Accountancy Review Center (ARC)

of the Philippines Inc.

One Dream, One Team

STUDENT HANDOUTS
AUDITING THEORY AFRICA, DY
AT 111—DETERMINING THE EXTENT OF TESTING OCTOBER 2021 LECPA REVIEW

LEARNING OBJECTIVES

1. Enumerate the means of selecting items as the extent of 4. Discuss the concept of audit sampling.
testing. 5. Articulate the 10-step audit sampling process.
2. Discuss when the auditor should test all items.
3. Discuss when it is appropriate to test specific items.

REVIEW NOTES

Introduction (LO 1) efficient to review 100% of the records or other circumstances

When designing tests of controls and tests of details, the
auditor’s means of selecting items for testing are:
• Selecting all items (100% examination),
• Selecting specific items, and
• Audit sampling.
These approaches are described in further details below.
Testing All Items (100%) (LO 2)
100% examination is unlikely in the case of tests of controls;
however, it is more common for tests of details. 100%
examination may be appropriate when, for example:
• The population constitutes a small number of large value
items;
• There is a significant risk and other means do not provide
sufficient appropriate audit evidence; or
• Cost effective by using CAATs.
make reviewing all of the records difficult.
Representative Sample of the Population
A representative sample is one in which the characteristics in
the sample of audit interest are approximately the same as
those of the population. However, the two things that cause a
sample to be non-representative of the population are sampling
risk and non-sampling risk. These could also be the two aspects
of audit risk, i.e., [Audit risk = (f) Sampling risk x Non-sampling
risk].
Sampling Risks
Sampling risk is the risk that the auditor’s conclusion based on a
sample may be different from the conclusion if the entire
population were subjected to the same audit procedure.
Sampling risk can lead to two types of erroneous conclusions,
such as:

