chapter 10

Question 1

Nelson Williams was considering the sample size needed for a selection of sales invoices for the test of controls audit of the LoHo Company’s internal controls. He presented the following information for two alternative cases:

Answer 1

Smaller than the sample size for Case B

Question 2

An advantage of statistical sampling is that it helps an auditor

Answer 2

be precise and definite in the approach to an audit problem.

Question 3

The risk of incorrect acceptance in balance audit sampling and the risk of assessing control risk too low in test of controls sampling both relate to which of the following?

Answer 3

Effectiveness of an audit

Question 4

Eddie audited the LoHo Company’s inventory on a sample basis. He audited 120 items from an inventory compilation list and discovered net overstatement of $480. The audited items had a book (recorded) value of $48,000. There were 1,200 inventory items listed, and the total inventory book amount was $490,000. Which of these calculations is (are) correct?

Answer 4

Projected likely misstatement of $4,800 using the average difference method

Question 5

Stefani audited the client’s accounts receivable, but she could not get any good information about customer 102’s balance. The customer responded to the confirmation, saying, “Our system does not provide detail for such a response.” The sales invoice and shipping document papers have been lost, and the customer has not yet paid. What should Stefani do?

Answer 5

Treat customer 102’s account as being entirely wrong (overstated) if doing so will not affect her audit conclusion about the receivables taken altogether.

Question 6

in audit sampling applications, what is sampling risk?

Answer 6

The probability that an auditor’s conclusion based on a sample might be different from the conclusion based on an audit of the entire population

Question 7

When calculating the total amount of misstatement relevant to the analysis of an account balance, an auditor should add which of the following to the misstatement discovered in individually significant items?

Answer 7

The projected likely misstatement and the additional possible misstatement estimate

Question 8

Which of the following should be considered an audit procedure for obtaining evidence?

Answer 8

Sending a written confirmation on a customer’s account balance

Question 9

To determine the sample size for a balance audit sampling application, an auditor should consider the tolerable misstatement, the risk of incorrect acceptance, the risk of incorrect rejection, the population size, plus which one of the following?

Answer 9

The expected monetary misstatement in the account

Question 10

In an audit sampling application, an auditor performs procedures on

Answer 10

less than 100% of the items in a balance and formulates a conclusion about the whole balance.

Question 11

Auditors consider statistical sampling to be characterized by

Answer 11

representative sample selection and statistical calculation of the results.

Question 12

When auditing the client’s performance of control for the completeness objective related to recording sales, auditors should draw sample items from which of the following?

Answer 12

A file of shipping documents

Question 13

Nelson next considered the sample size needed for a selection of customers’ accounts receivable for the substantive audit of the total accounts receivable. He presented the following information for two alternative cases:

Answer 13

Larger than the sample size for Case Y