5.02 - ATTRIBUTE SAMPLING Flashcards
5.02 - ATTRIBUTE SAMPLING
For which of the following audit tests would a CPA most likely use attribute sampling?
A) Identifying entries posted to incorrect accounts.
B) Evaluating the reasonableness of depreciation expense.
C) Estimating the amount in an expense account.
D) Selecting receivables for confirmation
of account balances.
A) Identifying entries posted to incorrect accounts.
Attribute sampling is used to determine whether a population has a particular attribute.
Identifying entries posted to
incorrect accounts involves determining whether or not the transactions, entries posted, have a particular attribute, being posted to appropriate accounts, calling for attribute sampling.
Tests involving the amount of an expense, the reasonableness of an expense, or account balances would employ variable estimation sampling since the auditor would be trying to evaluate the appropriateness of an amount.
5.02 - ATTRIBUTE SAMPLING
An auditor performs attribute sampling to test for proper cancellation of payment vouchers. In a sample population of 100, two vouchers are missing the proper cancellation, while one simply cannot be located. The error rate of the sample is
A) 3%
B) 2%
C) Cannot be determined without knowing standard deviation.
D) 4%
A) 3%
When performing an attribute sample, it is considered a deviation when the client cannot provide a document that the
auditor wishes to examine. As a result, there are 3 errors in a population or 100 indicating a 3% error rate.
5.02 - ATTRIBUTE SAMPLING
The auditor’s estimated deviation rate compared with the tolerable rate is depicted below against the true population deviation rate compared with the tolerable rate.
Section I:
Sample Deviation Rate > Tolerable Rate Population Dev. Rate > Tolerable Rate
Section II:
Sample Deviation Rate > Tolerable Rate
Population Dev. Rate < Tolerable Rate
Section III:
Sample Deviation Rate < Tolerable Rate
Population Dev. Rate > Tolerable Rate
Section IV:
Sample Deviation Rate < Tolerable Rate
Population Dev. Rate < Tolerable Rate
As a result of tests of controls, the auditor assesses risk of material misstatement too high and thereby increases substantive testing. This is illustrated by situation
A) IV
B) I
C) III
D) II
D) II
Section I is when the sample results indicate an intolerable error rate, which is consistent with the error rate in the
population.
This will cause the auditor to properly reject the population, affecting the nature, timing, and extent of further audit procedures.
Section II is when the sample results indicate an intolerable error rate even though the error rate of the population is actually acceptable.
This will cause the auditor to incorrectly reject the population resulting in an inefficient audit due to the effect on the nature, timing, and extent of further audit procedures.
Section III is when the sample results indicate a tolerable error rate even though the error rate in the population is actually too high.
This will cause the auditor to incorrectly accept the population. If this is a test of control, it will result in an inappropriate reliance on internal control increasing the risk that auditor may not detect a material misstatement.
If this is a substantive test, it indicates that the auditor did not detect a material misstatement that is likely to be material. In either case, the auditor risks issuing an inappropriate unmodified opinion, making the audit ineffective.
Section IV is when the sample results indicate a tolerable error rate, which is consistent with the error rate
in the population. This will cause the auditor to correctly accept the population.
5.02 - ATTRIBUTE SAMPLING
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk higher than appropriate. The most likely explanation for this situation is that
A) The deviation rate in the auditor’s sample exceeds the tolerable rate, but the deviation rate in the population is lessthan the tolerable rate.
B) The deviation rate in the auditor’s sample is lessthan the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.
C) The deviation rates of both the auditor’s sample and the population are lessthan the tolerable rate.
D) The deviation rates of both the auditor’s sample and the population exceed the tolerable rate.
A) The deviation rate in the auditor’s sample exceeds the tolerable rate, but the deviation rate in the population is lessthan the tolerable rate.
Assessing control risk too high indicates that the auditor believes that there is a higher probability that controls are not
effective than is actually the case.
This would occur if the deviation rate in the sample was higher than an acceptable rate, the tolerable error rate, even though the actual error rate in the population was lower and low enough to be acceptable. The result would be incorrect rejection.
If the deviation rate in the sample is lower than the tolerable rate in the sample, the auditor will conclude that it is acceptably low in the population, even though the actual error rate in the population is unacceptably high. The result would be incorrect acceptance.
If the deviation rates in both the sample and the population are too high, the auditor will appropriately reject the control.
If the deviation rates in both are acceptably low, the auditor will appropriately rely on the
control.
5.02 - ATTRIBUTE SAMPLING
What is an auditor’s evaluation of a statistical sample for attributes when a test of 150 documents results in 8 deviations if tolerable is 6%, the expected population deviation rate is 4%, and the allowance for sampling risk is 1%?
A) Accept the sample results as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
B) Accept the sample results as support for the planned assessed level of control risk because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate.
C) Modify the planned assessed level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate.
D) Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
D) Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
With 8 deviations out of a population of 150, the deviation rate is 5.333%. Adjusted for a sampling risk of 1%, the auditor would conclude that there may be as many as 6.333% deviations in the population.
