratify a population into meaningful groups if:
A) monetary-unit sampling (MUS) is used.
B) classical variables sampling is used in order to focus on large items.
C) the auditor's estimated tolerable misstatement is extremely small.
D) the standard deviation of recorded amounts is relatively small.
Answer: B
Difficulty: 1 Easy
Bloom's: Apply
AICPA: BB Critical Thinking; FN Decision Making
16) An auditor is preparing to sample an entity's customer receivables for overstatement. A

statistical sampling method that automatically provides stratification when using systematic
selection is:
A) attribute sampling.
B) ratio-estimation sampling.
C) monetary-unit sampling.
D) mean-per-unit sampling.
Answer: C
Difficulty: 1 Easy
Bloom's: Understand
6
17) Which of the following statements best describes an inherent limitation of the monetary-unit
sampling method?
A) It can only be used for substantive testing of asset accounts.
B) It requires the use of a computer system to perform the required calculations.
C) Misstatement rates must be large and the misstatements must be overstatements.
D) Misstatement rates must be small and the misstatements must be overstatements.
Answer: D
Difficulty: 1 Easy
Bloom's: Understand
18) For monetary-unit sampling, the number of items tested is:

A) always equal to sample size.
B) always greater than sample size.
C) always greater than or equal to sample size.
D) always less than or equal to sample size.
Answer: D
Difficulty: 1 Easy
Bloom's: Understand
19) Monetary-unit sampling should not be used if:

A) the population includes several large items.
B) the auditor expects overstatement errors.
C) many items in the account are expected to have errors.
D) no items in the account are expected to have errors.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
7
20) In monetary-unit sampling, population size is:
A) the dollar balance in an account.
B) the number of items in an account.
C) unrelated to sample size.
D) included in the denominator of the formula to determine sample size.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
21) Monetary-unit sampling is said to eliminate the need to stratify the sample because:
A) sample items are selected in proportion to their dollar amount.
B) the risk of incorrect acceptance is inversely related to sample size.
C) tolerable misstatement is considered when determining sample size.
D) the upper limit on misstatements can be computed based on statistical principles.
Answer: A
Difficulty: 1 Easy
Bloom's: Understand
8
22) An accounts receivable account balance is $500,000 and the auditor determines a sample size
of 30 would provide adequate assurance. The auditor plans to use a monetary-unit sampling plan
with systematic sample selection. The auditor notices that there are six customer accounts of at
least $15,000 and would like the systematic selection technique to select all items that are at least
$15,000, even if that means the sample size is slightly larger than 30. To achieve the auditor's
objectives, the sampling interval should be:
A) 6.
B) 20.
C) 16,666.
D) 15,000.
Answer: D
Explanation: Typically the threshold would be $16,666 ($500,000/30), but in order to guarantee
the selection of all items greater than $15,000, the sampling interval needs to be no greater than
$15,000. While a sampling interval of $6 or $20 would also guarantee that all items greater than
$15,000 are selected, such small intervals would be inefficient and result in a sample size much
greater than 30.
Difficulty: 1 Easy
Topic: Monetary-Unit Sampling; An Extended Example: MUS
Learning Objective: 09-02 Learn to apply monetary-unit sampling.; 09-03 Work through an
extended example of monetary-unit sampling.
Bloom's: Apply
23) For monetary-unit sampling, a sampling interval of 400 means that:

A) every 400th item in the account will be selected in the sample.
B) the average size of items in the account is 400.
C) every 400th dollar in the account will be included in the sample.
D) the average misstatement in sample items is $400.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
9
24) Which of the following sampling methods would be used to estimate a numerical
measurement of population, such as the dollar value of an account?
A) Attributes sampling.
B) Stop-or-go sampling.
C) Classical variables sampling.
D) Random-number sampling.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
25) In applying classical variables sampling, an auditor attempts to:

A) estimate a qualitative characteristic of interest.
B) determine various rates of occurrence for specified attributes.
C) discover at least one instance of a critical deviation.
D) predict a monetary population value within a range of precision.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
10
26) In a monetary-unit sample with a sampling interval of $5,000, an auditor discovers that a
selected account receivable with a recorded amount of $10,000 has an audit amount of $8,000. If
this were the only error discovered by the auditor, the projected misstatement for this sample
would be:
A) $5,000.
B) $4,000.
C) $2,000.
D) $1,000.
Answer: C
Explanation: Since the item sampled is greater than the sampling interval, the factual error of
$2,000 is equal to the projected error.
Bloom's: Apply
27) Using nonstatistical sampling, which of the following courses of action would an auditor
most likely follow in planning a sample of cash disbursements if the auditor is aware of several
unusually large cash disbursements?
A) Set the tolerable deviation rate at a lower level than originally planned.
B) Identify the large and unusual disbursements as individually significant and test 100 percent.
C) Increase the sample size to reduce the effect of the unusually large disbursements.
D) Continue to draw new samples until all the unusually large disbursements appear in the
sample.
Answer: B
an example.
Bloom's: Apply
11
28) What is the primary objective of testing all individually significant items rather than sample
testing?
A) To increase the audit risk at which a decision will be reached from the results of the sample
selected.
B) To increase sample size.
C) To accept no sampling risk for items greater than tolerable misstatement.
D) To increase the size of the confidence bound around the projected misstatement.
Answer: C
an example.
Bloom's: Analyze
29) Which of the following would be an improper technique when using monetary-unit statistical
sampling in an audit of accounts receivable?
A) Combining negative and positive dollar misstatements in the appraisal of a sample.
B) Using a sampling technique in which the same account balance could be selected more than
once.
C) Selecting a random starting point and then sampling every nth dollar.
D) Defining the sampling unit in the population as an individual dollar and not as an individual
account balance.
Answer: A
Bloom's: Apply
12
30) In a monetary-unit sampling plan, the upper misstatement limit is $11,200 and the risk of
incorrect acceptance is 5%. This means that:
A) tolerable misstatement is $11,200.
B) there is a 95% chance that the actual misstatement in the account is $11,200 or more.
C) there is a 95% chance that the actual misstatement in the account is $11,200.
D) there is a 95% chance that the actual misstatement in the account is $11,200 or less.
Answer: D
Bloom's: Apply
31) If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least likely
to:
A) increase sample size.
B) conduct other substantive procedures.
C) adjust the account balance.
D) increase the risk of incorrect rejection.
Answer: D
Bloom's: Remember
13
32) Which of the following most likely would be an advantage in using classical variables
sampling rather than monetary-unit sampling?
A) An estimate of the standard deviation of the population's recorded amounts is not required.
B) The auditor rarely needs the assistance of a computer program to design an efficient sample.
C) Inclusion of zero and negative balances generally does not require special design
considerations.
D) Any amount that is individually significant is automatically identified and selected.
Answer: C
Topic: Monetary-Unit Sampling; Classical Variables Sampling
Learning Objective: 09-02 Learn to apply monetary-unit sampling.; 09-05 Learn to apply
classical variables sampling.
Bloom's: Remember
33) The confidence factor for nonstatistical sampling is based on:

A) the number of items in the account.
B) auditor judgment.
C) the risk of misstatement in the account and the level of desired confidence.
D) variability in the population and the risk of misstatement in the account.
Answer: C
an example.
Bloom's: Remember
34) The formula for nonstatistical sampling sample sizes provided by the AICPA:
A) must be used for nonstatistical sampling.
B) includes a provision for the risk of incorrect acceptance.
C) includes a measure for the expected misstatement in the population.
D) is largely based on the variation of items in the account.
Answer: C
an example.
Bloom's: Understand
14
35) The use of the ratio projection is most effective when:
A) the dollar amount of the misstatement is expected to relate to the dollar amount of items
tested.
B) a small number of differences exist in the population.
C) estimating populations whose records consist of quantities but not book values.
D) large understatement differences exist in the population.
Answer: A
Topic: Nonstatistical Sampling for Tests of Account Balances; Classical Variables Sampling
an example.; 09-05 Learn to apply classical variables sampling.
Bloom's: Apply
36) Which one of the following statements is true regarding two random samples, drawn in the
same way, from the same population, one of size 30 and one of size 300?
A) The two samples are expected to have the same sample mean.
B) The larger sample is more likely to produce a large sample mean.
C) The smaller sample will have a smaller 95% confidence interval for the mean.
D) The smaller sample will, on average, produce a lower estimate of the variance of the
population.
Answer: A
Bloom's: Evaluate
15
37) The accounting department reports that the balance of accounts receivable is $210,000. You
are willing to accept that balance if audit sampling suggests it is within $15,000 of the actual
balance. Using a classical variables sampling plan, you compute a 95% confidence interval of
$208,000 to $225,000. You would therefore:
A) not be able to determine the acceptability of the receivable balance.
B) accept the balance but with a lower level of confidence.
C) take a larger sample before totally rejecting the balance and requiring adjustments.
D) accept the $210,000 balance because the confidence interval is within the materiality limits.
Answer: D
Explanation: The upper bound of the confidence interval is not greater than $15,000 above the
recorded value of the account receivable balance.
Bloom's: Analyze
38) In a monetary-unit sample with a sampling interval of $10,000, an auditor discovered that a
selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000.
The projected misstatement of this sample was:
A) $3,000.
B) $4,000.
C) $6,000.
D) $8,000.
Answer: C
Explanation: The misstatement amount is 60% with a taint of .60 of the book value of the
selected item. The taint is applied to the sampling interval to determine the projected
misstatement for the account. The projected misstatement would be $6,000 ($10,000 × .60).
Difficulty: 3 Hard
Bloom's: Apply
16
39) An auditor established a $60,000 tolerable misstatement for an account balance of
$1,000,000. The auditor selected a sample of every twentieth item from the population of 1,000
items that represented the asset account balance and discovered overstatements of $3,700 and
understatements of $200. Under these circumstances, the auditor most likely would conclude
that:
A) there is an unacceptably high risk that the actual misstatements in the population exceed the
tolerable misstatement because the total projected misstatement is more than the tolerable
misstatement.
B) there is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual
overstatements and understatements.
C) the asset account is fairly stated because the total projected misstatement is less than the
tolerable misstatement.
D) the asset account is fairly stated because the tolerable misstatement exceeds the net of
projected actual overstatements and understatements.
Answer: A
Explanation: Net overstatement is $3,500. Using difference projection, the mean misstatement
per sampling unit is $70 ($3,500/50) and the projected misstatement is $70,000 ($70 × 1,000).
The projected misstatement is larger than the tolerable (even before considering sampling risk).
Difficulty: 3 Hard
Bloom's: Analyze
40) An auditor is performing substantive procedures of pricing and extension of perpetual