Testing Specific Non-representative Items (LO 3) Alpha Risk Beta Risk

(Type I (Type II
Specific items selected may include: Misstatement) Misstatement)
• High value or key items. Test of Controls
• All items over a certain amount. Assessing control Assessing control risk
Sampling risks
• Items to obtain information about matters such as the risk too high too low
nature of the entity or the nature of transactions. less effective than more effective than
Controls
they actually are they actually are
This does not constitute audit sampling. The results of audit Reliance on
procedures applied to items selected in this way cannot be Under reliance Over reliance
internal control
projected to the entire population; accordingly, selective Test of Details
examination of specific items does not provide audit evidence Sampling risks Incorrect Rejection Incorrect Acceptance
concerning the remainder of the population. Material exists when in fact does not exist when
misstatement it does not in fact it does
Audit Sampling (LO 4)
Affects audit Efficiency Effectiveness
Audit sampling is the application of audit procedures to less
The auditor is more concerned with beta risk. The mathematical
than 100% of items within a population of audit relevance such
complements of these two risks are termed confidence levels.
that all sampling units have a chance of selection in order to
provide the auditor with a reasonable basis on which to draw
Dealing with sampling risks
conclusions about the entire population. Audit sampling
enables the auditor to obtain and evaluate audit evidence about The auditor can eliminate sampling risks by examining the entire
some characteristic of the items selected in order to form or population. However, examining the entire population is
assist in forming a conclusion concerning the population from normally not possible for the auditor. Instead, the auditor
which the sample is drawn. This is the case when it is not usually manages or controls sampling risk by making the sample
more representative of the population by:
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com Page 1 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING
• Increasing the sample size
• Using appropriate method of selecting sample items
Non-sampling Risks
Non-sampling risk is the risk that the auditor reaches an
erroneous conclusion for any reason not related to sampling
risk. Non-sampling risk is also an aspect of audit risk not
attributable to sampling such as human error due to:
• Use or application of inappropriate audit procedures
• Failure to recognize errors (misstatements or deviations) in
the samples tested
• Misinterpretation of evidence obtained
Dealing with non-sampling risks
Non-sampling risks cannot be totally eliminated in audit. There
is always a chance of human error in audit as the auditor’s
judgment may not always be correct. However, the auditor can
manage non-sampling risks through:
• Proper planning
• Adequate direction and supervision of the audit team and
timely review of their work
The 10-Step Audit Sampling Process (LO 5)
When designing and performing audit sampling, the auditor
normally observes the following 10 steps:
Step 1: Define the purpose (objective) of the audit test.
Step 2: Define the deviation or misstatement.
Step 3: Identify and understand the relevant population.
Step 4: Determine the relevant sampling unit.
Step 5: Select an appropriate approach of sampling.
Step 6: Determine the sample size.
Step 7: Select the sample items.
Step 8: Examine and evaluate the evidence for the sample.
Step 9: Evaluate the tests results.
Step 10: Document the audit sampling performed.
The steps above are the same regardless of, the sampling
approach selected whether statistical or non-statistical, the
type of audit sampling technique utilized and whether the test
is the performance of test of controls or test of details.
Step 1: Define the purpose (objective) of the audit test
When designing an audit sample, the auditor shall consider the
purpose (objective) of the audit procedure based on the
assessment of ROMM at the assertion level. The auditor’s
consideration includes the specific purpose (test of controls or
test of details) to be achieved and the combination of audit
procedures that is likely to best achieve that purpose.
Step 2: Define a deviation or misstatement
The auditor considers what conditions constitute a deviation or
misstatement by reference to the objectives of the test.
Deviations for Tests of Controls
For example, suppose that a control requires support for every
disbursement to include an invoice, a voucher, a receiving
report, and a purchase order; all stamped “Paid.” The auditor
believes that the existence of an invoice and a receiving report,
both stamped “Paid,” is necessary to indicate adequate
performance of the control. Therefore, in this case, a deviation
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com
ARC – ACCOUNTANCY REVIEW CENTER
may be defined as “a disbursement not supported by an invoice
and a receiving report that has been stamped ‘Paid.’”
Misstatement for Tests of Details
For example, in a test of details relating to the existence of
accounts receivable, such as confirmation, payments made by
the customer before the confirmation date but received shortly
after that date by the client, are not considered a misstatement.
Step 3: Identify and understand the relevant population
Population means the entire set of data from which a sample is
selected and about which the auditor wishes to draw
conclusions. For example, all of the items in an account balance
or a class of transactions constitute a population. The auditor
needs to identify the relevant population and consider its
characteristics from which the sample will be drawn.
Considering the characteristics of the population would include:
• Preliminary assessment of expected rate of deviation or
misstatement and the auditor’s tolerable rate of deviation
or misstatement.
• Determining whether stratification or value-weighted
selection is appropriate.
• Ascertaining the completion of population.
In addition, it is important that the population is appropriate to
satisfy the established objective of the audit procedures by
considering the direction of the test.
Assessment of Expected Rate of Deviation or Misstatement and
Tolerable Rate of Deviation or Misstatement
Tolerable deviation rate or misstatement is the rate of deviation
or monetary amount the auditor is willing to accept on the
population.
For test of controls, the auditor makes a preliminary assessment
of the expected rate of deviation based on the auditor’s
understanding of the relevant controls or on the examination of
a small number of items from the population (‘pilot testing’).
This assessment is made in order to design an audit sample and
to determine sample size. For example, if the expected rate of
deviation is unacceptably high than the auditor’s tolerable rate
of deviation, the auditor will normally decide not to perform
tests of controls. Similarly, for test of details, the auditor makes
an assessment of the expected misstatement in the population.
If the expected misstatement is high, 100% examination or use
of a large sample size may be appropriate when performing
tests of details. This is normally the case when the auditor’s
expected misstatement is approximately or higher than
tolerable misstatement.
Stratification and Value-Weighted Selection
Stratification
Audit efficiency may be improved if the auditor stratifies a
population by dividing it into discrete sub-populations which
have an identifying characteristic. Stratification reduces the
variability of items within each stratum and allow sample size to
be reduced without increasing sampling risk. For example, 20%
of the items in a population may make up 90% of the value of
an account balance. The results of audit procedures applied to
a sample of items within a stratum can only be projected to the
items that make up that stratum.
Page 2 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING ARC – ACCOUNTANCY REVIEW CENTER

