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Audit > Ch 9 > Flashcards

Ch 9 Flashcards

Audit Sampling: An application to substantive tests of account balances

1
Q

Which of the following sampling methods would be used to estimate a numeric measurement of a population, such as a dollar value?

a. Random sampling.
b. Numeric sampling.
c. Attribute sampling.
d. Variable sampling.

A

d. Variable sampling.

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2
Q

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?

a. Greater reliance on internal controls.
b. Greater reliance on analytical procedures.
c. Smaller expected frequency of misstatements.
d. Smaller amount of tolerable misstatement.

A

d. Smaller amount of tolerable misstatement.

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3
Q

Considering each independently, a change in which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?

a. Expected Misstatement: No. Tolerable Misstatement: No
b. Expected Misstatement: Yes. Tolerable Misstatement: Yes
c. Expected Misstatement: No. Tolerable Misstatement: Yes
d. Expected Misstatement: Yes. Tolerable Misstatement: Yes

A

b. Expected Misstatement: Yes. Tolerable Misstatement: Yes

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4
Q

Which of the following statements concerning monetary-unit sampling is correct?

a. The sampling distribution should approximate the normal distribution.
b. Overstated units have a lower probability of sample selection than units that are understated.
c. The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan.
d. The sampling interval is calculated by dividing the number of physical units in the population by the sample size.

A

c. The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan

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5
Q

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

a. Increase in Tolerable Misstatement = Decrease sample size. Increase in Assessed Level of Control Risk = Decrease sample size
b. Increase in Tolerable Misstatement = Decrease sample size. Increase in Assessed Level of Control Risk = Increase sample size
c. Increase in Tolerable Misstatement = Increase sample size. Increase in Assessed Level of Control Risk = Decrease sample size
d. Increase in Tolerable Misstatement = Increase sample size. Increase in Assessed Level of Control Risk = Increase sample size

A

b. Increase in Tolerable Misstatement = Decrease sample size.
Increase in Assessed Level of Control Risk = Increase sample size

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6
Q

Which of the following sampling methods would be used to estimate a numeric measurement of a population, such as a dollar value?

a. Random sampling
b. Numeric sampling
c. Attribute Sampling
d. Variable Sampling

A

d. Variable Sampling

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7
Q

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?

a. Greater reliance on internal controls
b. Greater reliance on analytical procedures
c. smaller expected frequency of misstatements.
d. Smaller amount of tolerable misstatement

A

d. Smaller amount of tolerable misstatement

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8
Q

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?

Expected Misstate
Tolerable Misstate

A

b. YES Yes

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9
Q

The risk of incorrect acceptance relates to the’

a. Effectiveness of the audit
b. Efficiency of the audit
c. Planning materiality
d. Allowable risk of tolerable misstatement

A

a. Effectiveness of the audit

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10
Q

Which of the following statements concerning monetary-unit sampling is correct?

a. Sampling distribution should approximate the normal distribution.
b. Overstated units have a lower probability of sample selection than nits that are understated.
c. The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan.
d. the sampling interval is calculated by dividing the number of physical units in the population by the sample size

A

c. The auditor controls the risk of incorrect acceptance by specifying the desired confidence level for the sampling plan.

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11
Q

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

A. Decrease / Decrease sample size
B. Decrease / Increase sample size
C. Increase / Decrease sample size
D. Increase / Increase sample size

A

B. Decrease / Increase sample size

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12
Q 
62. In testing accounts receivable, an auditor sends out positive confirmation requests to 100 randomly selected customers. A customer returns the confirmation indicating that the balance is correct when, in fact, the balance is overstated. This is an example of: 
A. Projected misstatement.
B. Sampling error.
C. Standard error.
D. Nonsampling error.
A

D

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13
Q
  1. Which of the following may be used to reduce the risk of nonsampling errors?
    A. Increasing the size of audit samples.
    B. Stratifying audit samples.
    C. Adequately planning audit samples.
    D. Using statistical sampling techniques.
A

C

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14
Q
  1. Which of the following types of risk is of critical importance to auditors in performing tests of controls?
    A. The risk of assessing control risk too low.
    B. The risk of assessing control risk too high.
    C. The risk of incorrect acceptance.
    D. The risk of incorrect rejection.
A

A

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15
Q
  1. An advantage of using statistical sampling techniques is that such techniques:
    A. Mathematically measure risk.
    B. Eliminate the need for judgmental decisions.
    C. Define the values of allowance for sampling risk and tolerable misstatement required to provide audit satisfaction.
    D. Have been established in the courts to be superior to judgmental sampling.
A

A

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16
Q
  1. An auditor plans to examine a sample of 20 checks for counter signatures as prescribed by the client’s control procedures. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the reasons for this limitation and:
    A. Evaluate the results as if the sample size had been 19.
    B. Treat the missing check as a deviation for the purpose of evaluating the sample.
    C. Treat the missing check in the same manner as the majority of the other 19 checks, i.e., countersigned or not.
    D. Choose another check to replace the missing check in the sample.
A

B

17
Q
  1. Which of the following may be used to reduce the risk of nonsampling errors?
    A. Increasing the size of audit samples.
    B. Stratifying audit samples.
    C. Adequately planning audit samples.
    D. Using statistical sampling techniques.
A

C

18
Q

What are the 3 factors that affect simple size? How?

A 
Desired Confident Level (CL) - Direct
Tolerable Misstatement (TM)
Estimated Misstatement (EM)
19
Q

How to calculate Ratio of Misstatement (RM)?

A

Total amount of Misstatement observed/ Book Value (BV) of item sample

20
Q

How to calculate Project Misstatement (PM) or Best Estimate?

A

1) Ratio Misstatement X Book Value (BV) of Inventory
or
2) {Total amount of Misstatement observed/ Book Value (BV) of item sample} X Book Value (BV) of Inventory

21
Q

Explain Monetary-Unit Sampling (MUS)?

A

Based on attribute sampling theory:

  • Modified to express a monetary conclusion
  • Results in important difference
22
Q

Compare Upper Misstatement Limit (UML) to Tolerable Misstatement (TM)?

A

If UML < TM = evidence support fair of account

23
Q

What are the 3 general steps for MUS?

A

Planning&raquo_space; Performance&raquo_space; Evaluation

24
Q

What are the 5 steps to MUS?

A 
Step 1. Define test objective 
Step 2. Define Population
Step 3. Determine simple size
Step 4. Select sample
Step 5. Perform audit procedures
Step 6. Evaluate results
25
Q

Compare and contrast Ch 8

A

Purpose: determine effectiveness of I/C
Techniques: Attribute (Statistical) & Non-Statistical
Population: # of times a control was performed
Conclusion: Reliability of I/C

26
Q

Compare and contrast Ch 9

A

Purpose: determine if an account is stated fairly
Techniques: MUS (Statistical) & Non-Statistical
Population: All transactions that make up account balance
Conclusion: the amount of misstatement

27
Q

Explain Individually Significant Item (ISI)

A

Items tested individually are tested 100% because auditor is not willing to accept any sampling risk.

28
Q

What is the formula for determining sample size

A

{Total Sampling population BV / (Tolerable-Expected Misstmt)} X Confidence factor

Using Confidence factor is uncommon

29
Q

What are the units for non-statistical sampling

A
  1. Customer Account
  2. Individual transaction
  3. Line item on a transaction
30
Q

Why do Auditors stratify the population?

A

Auditors stratify(Separate) population in order to reduce Type II Error

31
Q

When is Ratio Projection Used?

A

$ amt of misstmt = $ amt of items tested

32
Q

What is Difference Projection?

A

Projects avg misstmt for items when misstmt is constant

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