Since the tolerable rate of 6% is exceeded, the auditor will modify the planned assessed level of control risk.
The tolerable rate is not adjusted for sampling risk
5.02 - ATTRIBUTE SAMPLING
For which of the following audit tests would a CPA most likely use attribute sampling?
A) Selecting receivables for confirmation
of account balances.
B) Evaluating the reasonableness of depreciation expense.
C) Estimating the amount in an expense account.
D) Identifying entries posted to incorrect accounts.
D) Identifying entries posted to incorrect accounts.
Attribute sampling is used to determine whether a population has a particular attribute.
Identifying entries posted to
incorrect accounts involves determining whether or not the transactions, entries posted, have a particular attribute, being posted to appropriate accounts, calling for attribute sampling.
Tests involving the amount of an expense, the reasonableness of an expense, or account balances would employ variable estimation sampling since the auditor would be trying to evaluate the appropriateness of an amount.
5.02 - ATTRIBUTE SAMPLING
Which of the following characteristics most likely would be an advantage of using probability-proportional-to-size
(PPS) sampling rather than classical variables sampling?
A) The sample size can generally be lower even if many errors are expected.
B) The sampling process can begin before the complete population is available.
C) The selection of negative balances requires nospecial design considerations.
D) It is particularly effective for detecting understatements.
B) The sampling process can begin before the complete population is available.
Among the advantages of PPS sampling are that…
- a standard deviation is not needed;
- a sample is automatically stratified;
- a smaller sample will often result when few errors are expected;
- and sampling can begin before the entire population complete.
Disadvantages are that…
- zero and negative balances require special handling;
- large sample sizes result when many
errors are expected;
- and it is not useful for detecting an understatement.
5.02 - ATTRIBUTE SAMPLING
Which of the following statements are ordinarily correct about the sample size in statistical sampling when
testing controls?
I. There is an inverse relationship between the amount of tolerable deviation rate and sample size.
II. There is a direct relationship between the expected deviation rate and the sample size.
III. There is an inverse relationship between the amount of acceptable risk of assessing the deviation rate too
low and sample size.
A) II only
B) II and III only
C) I and III only
D) I, II, and III
D) I, II, and III
The higher the tolerable deviation rate for a population, the more likely that the population will have few enough
deviations to be acceptable to the auditor and, as a result, a smaller sample size would be sufficient, indicating an inverse
relationship.
The higher the expected deviation rate in the population, the more likely the population will be unacceptable and the auditor will want to make certain not to make the error of incorrect acceptance.
To avoid this, the auditor will seek more
precision requiring a larger sample size, indicating a direct relationship.
The higher the acceptable risk of assessing the deviation rate too low, the less precise the auditor needs to be in measuring the deviation rate, indicating a lower sample size and an inverse relationship.
5.02 - ATTRIBUTE SAMPLING
When evaluating results of testing a sample using attribute sampling, the auditor considers the sample’s final
error rate to be equal to
A) Errors in the sample / total elements in the sample.
B) ((Errors in the sample + missing elements in the sample) / total elements in the sample + allowance for
sampling risk) x proportion of sample to population
C) (Errors in the sample + missing elements in the sample) / total elements in the sample.
D) (Errors in the sample + missing elements in the sample) / total elements in the sample + allowance for
sampling risk
D) (Errors in the sample + missing elements in the sample) / total elements in the sample + allowance for sampling risk
To determine the error rate for a sample using attribute sampling, the number of deviations detected is combined with
the number of items from the sample that the client was unable to produce (missing elements), which are considered equivalent to deviations.
This is divided by the number of items in the sample to give the preliminary sample rate. This amount is adjusted by adding sampling risk, the result of which is the auditor’s estimate of the range of errors in the population. This estimate is also referred to as the Upper Precision Limit.
Since the error rate is evaluated to determine if it is not greater than the tolerable rate, the auditor is concerned about the upper limit, not the lower limit.
5.02 - ATTRIBUTE SAMPLING
What is an auditor’s evaluation of a statistical sample for attributes when a test of fifty documents results in three
deviations if tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling
risk is 2%?
A) Accept the sample results as support for the planned assessed level of control risk because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate.
B) Accept the sample results as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
C) Modify the planned assessed level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate.
D) Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
D) Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
With three deviations in a sample size of 50, the sample deviation rate is 6%. Taking into account the 2% allowance for sampling risk, the auditor would conclude that the actual error rate in the population will be somewhere between 4% and 8%
(6% ± 2%).
Since the maximum error rate exceeds the tolerable rate of 7%, the auditor will conclude that the control is not effective and will increase the assessed level of control risk.
If the tolerable rate had exceeded the maximum amount, the auditor
would have concluded that the control could be relied upon, affecting the nature, timing, and extent of further audit procedures.
The auditor would accept sample results as support for the planned level of control risk if the maximum error was below the
tolerable rate, not when it exceeds it, but the error rate was above, not below or equal to the tolerable rate.