Value-Weighted Selection Non-statistical

Statistical Sampling
Sampling
When performing tests of details, it may be efficient to identify
• Random selection of • A sampling
the sampling unit as the individual monetary units that make up
the sample items approach that
the population. This is discussed further below under ‘Monetary
• Apply the laws or does not have
Unit Sampling’. theory of probability characteristics of
Completeness of the population to: statistical
o Design efficient sampling (i.e., no
The population used to make a sample selection needs to sample random selection
contain all sampling units that are to be subjected to sampling o Measure of sample items
Basic
procedures. The totality of the population may be verified by: sufficiency of and does not
concepts
• Footing the population items and comparing the total sample apply laws of
obtained to that of the population o Evaluate sample probability)
• Accounting for numerical sequence of prenumbered results • Cannot measure
documents or records. o Measure sampling sampling risk
risk quantitatively quantitatively,
Direction of the Test, Appropriate to Test Objective only based on
For test of controls the auditor’s
judgment.
If the auditor wishes to test the operating effectiveness of a • More defendable • Easy to apply
prescribed control designed to ensure that all shipments are Advantages • Free from bias • Less costly
billed, the auditor would not detect deviations by sampling
• Overvalue the Relies exclusively on
billed items because that population would not be expected to
evidence it provides professional
contain items that were shipped but not billed. An appropriate
• Reduces auditor judgment to
population for detecting such deviations is usually the
skepticism o Determine
population of all shipped items. Disadvantages • Increased cost, due sample size
to: o Evaluate sample
For test of details results
o training auditors
When understanding the risks of material misstatement, the o designing samples
direction in which the population may be misstated may need
to be considered. When testing for overstatement, items to be
The decision whether to use a statistical or non-statistical
examined are selected directly from the population of audit sampling approach is a matter for the auditor’s judgment; in
interest. While, when testing for understatement, items to be making that judgment the auditor consider the following:
examined are selected from a reciprocal or independent
• The choice is based on relative costs and benefits
population.
• Effectiveness
Populations on which we may perform audit sampling to test for • Need for quantitative estimate of sampling risk
understatement and examples of appropriate reciprocal
populations may include: However, sample size is not a valid criterion to distinguish
between statistical and non-statistical approaches and the
Population of audit Example of a potential
choice between the two approaches is independent of audit
interest reciprocal population
procedures to be performed.
Accounts payable Subsequent disbursements
Sales Shipping documents Types of Statistical Sampling

Step 4: Determine the relevant sampling unit
Sampling unit is the individual items constituting a population.
The sampling units might be physical items (for example, checks
listed on deposit slips, credit entries on bank statements, sales
invoices or debtors’ balances) or monetary units. The total
population of the sampling units could be manually prepared
documents or lists, documents generated from computer
systems, or an electronic file provided by the entity.
Step 5: Select an appropriate approach of sampling
Audit sampling can be applied using either non-statistical or
statistical sampling approaches. These two approaches involve
the use of auditor’s professional judgment in planning and
performing the sampling procedure and evaluating the results
of the sample.
The two commonly used statistical sampling used in auditing
are:
1. Attributes sampling–generally used for tests of controls
• Tests rate of deviation from a prescribed control
procedure
• Estimate frequency of errors in population based on
frequency in sample
• Determine whether or not estimated error rate indicates
control is working effectively
• Attribute – a characteristic of control
• Deviation – absence of the attribute
2. Variables Sampling–generally used for tests of details
• Tests whether recorded account balances are fairly
stated
• Estimate value of population based on value of items in
sample

0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com Page 3 of 13

AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING ARC – ACCOUNTANCY REVIEW CENTER

Attributes Sampling
a. Traditional (Classical) attributes sampling
• Under traditional attribute sampling, sample size is
determined and sample tested to estimate error rate in
population
b. Stop-or-go (Sequential) sampling
• Performed in stages
• Auditor decides to stop or continue sampling after each
stage
• Appropriate when expected deviation rate is low
• Sample selected in steps
• Each step is based on results of previous step
• No fixed sample size and may result in lower sample if
few or no errors detected
c. Discovery sampling
• Sample size is very small
• Appropriate when expected deviation rate is extremely
low or zero
• Sample large enough to detect at least one error if it
exists
• Any errors in sample results in rejection
o Sample size may be reduced as the same item may be
selected more than once
o The sample distribution does not have to be close to
the distribution in the population for the sample to be
valid
o Sampling can be initiated prior to year-end more
easily
• Disadvantages of PPS
o Understated items have a lower probability of being
selected
o Items with zero or negative balances are not generally
included in the sample
o A high frequency of misstatements results in an
increase in sample size
NOTE: The discussions below present traditional (classical)
attributes sampling and traditional (classical) variables sampling
for test of controls and test of details, respectively. Though the
different types of sampling, as presented above, follow the
same steps to be discussed, they generally differ in considering
factors in determining these areas: population, sample size and
evaluation of the test results.

