Quiz # 5 Reviewer

AUDIT SAMPLING
1) Which of the following statements is correct concerning the B. Variable Sampling
auditor’s concerning the auditor’s use of statistical sampling? C. Discovery Sampling
D. Attribute Sampling
A. An auditor needs to estimate the dollar amount of the
standard deviation of the population to use classical 6) In a probability-proportional-to-size sample with a
variables sampling. sampling interval of $5,000 an auditor discovered that a
B. An assumption of PPS sampling is that the underlying selected account receivable with a recorded amount of
accounting population is normally distributed. $10,000 had an audit amount of $8,000. If these were the only
C. A classical variables sample needs to be designed with error discovered by the auditor, the projected error of this
special considerations include negative balances in the sample. sample would be:
D. The selection of zero balances usually does not require
special sample design considerations when using PPS A. $1,000
sampling. B. $2,000
C. $4,000
2) Use of the ratio estimation sampling technique to estimated D. $5,000
dollar amounts is inappropriate when:
7) Which of the following sampling methods would be used to
A. The total book value is known and corresponds to the sum estimate a numerical measurement of a population, such as a
of all the individual book values. dollar value?
B. A book value for each sample item is unknown.
C. There are some observed differences between audited A. Attributes Sampling
values and book values. B. Stop-or-Go Sampling
D. The audited values are nearly proportional to the book C. Variables Sampling
values. D. Random-Number Sampling

3) In the application of statistical techniques to the estimation 8) In statistical sampling methods used in substantive testing,
of dollar amounts, a preliminary sample is usually taken an auditor would most likely stratify a population into
primarily for the purpose of estimation the population. meaningful groups if:

A. Variability A. Probability proportional to size (PPS) sampling is used.

B. Mode B. The population has highly variable recorded amounts.
C. Range C. The auditor’s estimated tolerable misstatement is extremely
D. Median small.
D. The standard deviation of recorded amount is relatively
4) While performing a test of details during an audit, an small.
auditor determined that the sample results supported the
conclusion that the recorded account balance was materially 9) The use of the ratio estimation sampling technique is most
misstated. It was, in fact, not materially misstated. This effective when:
situation illustrates the risk of:
A. The calculated audit amounts are approximately
A. Assessing control risk too high proportional to the client’s book amounts.
B. Assessing control risk too low B. A relatively small number of differences exist in the
C. Incorrect rejection population.
D. Incorrect acceptance C. Estimating populations whose records consist of quantities,
but not book values.
5) The expected population deviation rate of client billing D. Large overstatement differences and large understatement
errors is 3%. The auditor has established a tolerable rate of differences exist in the population.
5%. In the review of client invoices the auditor should use:
10) The size of a sample designed for dual purpose testing
A. Stratified Sampling should be:

Page 1 of 4
 Quiz # 5 Reviewer
AUDIT SAMPLING
15) Which of the following best illustrates the concept of
A. The larger of the samples that would otherwise have sampling risk?
been designed for the two separate purposes.
B. The smaller of the samples that would otherwise have been A. A randomly chosen sample may not be representative of
designed for the two separate purposes. the population as a whole on the characteristics of interest.
C. The combined total of the samples that would otherwise B. An auditor may select audit procedures that are not
have been designed for the two separate purposes. appropriate to achieve the specific objective.
D. More than the larger of the samples that would otherwise C. An auditor may fail to recognize errors in the documents
have been designated for the two separate purposes, but less examined for the chosen sample.
than the combined total of the samples that would otherwise D. The documents related to the chosen sample may not be
have been designed for two separate purposes. available for inspection.

11) When planning a sample for a substantive test of details, 16) The likelihood of assessing control risk too high is the risk
an auditor should consider tolerable misstatement for the that the sample selected to test controls:
sample. This consideration should:
A. Does not support the auditor’s planned assessed level of
A. Be related to the author’s business risk. control risk when the true operating effectiveness of the
B. Not be adjusted for qualitative factors. control structure justifies such an assessment.
C. Be related to preliminary judgements about materially B. Contains misstatements that could be material to the
levels. financial statements when aggregated with misstatements in
D. Not be changed during audit process. other account balances or transaction classes.
C. Contains proportionately fewer monetary error or
12) When an auditor has chosen a random sample and is using deviations from prescribed controls than exist in the balance or
non-statistical attributes sampling, that auditor: class as a whole.
D. Does not support the tolerable error for some or all of
A. Need not consider the risk of assessing control risk too low. management’s assertions.
B. Has committed a non-sampling error.
C. Will have to use discovery sampling to evaluate the results 17) An advantage of using statistical over non-statistical
D. Should compare the deviation rate of the sample to the sampling methods in test of controls is that the statiscal
tolerable deviation rate methods:

13) What is the primary objective using stratification as a A. Can more easily convert the sample into a dual-purpose test
sampling method in auditing? useful for the substantive testing.
B. Eliminate the need to use judgement in determining
A. To increase the confidence level at which as decision will appropriate sample sizes.
be reached from the results of the sample selected. C. Afford greater assurance than a non-statistical sample of
B. To determine the occurrence rate for a given characteristic equal size.
in the population being studied. D. Provide an objective basis for quantitatively evaluating
C. To decrease the effect of variance in the total sample risk.
population.
D. To determine the precision range of the sample selected. 18) An advantage of statistical sampling over non-statistical
sampling is that statistical sampling helps an auditor to:
14) If certain forms are not consecutively numbered:
A. Eliminate the risk of non-sampling errors.
A. Selection of a random sample probably is not possible. B. Reduce the level of audit risk and materiality to a relatively
B. Systematic sampling may be appropriate. low amount.
C. Stratified sampling should be used. C. Measure the sufficiency of the evidential matter
D. Random number tables cannot be used. obtained.
D. Minimize failure to detect errors and fraud.

Page 2 of 4
 Quiz # 5 Reviewer
AUDIT SAMPLING
19) The risk of incorrect acceptance and the likelihood of B. Less than the deviation rate in the auditor’s sample.
assessing control risk too low relate to the: C. More than the risk of assessing control risk too low, based
A. Allowable risk of tolerable misstatement. on the auditor’s sample.
B. Preliminary estimates of materiality levels. D. More than the deviation rate in the auditor’s sample.
C. Efficiency of the audit.
D. Effectiveness of the audit. 24) How would increases in tolerable misstatement and
assessed level of control risk affect the sample size in a
20) Which of the following statistical sampling plans does not substantive test of details?
use a fixed sample size for tests of controls?
Increase in tolerable Increase in assessed level
A. Dollar-unit Sampling misstatement of control risk
B. Sequential Sampling A. Increase sample size Increase sample size
C. PPS Sampling B. Increase sample size Decrease sample size
C. Decrease sample size Increase sample size
D. Variables Sampling
D. Decrease sample size Decrease sample size

21) Which of following courses of action would an auditor

most likely follow in planning a sample of cash disbursements 25) Which of the following sample planning factors would
if the auditor is aware of several unusually large cash influence the sample size for a substantive test of details for
disbursements? specific account?

A. Set the tolerable rate of deviation at a lower level than Expected amount of Measure of tolerable
originally planned. misstatement misstatement
B. Stratify the cash disbursements population so that the A. No No
unusually large disbursements are selected. B. Yes Yes
C. Increase the sample size to reduce the effect of the C. No Yes
unusually large disbursements. D. Yes No
D. Continue to draw new samples until all the unusually large
26) Which of the following statements is correct concerning
disbursements appear in the sample.
probability proportional to size (PPS) sampling, also known as
dollar unit sampling?
22) When performing a test of a control with respect to control
over cash receipts, an auditor may use a systematic sampling
A. The sampling distribution should approximate the normal
technique with a start at any randomly selected item. The
distribution.
biggest disadvantage of this type of sampling is that the items
B. Overstate units have a lower probability of sample selection
in the population:
than units that are understated.
C. The auditor controls the risk of incorrect acceptance by
A. Must be systematically replaced in the population after
specifying that risk level for the sample plan.
sampling.
D. The sampling interval is calculated by dividing the number
B. May systematically occur more than once in the sample.
of physical units the population by the sample size.
C. Must be recorded in a systematic pattern before the sample
can be drawn.
27) Using statistical sampling to assist in verifying the year-
D. May occur in a systematic pattern, this destroying the
end accounts payable balance, an auditor has accumulated the
sample randomness.
following data:
23) As a result of test of controls, an auditor assessed control
No. of Book Balance
risk too low and decreased substantive testing. This
Accounts Balance determined by
assessment occurred because the true deviation rate in the the Auditor
population was: Population 4,100 $ 5,000,000 ?
Sample 200 $ 250,00 $ 300,00
A. Less than the risk of assessing control risk too low, based
on the auditor’s sample.

Page 3 of 4
 Quiz # 5 Reviewer
AUDIT SAMPLING
Using the ratio estimation technique, the auditor’s estimate of
year-end accounts payable balance would be:

A. $ 6,150,000
B. $ 6,000,000
C. $ 5,125,000
D. $ 5,050,000

28) An auditor is performing substantive test of pricing and

extensions 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. Probability-proportional-to-size
C. Stop or go
D. Ratio estimation

29) The major reason that the difference and ratio estimation
methods would be expected to produce audit efficiency is that
the:

A. Number of members of the population of differences or

ratios is smaller than the number of members of the population
of book values.
B. Beta risk may be completely ignored.
C. Calculations required in using difference or ratio estimation
are less arduous and fewer than those required when using
direct estimation.
D. Variability of the populations of differences or ratios is
less than that of the populations of book values or audited
values.

30) Which of the following most likely would be an advantage

in using classical variables sampling rather probability-
proportional-to-size (PPS) 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 balance generally does
not require special design considerations.
D. Any amount that is individually significant is automatically
identified and selected.

Page 4 of 4