5a: Quiz sampling Flashcards
(1)Use of statistical sampling will be more relevant as compared to judgment (non-statistical)
sampling when:
A. it is required to mitigate sampling risk
B. auditor is inexperienced
C. the probability of error must be objectively quantified
D. it is required to mitigate audit risk
Answer: C. the probability of error must be objectively quantified
Explanation:
In any given scenario, statistical sampling is to be used when the probability of error must be
objectively quantified (i.e. no subjectivity is involved). Statistical sampling is an objective method of
sampling in which each item has an equal chance of selection. Choice A is incorrect because sampling
risk is the risk of a sample not being representative of the population. This risk exists for both
judgment and statistical samples. Also, audit risk is applicable to both judgment and statistical
sampling.
(2)Statistical sampling reduces which of the following risk:
A. audit risk
B. detection risk
C. inherent risk
D. sampling risk
Answer: B. detection risk
Explanation:
In any given scenario, statistical sampling minimizes the detection risk. Detection risk is the chance
that an auditor will not find material misstatements in an entity’s financial statements. Detection
risk is the risk that the auditor will conclude that no material errors are present when in fact there
are. However, using statistical sampling, the probability of error can be objectively quantified and
hence detection risk can be minimized.
Other risks cannot be minimized using statistical sampling.
(3) IS auditor is reviewing the internal control of application software. The sampling method that
will be MOST useful when testing for compliance is:
A. Attribute sampling
B. Variable sampling
C. Discovery sampling
D. Stop or go sampling
Answer: A. Attribute sampling
Explanation:
In any given scenario, attribute sampling method (either control is present or absent) will be useful
when testing for compliance. Variable sampling is generally used for substantive testing. Discovery
sampling is used when the objective of the audit is to discover fraud or other irregularities. Stop-or-go sampling
is used when auditor believes that very few errors will be found. It prevents excessive
sampling by allowing an audit test to be stopped at the earliest possible moment.
(4)With regard to confidence correlation, it can be said that:
A. small sample size will give high confidence correlation
B. if an auditor knows internal controls are strong, the confidence coefficient may be lowered.
C. small confidence correlation will result into high sample size
D. if an auditor knows internal controls are strong, the confidence coefficient may be increased
Answer: B. if an auditor knows internal controls are strong, the confidence coefficient may be
lowered
Explanation:
Confidence coefficient is a probability that the sample is a true representation of the population. In any
given scenario, when internal controls are strong, confidence coefficient /sample size may be
lowered. Greater the confidence coefficient, higher the sample size or in another way higher the
sample size, higher the confidence coefficient.
(5) Test to determine whether the last 50 new user requisitions were correctly processed is an example
of:
A. discovery sampling
B. substantive testing
C. compliance testing
D. stop-or-go sampling
Answer: C. compliance testing
Explanation:
In any given scenario, compliance testing checks for the presence of controls. Compliance testing
determines whether controls are being applied in compliance with the policy. This includes tests to
determine whether new accounts were appropriately authorized. In any given scenario,
outcome/result of compliance testing will form the basis for planning of substantive testing. For
example, if compliance testing indicates strong internal control, substantive testing may be waived
off or reduced. In the case of compliance testing indicates weak internal controls then substantive
testing to be more rigorous. The development of substantive tests is often dependent on the
outcome of compliance tests.
(6) IS auditor reviewing a critical financial application is concerned about fraud. Which of the
following sampling methods would BEST assist the auditors?
A. Attribute sampling
B. Variable sampling
C. Discovery sampling
D. Stop or go sampling
Answer: C. Discovery sampling
Explanation:
In any given scenario, Discovery sampling is used when objective of audit is to discover fraud or
other irregularities. Discovery sampling is used when an auditor is trying to determine whether a
type of event has occurred, and therefore it is suited to assess the risk of fraud and to identify
whether a single occurrence has taken place. Stop-or-go-sampling is used when auditor believes
that very few errors will be found. It prevents excessive sampling by allowing an audit test to be
stopped at the earliest possible moment. Attribute sampling method (either control is present or
absent) will be useful when testing for compliance. Variable sampling is generally used for
substantive testing.
(7) Which of the following sampling methods would be the MOST effective to determine whether
access rights to staffs have been authorized as per the authorization matrix?
A. stratified mean per unit
B. attribute sampling
C. discovery sampling
D. stop or go sampling
Answer: B. attribute sampling
Explanation:
Attribute sampling method (either control is present or absent) will be useful when testing for
compliance. Either access is given as per authorization matrix or not given as per authorization
matrix. Discovery sampling is used when an auditor is trying to determine whether a type of event
has occurred, and therefore it is suited to assess the risk of fraud and to identify whether a single
occurrence has taken place. Stop-or-go-sampling is used when auditor believes that very few errors
will be found. It prevents excessive sampling by allowing an audit test to be stopped at the earliest
possible moment. Stratified mean per unit and unstratified mean per unit are used in variable
sampling.
(8) An IS auditor is determining the appropriate sample size for testing the effectiveness of change
management process. No deviation noted in last 2 years audit review and management has assured
no deviation in the process for the period under review. The auditor can adopt a :
A. higher confidence coefficient resulting in a smaller sample size
B. lower confidence coefficient resulting in a higher sample size
C. higher confidence coefficient resulting in a higher sample size
D. lower confidence coefficient resulting in a lower sample size
Answer: D. lower confidence coefficient resulting in a lower sample size
Explanation:
In any given scenario, when internal controls are strong, confidence coefficient /sample size may be
lowered. Choice A is not correct because higher confidence correlation will always have higher
sample size. Choice B is not correct because lower confidence coefficient will always have lower
sample size. Choice C is not correct because where internal controls are strong, high confidence
correlation or high sample size is not warranted.
When to use statistical sampling
In any given scenario, statistical sampling is to be used when the probability of error must be objectively quantified (i.e. no subjectivity is involved).
What sampling to use for compliance testing
Attribute sampling
what sampling to use for Substantive Testing
Variable testing
What is the best sampling technique where fraud is suspected
Discovery sampling
What a higher confidence coefficient will result in?
The use of a larger sample size. A higher sample size will give higher confidence coefficient
How is the sample size when internal controls are strong
Sample size may be lowered
What statistical sample does
It minimizes the detection risk