Variables Sampling Step 6: Determine the sample size

a. Traditional (Classical) variables sampling – There are three
approaches to classical variables sampling for auditing
applications that differ in the way the misstatement is
projected to the population are:
• Mean-per-unit approach – The auditor estimates a total
population amount by calculating an average audited
amount for all items in the sample and multiplying that
average amount by the number of items constituting the
population.
• Difference approach – The auditor calculates the average
difference between audited and recorded amounts of
the sample items and projects that average difference to
the population.
• Ratio approach – The auditor calculates the ratio
between the sum of the audited amounts and the sum of
the recorded amounts of the sample items and projects
this ratio to the population. The auditor estimates the
total population amount by multiplying the total
recorded amount for the population by the same ratio.
The auditor shall determine a sample size sufficient to reduce
sampling risk to an acceptably low level. The sample size can be
determined by the application of a statistically-based formula or
through the exercise of professional judgment (non-statistical).
The tables below list the factors affecting sample size for test of
controls and test of details.
Test of Controls (Attribute Sampling)
Factor Relationship
Tolerable deviation rate Inverse
Allowable risk of assessing control risk
Inverse
too low/Sampling risk (beta risk)
Expected population deviation rate Direct
Population size Negligible effect
Test of Details (Variables Sampling)

Using normal distribution theory based on the variability of Factor Relationship

the audited amounts in the sample, the auditor also Assessment of the ROMM/level of
Direct
calculates an allowance for sampling risk. control risk
Other substantive tests Inverse
b. Monetary unit sampling (a.k.a., Probability Proportional to Tolerable misstatement Inverse
Size (PPS) or Value-weighted selection) Allowable risk of incorrect
• Uses attributes sampling theory to express a conclusion Inverse
acceptance/Sampling risk (beta risk)
in amounts rather than as a rate of occurrence. Expected amount of misstatement Direct
• Probability of selecting an item is proportional to its Effect of stratification Inverse
recorded amount. Population size Negligible effect
• Automatically stratifies an audit population
• Appropriate for testing for overstatement and few or no Step 7: Select the sample items
errors are expected
The auditor shall select items for the sample in such a way that
Useful for testing assets and revenues each sampling unit in the population has a chance of selection.
• Advantages over classical variables sampling It is important that the auditor selects a representative sample,
o Items with larger amounts have a greater probability so that bias is avoided.
of being selected
o An item that is individually material will automatically
be selected

