A5 Becker HW

Question 0

The use of the ratio estimation sampling as compared to other sampling techniques is most effective when:

Answer 0

The calculated audit amounts are approximately proportional to the client’s book amounts.

Question 1

In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if:

Answer 1

The population has highly variable recorded amounts.

Question 2

Deviations from specific control activities at a given rate:

Answer 2

Ordinarily result in misstatements at a lower rate.

Question 3

The risk that the assessed level of control risk based on the sample is greater than the true risk based on the actual operating effectiveness of the control.

Answer 3

The risk of assessing control risk too high

Question 4

The goal is to ensure selection of items for which potential misstatements may individually equal or exceed tolerable misstatement.

Answer 4

Stratification

Question 5

Sampling method that is designed to estimate overstatement errors. Zero balances, negative balances, and understated balances require special design considerations.

Answer 5

PPS sampling

Question 6

The risk that the sample supports the conclusion that the recorded account balance is not materially misstated when in fact it is materially misstated (i.e., sample results fail to identify an existing material misstatement).

Answer 6

The risk of incorrect acceptance

Question 7

When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should:

Answer 7

Be related to preliminary judgments about materiality levels.

Question 8

When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible error in either direction. This statistical concept is known as:

Answer 8

Precision

Question 9

In a probability-proportional-to-size sample with a sampling interval of $5,000, an auditor discovered that a selected account receivable with a recorded amount of $10,000 had an audit amount of $8,000. If this were the only error discovered by the auditor, the projected error of this sample would be:

Answer 9

The actual difference of $2,000 ($10,000-$8,000) is used when the recorded amount is larger than the sample interval.

Question 10

Includes all aspects of audit risk that are not due to sampling. Examples include:

Answer 10

Non-sampling risk.Examples of nonsampling risk include: the auditor selecting inappropriate auditing procedures, using inappropriate audit evidence, and failure by the auditor to recognize misstatements in documents examined.

Question 11

The maximum monetary misstatement in an account balance that may exist without causing the financial statements to be materially misstated. It is a planning concept related to the auditor’s preliminary judgments about materiality levels.

Answer 11

Tolerable misstatement

Question 12

The auditor controls the risk of incorrect acceptance by specifying that risk level for which type of sampling plan.

Answer 12

PPS Sampling

Question 13

The inputs for PPS are:

Answer 13

Tolerable misstatement, risk of incorrect acceptance, and the recorded amount of the population being sampled.

Question 14

An auditor may decide to decrease the acceptable level of risk when:

Answer 14

The cost and effort of selecting additional sample items is low.

Question 15

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate.The situation given is an example of:

Answer 15

Sampling risk, or the probability that the sample chosen is not representative of the population as a whole.

Question 16

Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts?

Answer 16

When planning a sample for a test of subsequent cash receipts, the auditor should consider preliminary judgments about materiality levels.

Question 17

The auditor’s best estimate of the deviation rate in the population (before the sampling plan is executed).

Answer 17

Expected Deviation Rate

Question 18

What is an auditor’s responsibility with respect to communicating internal control deficiencies of issuers?

Answer 18

The auditor is required to communicate all deficiencies in internal control to management, and deficiencies that constitute a significant deficiency or a material weakness to management and the audit committee.

Question 19

What statement should not be included in a report on internal control related matters noted in an audit of a nonissuer?

Answer 19

A report on internal control related matters noted in an audit should not state that there are no significant deficiencies in internal control, since this statement might erroneously imply that the auditor searched for such conditions.

Question 20

The auditor may not report the absence of _________ __________ to those charged with governance or management.

Answer 20

Significant Deficiencies

Question 21

When should communication regarding independence be made?

Answer 21

Communication regarding independence should be made in writing prior to accepting the engagement.

Question 22

Unless all of those charged with governance are also involved with managing the entity significant _______________ & significant __________________ should be communicated to those charged with governance.

Answer 22

Significant audit adjustments and significant matters relating to consultation with other accountants

Question 23

Immaterial fraud involving either management or employees who have significant roles in internal control must be included in what? (For other employees, only material fraud would be included.)

Answer 23

The management representation letter