inventory balances consisting of a large number of items. Past experience indicates numerous
pricing and extension errors. Which of the following statistical sampling approaches is most
appropriate?
A) Unstratified mean-per-unit.
B) Monetary-unit sampling.
C) Stop or go.
D) Difference projection.
Answer: D
Difficulty: 3 Hard
Topic: Monetary-Unit Sampling; Classical Variables Sampling
Learning Objective: 09-02 Learn to apply monetary-unit sampling.; 09-05 Learn to apply
classical variables sampling.
Bloom's: Apply
17
41) Summarize the concept behind monetary-unit sampling (MUS). How does MUS use
attribute-sampling theory?
Answer: MUS uses attribute-sampling theory to estimate the percentage of monetary units in a
population that might be misstated and then multiplies this percentage by an estimate of the
degree to which the dollars are misstated.
Difficulty: 1 Easy
Bloom's: Understand
AACSB: Communication
42) Describe two advantages and two disadvantages of monetary-unit sampling (MUS).
Answer: Should include two advantages and disadvantages from the following:
Advantages:
1. When the auditor expects no misstatements, MUS sample size can be computed and usually
results in a smaller sample size than classical variables sampling.
2. The calculation of the sample size and the evaluation of the sample results are not based on
the variation between items in the population.
3. When applied using a probability-proportional-to-size sample selection procedure, MUS
automatically results in a stratified sample because sampled items are selected in proportion to
their dollar amounts. In effect, larger dollar items have a higher probability of being selected.
Disadvantages:
1. The selection of zero or negative balances generally requires special design consideration.
2. If the auditor detects items that are in error by more than 100 percent, special adjustments
will be necessary when calculating sample results.
3. When more than one or two misstatements are detected using a MUS approach, the sample
results calculations may overstate the allowance for sampling risk.
Difficulty: 1 Easy
Bloom's: Remember
18
43) You have been placed in charge of determining the sample size for an audit of accounts
receivable. Your superior would like a confidence level of 99%. How does this affect your
determination of sample size? What can you infer about the level of risk of incorrect acceptance
that your superior is willing to accept?
Answer: A lot of work will be required to achieve a 99% confidence level. This work is
reflected in a relatively large sample size. Because confidence levels and the risk of incorrect
acceptance are complements, the superior is willing to accept a 1% risk of incorrect acceptance.
Bloom's: Analyze
44) Match each factor of sample size to (1) its relationship to sample size (A-Direct or B-
Inverse) and (2) the appropriate effect on the sample size if the factor increases (C-Increase or D-
Decrease).
1. Tolerable misstatement
2. Population size
3. Desired confidence level
4. Expected misstatement
Answer: 1. B, D 2. A, C 3. A, C 4. A, C
Bloom's: Analyze
45) Whenever a statistical method is used, a decision rule determines whether the population is
acceptable. The decision rule for monetary-unit sampling is "Accept the conclusion that the book
value is not misstated by a material amount if ________."
Answer: the upper misstatement limit is less than or equal to the tolerable misstatement
Bloom's: Remember
19
46) In nonstatistical sampling, describe the two methods auditors use to project sample results to
the population. How does an auditor determine which method to use?
Answer: With ratio projection, the auditor applies the misstatement ratio observed in the sample
to the population. Ratio projection should be used if the auditor expects the amount of
misstatement to relate closely to the size of the item.
Difference projection projects the average misstatement of each item in the sample to all items in
the population. Difference projection should be used if the auditor expects the misstatements to
be relatively constant for all items in the population.
an example.
Bloom's: Apply
47) You are auditing accounts receivable for a small company and have found the following
results:
Number and Size Book Value Book Value Audit Value