0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com Page 4 of 13

AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING
Sample Selection Methods
The principal methods of selecting samples are the use of
random selection, systematic selection and haphazard
selection. Sample selection methods are classified into
probabilistic (statistical) and non-probabilistic (non-statistical).
Probabilistic Sample Selections
a. Random-number Selection
• Every sampling unit has the same probability of being
selected as every other sampling unit in the population.
• Uses computer-generated numbers to select sampling
units.
• Match number to prenumbered documents.
• Appropriate for both statistical and nonstatistical
sampling.
b. Systematic Selection
• The number of sampling units in the population is
divided by the sample size to give a sampling interval,
for example 50, and having determined a starting point
within the first 50, each 50th sampling unit thereafter
is selected. Starting point may be determined
haphazardly or randomly.
• Determine that sampling units within the population
are not structured in such a way that the sampling
interval corresponds with a particular pattern in the
population.
• Useful when identification numbers lacking
• Appropriate for both statistical and nonstatistical
sampling
c. Stratified Selection
• Stratification is the process of dividing a population into
sub-populations, each of which is a group of sampling
units which have similar characteristics (often
monetary value).
• Subdivide population into homogeneous strata
• Select separate sample for each strata by on of prior
methods
Non-probabilistic Sample Selections
a. Block Selection
• Involves selection of a block(s) of contiguous items
from within the population.
• Inefficient & not generalizable
• Should not be used for statistical or nonstatistical
sampling without care in controlling sampling risk
b. Haphazard Selection
• The auditor selects the sample without following a
structured technique.
• Sampling units selected without special reason or
conscious bias
• Inappropriate for statistical sampling
• Useful for nonstatistical sampling
c. Direct sample selection
• Auditor selects items based on judgmental criteria such
as likelihood of misstatement, characteristics such as
different time periods, or large amounts.
Step 8: Examine and evaluate the evidence for the sample
The auditor shall perform audit procedures, appropriate to the
purpose, on each item selected, and evaluate the audit
evidence obtained.
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com
ARC – ACCOUNTANCY REVIEW CENTER
Voided Sample
The auditor shall perform the procedure on a replacement item.
If the auditor is satisfied that the sample has been properly
voided such that it does not constitute a deviation, and the
chosen replacement is examined.
Missing or Lost Sample
If the auditor is unable to apply the designed audit procedures,
or suitable alternative procedures, to a selected item, the
auditor shall treat that item as a deviation from the prescribed
control, in the case of tests of controls, or a misstatement, in
the case of tests of details.
Stopping the Test Before Completion
Occasionally the auditor might find a large number of deviations
in auditing the first part of a sample. As a result, the auditor
might believe that even if no additional errors were to be
discovered in the remainder of the sample, the results of the
sample would not support the planned assessed level of control
risk.
Step 9: Evaluate the tests results
The auditor uses judgment in evaluating the results and
reaching an overall conclusion. In evaluating the sample results,
the auditor:
• Considers the nature and causes of deviations and
misstatements,
• Calculates and projects the sample deviations and
misstatements, and
• Reaches an overall conclusion.
Nature and Cause of Deviations and Misstatements
The auditor shall investigate the nature and cause of any
deviations or misstatements identified, and evaluate their
possible effect on the purpose of the audit procedure and on
other areas of the audit.
In the extremely rare circumstances the auditor considers a
misstatement or deviation discovered in a sample to be an
anomaly (not representative of population). The auditor shall
obtain a high degree of certainty that such misstatement or
deviation is not representative of the population. For example
is an error that is found to be caused by use of an incorrect
formula in calculating all inventory values at one particular
branch.
Projecting Sample Deviations and Misstatements
Projecting Deviations for Tests of Controls
For tests of controls, no explicit projection of deviations is
necessary since the sample deviation rate (SDR) is also the
projected deviation rate (PDR) for the population as a whole.
SDR is the rate of deviation in the operation of controls detected
in the sample by performing tests of controls. SDR = # of sample
deviations / sample size. PDR, a.k.a., upper deviation or
precision limit, is the rate of deviation that the auditor estimates
to be in the population. PDR = SDR + allowance for sampling risk
(Beta risk). An allowance for sampling risk can only be calculated
where the auditor has used statistical sampling.
Page 5 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING
Projecting Misstatements for Tests of Details
For tests of details, the auditor shall project misstatements
found in the sample to the population. Sample misstatement is
the monetary misstatement detected in the sample by
performing tests of details.
Projected misstatement is the monetary misstatement that the
auditor estimates to be in the population, and is calculated by
adjusting the sample misstatement by an allowance for
sampling risk. An allowance for sampling risk can only be
calculated where the auditor has used statistical sampling. The
methods for calculating an allowance for sampling risk and
projecting the sample error differ between classical variables
sampling and Monetary Unit Sampling (MUS). This is discussed
below.
When a misstatement has been established as an anomaly, it
may be excluded when projecting misstatements to the
population.
Evaluate Sample Results and Reach an Overall Conclusion
Overall Conclusion for Tests of Controls
There are two generally accepted approaches for evaluating the
sample results for tests of controls:
• Compare PDR to tolerable deviation rate. If the PDR <
tolerable deviation rate = the control is operating
effectively. If the PDR = or > tolerable deviation rate = the
control is not operating effectively as designed.
DISCUSSION QUESTIONS
Introduction (LO 1)
1. In performing tests of controls and tests of details, the
extent and selection of items to test include
a. All items.
b. Specific non-representative items.
c. Audit sampling.
d. All of the above.
2. Evaluate whether each of the following statements qualifies
as sampling:
1.1 – Test performed on 100% of the items within a
population
1.2 – Selecting items over a certain amount
1.3 – Selecting items for the total population on the basis
that was expected to be representative
a. 1.1, 1.2, 1.3 qualify
b. 1.1 and 1.2 qualify; 1.3 does not qualify
c. 1.1 and 1.2 do not qualify; 1.3 qualifies
d. 1.1, 1.2, 1.3 do not qualify
Testing All Items (100%) (LO 2)
3. Performing 100% testing is least likely possible in which of
the following?
a. Large value but small in number accounts.
b. Assertions with assessed significant risks.
c. Testing customer credit approvals.
d. Use of CAATs.
Testing Specific Non-representative Items (LO 3)
4. Testing specific items does not include selecting
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com
ARC – ACCOUNTANCY REVIEW CENTER
• Compare SDR to expected deviation rate. If the SDR <
expected deviation rate = control is operating effectively. If
the SDR = or > expected deviation rate = control is not
operating effectively as designed.
Overall Conclusion for Tests of Details
When the projected misstatement plus anomalous
misstatement, if any, exceeds tolerable misstatement, the
sample does not provide a reasonable basis for conclusions
about the population that has been tested. The closer the
projected misstatement plus anomalous misstatement is to
tolerable misstatement, the more likely that actual
misstatement in the population may exceed tolerable
misstatement.
If the auditor concludes that audit sampling has not provided a
reasonable basis for conclusions about the population that has
been tested, the auditor may:
• Request management to investigate misstatements
identified and the potential for further misstatements and
to make any necessary adjustments; or
• Tailor the nature, timing and extent of those further audit
procedures to best achieve the required assurance.
Step 10: Document the Audit Sampling Performed
The auditor should document the sampling application and
related audit procedures.
a. High value or key items.
b. Items to obtain certain information.
c. Items to test the operation of certain control activities.
d. Representative sample to conclude for an entire
population.
Audit Sampling (LO 4)
5. This involves the application of audit procedures to less
than 100 percent of items within a population of audit
relevance such that all sampling units have a chance of
selection
a. Audit sampling.
b. Specific selection.
c. Audit simulation.
d. Audit population.
6. Which of the following causes an inappropriate conclusion
or audit risk?
a. Sampling risk.
b. Non-sampling risk.
c. Both a and b.
d. Neither a nor b.
7. 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.
Page 6 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING ARC – ACCOUNTANCY REVIEW CENTER

