4

Question 1

PPS - Size of a PPS sample is not based on the estimated variation of audited amounts.

Answer 1

TRUE

Estimated variation (e.g. std deviation) is not an element of the PPS sample size formula

Question 2

PPS - PPS sampling results in a stratified sample

Answer 2

TRUE

Question 3

PPS - Individually significant items are automatically identified

Answer 3

TRUE - Individually significant items (larger dollar amounts) are more likely to be selected

Question 4

PPS - PPS sampling will not result in a smaller sample size when numerous small misstatements are expected

Answer 4

TRUE - The more expected misstatements, the larger the sample size

Question 5

PPS - If no misstatements are expected, PPS sampling will usually result in a smaller sample size than classical variable sampling methods.

Answer 5

TRUE -

Question 6

PPS - PPS needs a BV for individual items to evaluate a PPS sample

Answer 6

TRUE

Question 7

PPS - The error needs to be projected to the overall population with PPS

Answer 7

TRUE

Question 8

Calculate the sample interval

Answer 8

Book value/sample size

Question 9

An examination of the balance in the AP account as part of a f/s audit is ordinarily NOT designed to

Answer 9

verify that AP were properly authorized.

Proper authorization is an IC principle that an auditor examines by testing controls. Proper authorization only suggests that related acct balances are more likely to be correct. Based on this reliance the auditor adjusts his/her substantive tests of acct balances accordingly. Account balances may be correct whether they are properly authorized or not.

Question 10

When an auditor is aware that the entity consulted w/another CPA

Answer 10

AU-C 260 requires the auditor to discuss with the audit committee his/her views about significant matters that were the subject on such consultation; accordingly, such a discussion w/mgmt is to be expected.

Question 11

In an examination on compliance, the entity has material noncomplaince - the auditor should include what on the examination report

Answer 11

a qualified or adverse opinion

AT601 requires the CPA’s report to relate directly to the subject matter when the opinion is modified.

Question 12

Analytical procedures used in planning an audit should focus on

Answer 12

1. enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit, and
2. identify areas of specific risk to the audit.

Question 13

The auditor faces two separate risks.

Answer 13

1. The Material misstatements may occur in the accounting process - the auditor relies on internal control to reduce this risk.
2. That Material misstatements have occurred will not be detected in the auditor’s examination - the auditor uses substantive tests to reduce this risk.