A5 - Sampling and Communications

Question 1

An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines the:

Answer 1

Variability in the dollar amounts of inventory items AND Risk of incorrect acceptance.

Question 2

If the auditor assesses control risk too low, then the true population deviation rate:

Answer 2

Exceeds the auditor’s tolerable rate, while the auditor’s estimate of the maximum deviation rate was less than the tolerable rate.

Question 3

Both the risk of incorrect acceptance and the risk of assessing control risk too low relate to:

Answer 3

The EFFECTIVENESS of an audit in detecting an existing material misstatement.

Question 4

An auditor who uses statistical sampling for attributes in testing internal controls should reduce the planned reliance on a prescribed control when the:

Answer 4

Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate.

Question 5

To determine the number of items to be selected for a particular sample for a test of controls, the auditor should consider:

Answer 5

The tolerable rate of deviation from the controls being tested, the likely rate of deviations (expected deviation rate), and the allowable risk of assessing control risk too low.

Question 6

An increase in tolerable misstatement results in:

Answer 6

A smaller sample size.

Question 7

An increase in the assessed level of control risk leads to:

Answer 7

An increase in sample size.

Question 8

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to:

Answer 8

Measure the sufficiency of the audit evidence obtained.

Question 9

Risk of Incorrect Acceptance

Answer 9

Beta Risk, the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when in fact it is materially misstated.

Question 10

Risk of Incorrect Rejection

Answer 10

Alpha risk, the risk that the sample supports the conclusion that the recorded account balance is materially misstated when in fact it is NOT materially misstated.

Question 11

Risk of Assessing Control Risk Too Low

Answer 11

Beta risk, the risk that the assessed level of control risk based on the sample is less than the true risk based on the actual operating effectiveness of the control.

Question 12

Risk of Assessing Control Risk Too High

Answer 12

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

Question 13

In determining the sample size for a test of controls, an auditor should consider the likely rate of deviations, the allowable risk of assessing control risk too low, and the:

Answer 13

Tolerable deviation rate.

Question 14

The use of the ratio estimation sampling technique is most effective when:

Answer 14

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

Question 15

Attribute sampling examines:

Answer 15

The rate of occurrence in a sample.

Question 16

Attribute sampling is primarily used for testing:

Answer 16

Internal controls

Question 17

Variable sampling is typically used in

Answer 17

Substantive testing of account balances.

Question 18

Upper Deviation Rate Formula:

Answer 18

Sample Deviation Rate + Allowance for sampling risk = Upper Deviation Rate

Question 19

What is the primary objective of probability proportional to sample size?

Answer 19

To identify overstatement errors.

Question 20

The auditor’s allowable risk of assessing control risk too low has an _____________ relationship with sample size when planning a sample for tests of controls.

Answer 20

Inverse

Question 21

There is a(n) ___________ relationship between the tolerable deviation rate and sample size.

Answer 21

Inverse.

as the auditor is willing to accept a greater deviation rate, a smaller sample size can be used.

Question 22

The population size has little effect on the:

Answer 22

Sample size

Question 23

A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the:

Answer 23

Sample size

Question 24

Stratified mean per unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually:

Answer 24

Produces an estimate having a desired level of precision with a smaller sample size.

Question 25

The statistical concept of _______ is used to describe the auditor’s evaluation of sampling results by calculating the possible error in either direction.

Answer 25

Precision.