8. Which of the following would cause a sampling error (or a. Sampling risk
sampling risk) in an audit of financial statements? b. Confidence levels
a. Selecting a non-representative sample c. Statistical sampling
b. Selecting inappropriate audit procedures d. Non-sampling risk
c. Applying audit procedures improperly
d. Interpreting results inappropriately 17. Which of the following is not an element of non-sampling
risk?
9. The risk that the auditor’s conclusion based on a sample a. The auditor uses inappropriate procedures in auditing
may be different from the conclusion if the entire accounts receivable
population were subjected to the same audit procedure b. The use of unreasonable small sample size
a. Sampling risk c. Misinterpretations of audit evidence
b. Confidence levels d. Auditor fails to recognize the error in the sample
c. Statistical sampling
d. Tolerable rate and the expected rate of deviation The 10-Step Audit Sampling Process (LO 5)
18. Which of the following is not one of the basic phases in
10. At times a sample may indicate in the case of a test of audit sampling?
controls, that controls are more effective than they actually a. Planning the sample.
are. This situation illustrates the risk of b. Selecting the sample and performing the tests.
a. Over-reliance. c. Evaluating the results of the sample.
b. Under-reliance. d. Each of the above is a phase in audit sampling.
c. Incorrect precision.
d. Incorrect rejection. Step 1—Define the objective (purpose) of test
19. In defining the objective of tests of controls or tests of
11. At times a sample may indicate in the case of a test of details, an auditor should consider which of the following to
details that a material misstatement does not exist when in perform the appropriate audit procedures and obtain
fact it does. This situation illustrates the risk of relevant audit evidence?
a. Incorrect rejection a. Financial statements assertions.
b. Incorrect acceptance b. Materiality.
c. Over reliance c. Population.
d. Under reliance d. Sampling risk.

12. The risk likelihood of assessing control risk too low (risk of Step 2—Define the deviation or misstatement
over reliance) and risk of incorrect acceptance relate to the 20. In performing tests of controls, a deviation refers to
a. Efficiency of the audit a. A departure from adequate control performance.
b. Effectiveness of the audit b. A difference between the recorded amount and the
c. Preliminary estimates of materiality levels amount the auditor determines to be appropriate.
d. Allowable risk of tolerable misstatements c. A voided sample.
d. The presence of characteristics of control.
13. Sampling risk may be controlled by:
Using an appropriate Step 3—Identify the relevant population
Increasing the sample
sample selection Step 4—Determine the relevant sampling unit
size
method 21. Population is
a. Yes Yes a. A process that divides population into sub-populations
b. Yes No which have an identifying characteristic and reduces
c. No Yes the variability of items within each stratum and allows
d. No No sample size to be reduced without increasing sampling
risk
14. To determine if a sample is truly representative, an auditor b. A selection that treats each sampling unit as the
must: individual monetary units that make up the population.
a. conduct multiple samples of the same population. c. The individual items constituting a population.
b. never use sampling because of the expense involved. d. The entire set of data from which a sample is selected
c. audit the entire population. and about which the auditor wishes to draw
d. use systematic sample selection. conclusions.