of Client Accounts of Stratum of Sample of Sample
1,202 accounts < $1,000 $ 948,378 $ 59,175 $ 51,256
532 accounts > $1,000 $ 777,504 $ 36,400 $ 34,400
Use ratio projection to project your results.
Answer:
(a) (b) (c) (d) (e) (f)
Amount of Projected
Number and Size of Book Value Book Value Audit Value Overstatement Misstatement
Client Accounts of Stratum of Sample of Sample (c) - (d) (e)/(c) × (b)
1,202 accounts <
$1,000 $948,378 $59,175 $51,256 $7,919 $126,915
532 accounts >
$1,000 $777,504 $36,400 $34,400 $2,000 $42,720
$169,635
Difficulty: 3 Hard
an example.
Bloom's: Apply
20
48) What is one advantage and one disadvantage of classical variables sampling?
Answer: Should include one advantage and disadvantage from the following:
Advantages:
1. When the auditor expects a large number of differences between book and audited values,
classical variables sampling will normally result in a smaller sample size than monetary-unit
sampling.
2. Classical variables sampling techniques are effective for both overstatements and
understatements. No special evaluation considerations are necessary if the sample data include
both types of misstatements.
3. The selection of zero balances generally does not require special sample design
considerations because the sampling unit will be not an individual dollar, but rather an account, a
transaction, or a line item.
Disadvantages:
1. Difference estimation does not work well with "clean" populations or populations with little
to no error, which is common in auditing. The reason is that difference estimation requires
information on differences to determine sample size and evaluate results.
2. In order to determine the sample size, the auditor must estimate the standard deviation of the
audited value or differences.
3. If few misstatements are detected in the sample data, the true variance tends to be
underestimated and the resulting projection of the misstatements to the population is likely to not
be reliable.
Difficulty: 1 Easy
Bloom's: Remember
21
49) When auditing accounts payable using classical variables sampling, Sue finds evidence
indicating that the account may be materially misstated. What are Sue's options?
Answer: Sue can (1) increase the sample size, (2) perform additional substantive procedures, (3)
require adjustment of the account by the auditee, or (4) issue a qualified or adverse opinion if
management refuses to adjust the account.
Difficulty: 1 Easy
Learning Objective: 09-05 Learn to apply classical variables sampling.; 09-06 Work through an
example of classical variables difference estimation.
Bloom's: Apply
22
Test Bank for Loose-Leaf for Auditing & Assurance Services: A Systematic Approach 11th e
Match the following.
A) an individual dollar
B) the total of the projected misstatement plus the allowance for sampling risk
C) the difference between monetary amounts in the entity's records and amounts supported by
audit evidence
D) the account or transaction that contains the selected dollar
50) MUS misstatement

Difficulty: 1 Easy
Bloom's: Remember
51) MUS Upper misstatement limit

Difficulty: 1 Easy
Bloom's: Remember
52) MUS logical unit

Difficulty: 1 Easy
Bloom's: Remember
53) MUS Sampling unit

Difficulty: 1 Easy
Bloom's: Remember
Answers: 50) C 51) B 52) D 53) A
23
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3) Monetary-unit sampling is based on attribute sampling concepts.

5) Expected misstatement is directly related to sample size.

6) Monetary-unit sampling is commonly used by auditors to test controls.

16) An auditor is preparing to sample an entity's customer receivables for overstatement. A

18) For monetary-unit sampling, the number of items tested is:

19) Monetary-unit sampling should not be used if:

23) For monetary-unit sampling, a sampling interval of 400 means that:

25) In applying classical variables sampling, an auditor attempts to:

33) The confidence factor for nonstatistical sampling is based on:

40) An auditor is performing substantive procedures of pricing and extension of perpetual

Number and Size Book Value Book Value Audit Value

Use ratio projection to project your results.

Match the following.

50) MUS misstatement

51) MUS Upper misstatement limit

52) MUS logical unit

53) MUS Sampling unit

Answers: 50) C 51) B 52) D 53) A

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Test Bank for Loose-Leaf for Auditing & Assurance Services: A Systematic Approach 11th e