15. In practice, auditors _________ know if a sample is truly a 22. The sampling units might be
representative one. a. Physical items (for example, checks listed on deposit
a. sometimes slips, credit entries on bank statements, sales invoices
b. often or debtors’ balances).
c. routinely b. Monetary units.
d. never c. Either a or b.
d. Neither a nor b.
16. The risk that the auditor does not recognize misstatements
or deviations included in the sample for what they are

0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com Page 7 of 13

AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING
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 P1,000,000 what is the
probability the auditor will select for testing an account
recorded at P100,000?
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com
ARC – ACCOUNTANCY REVIEW CENTER
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 non-risk
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 non-sampling 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.
Page 8 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING ARC – ACCOUNTANCY REVIEW CENTER

d. No errors. 42. Which of the following is not a problem with monetary-unit

selection?
Test of Details a. Population items with a zero recorded balance.
37. Which of the following sampling methods would be used to b. Accounts with negative balances.
estimate a numerical measurement of a population, such as c. Accounts with small recorded balances that are
a peso value? significantly understated.
a. Attributes sampling d. Population items that should have a zero balance but
b. Stop-or-go sampling do not.
c. Variables sampling
d. Random sampling Step 6—Determine the sufficient sample size
Test of Controls
38. The following are the classical variables techniques, except: 43. When sampling for attributes, which of the following would
a. Ratio estimation decrease sample size?
b. Mean-per-Unit (MPU) estimation a b c d
c. Value weighted selection Operating Increase Decrease Increase Decrease
d. Difference estimation effectiveness of
controls
39. The auditor selected samples of 200 with recorded amount Tolerable rate Decrease Increase Increase Increase
or P208,000, from population of 1,000 inventory items with of deviation
total recorded amount of P1,040,000. After performing the Expected Increase Decrease Decrease Decrease
necessary audit procedures, the auditor determined that control
deviation
the adjusted amount of the samples is P196,000. Which of
Risk of over Decrease Increase Increase Decrease
the following illustrates difference estimation approach to
reliance
projecting sample misstatement to population?
a. Average audited amount of 200 samples divided by
44. Which of the following statements is correct concerning
200, equals P980. The estimated inventory balance is
statistical sampling in tests of controls?
then calculated as P980,000 (P980 X 1,000).
a. There is an inverse relationship between the sample
b. The difference of P12,000 is divided by the number of
size and the expected control deviation rate.
sample items (200) to yield an average difference of
b. As the population size doubles, the sample size should
P60. The auditor then multiplies the average difference
also double.
by the number of items in the population to calculate a
c. The qualitative aspects of deviations are not considered
total difference of P60,000 (P60 X 1,000) and the
by the auditor.
difference is subtracted from the total recorded
d. There is an inverse relationship between the sample
amount to obtain an estimated inventory balance of
size and the tolerable rate of deviation.
P980,000.
45. The tolerable rate of deviation is the maximum rate of
c. The ratio of the sum of the sample’s audited amounts
deviations permissible by the audit team without modifying
to the sum of the sample’s recorded amounts would
the planned assessed level of control risk. In determining
have been 0.94 (P196,000 / P208,000). The auditor
the tolerable rate of deviation, the audit team should
would multiply the total recorded amount for the
consider
population by this ratio (0.94) to obtain an estimate of
a. The planned assessed level of control risk.
the inventory balance of P978,000 (P1,040,000 X 0.94).
b. The degree of assurance desired by the audit evidence
d. None of the above.
in the sample.
c. If a control is judged to be more important and would
40. Classical variables sampling uses the laws of probability, the
result in a more significant reduction in substantive
normal distribution theory, and the central limit theorem to
testing, the tolerable rate of deviation should be
estimate range of
established at lower levels.
a. The amount of misstatement in the account balance or
d. All of the above.
class of transactions.
b. The true balance for an account balance or class of
46. In determining the acceptable level of the risk of
transactions.
overreliance (i.e., the sampling risk), an auditor should
c. Either a or b.
consider
d. Neither a nor b.
a. The planned assessed level of control risk.
b. The degree of reliance that the audit team wishes to
41. The distinguishing feature of Monetary-unit sampling
place on the client’s internal control.
(MUS) is that it tends to select higher transactions or
c. As the planned level of control risk is lower, it becomes
components within an account balance for examination.
quite important for the audit team to reduce the
MUS is not particularly effective at detecting:
exposure to the risk of overreliance.
a. overstatements.
d. All of the above.
b. understatements.
c. errors in current assets.
47. How is the expected population deviation rate determined?
d. errors in noncurrent assets.
a. Rate of deviations from prior engagements adjusted, if
any, for controls improvement or deterioration during
the current year.
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com Page 9 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING ARC – ACCOUNTANCY REVIEW CENTER

b. Use a small sample (referred to as a pilot sample) to d. the same as materiality.

estimate the rate of deviations in case of initial audit.
c. Either a or b. 53. Tolerable misstatement may be _____ amount than
d. Neither a nor b. performance materiality?
a. higher, lower or the same.
48. The tolerable rate of deviations for a test of controls is b. high or lower.
generally c. lower or the same.
a. Lower than the expected rate of errors in the related d. the same.
accounting population.
b. Higher than the expected rate of errors in the related 54. In determining the acceptable level of the risk of incorrect
accounting records. acceptance (i.e., the sampling risk), for example 10%, an
c. Identical to the expected rate of errors in the related auditor should consider
accounting records. a. The audit risk.
d. Unrelated to the expected rate of errors in the related b. The risks of material misstatement (i.e., inherent risk
accounting records. and control risk).
c. The analytical procedures risk.
49. Which of the following statements is most likely incorrect d. All of the above.
regarding high expected deviation rate and high expected
misstatement relating to sampling used for tests of controls Step 7—Select the representative sample items
and tests of details, respectively? 55. The audit team’s basic goal in selecting a sample is to
a. If the expected rate of deviation is unacceptably high, increase the likelihood that it is representative of the
the auditor will normally decide not to perform tests of population, thereby reducing sampling risk. For example, if
controls. the audit team is examining a sample of sales invoices, this
b. If the expected misstatement is high, the auditor will sample should include sales invoices that
normally decide not to perform tests of details. a. Have been prepared throughout the year.
c. If the expected misstatement is high, 100% b. Represent both large and small amounts.
examination may be appropriate when performing c. Have been prepared by different individuals involved in
tests of details. the invoice preparation process and represent different
d. If the expected misstatement is high, use of a large customers or geographic areas.
sample size may be appropriate when performing tests d. All of the above.
of details
56. Identify the sample selection method used, following the
Test of Details same order:
50. In substantive testing, which of the following would I. Selecting items using a constant interval between
increase sample size? selections; the first interval having a random start.
a b c d II. Selecting items from the entire population with no
Assessment of Increase Increase Increase Decrease intention to include or exclude specific units
control risk III. All items in the population or within each stratum have
Reliance on Increase Decrease Decrease Increase a known chance of selection
other a. Systematic, random, haphazard.
substantive b. Systematic, haphazard, random.
procedures
c. Haphazard, systematic, random.
Tolerable Decrease Increase Decrease Increase
d. Random, systematic, haphazard.
misstatement
Expected Increase Decrease Increase Decrease
amount of 57. An underlying feature of random-based selection of items
misstatement is that each
Risk of Decrease Increase Decrease Increase a. Stratum of the accounting population be given equal
incorrect representation in the sample.
acceptance b. Item in the accounting population be randomly
ordered.
51. Determine which of the following would lead to a larger c. Item in the accounting population should have an
sample size for substantive test of details of an account opportunity to be selected.
balance. Assume all other factors being equal. d. Item must be systematically selected using
a. Smaller measure of tolerable misstatement replacement.
b. Greater reliance of analytical procedures
c. Greater reliance on internal controls 58. If certain forms are not consecutively numbered
d. Smaller expected frequency of errors a. Selection of a random sample probably is not possible.
b. Systematic sampling may be appropriate.
52. When planning a test of details using MUS sampling, c. Stratified sampling should be used.
tolerable misstatement is usually set d. Random number tables cannot be used.
a. higher than planning materiality.
b. lower than planning materiality.
c. either higher or lower than planning materiality.

0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com Page 10 of 13

AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING
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.
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.
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com
ARC – ACCOUNTANCY REVIEW CENTER
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?
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%.
Page 11 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING
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%).
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.
PRACTICE EXAM
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
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
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com
ARC – ACCOUNTANCY REVIEW CENTER
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
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.
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
Page 12 of 13
AUDITING — THEORY | AT.111—DETERMINING THE EXTENT OF TESTING
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
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.
0961-718-5293; 0936-407-4780; (02)-8376-0405 www.arccpalereview.com
ARC – ACCOUNTANCY REVIEW CENTER
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.
Page 13 of 13