Chapter 15

Question 1

The risk that the auditor is willing too take of accepting a control as effective or a rate of monetary misstatements as tolerable when the true population exception rate is greater than the tolerable exception rate

Answer 1

Acceptable Risk of Overreliance (ARO)

Question 2

The characteristic being tested for in the population

Answer 2

Attribute

Question 3

A statistical, probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing. characteristic or attribute of interest

Answer 3

Attributes Sampling

Question 4

Testing less than 100% of a population for the purpose of making inferences about that population

Answer 4

Audit Sampling

Question 5

A non-probabilistic method of sample selection where items are selected in measured sequences

Answer 5

Block Sample Selection

Question 6

The upper limit of the probable population exception rate; the highest exception rate in the population at a given ARO

Answer 6

Computed Upper Exception Rate (CUER)

Question 7

Exception rate the auditor expects to find in the population before testing begins

Answer 7

Estimated Population Exception Rate (EPER)

Question 8

The percent of items in a population that include exceptions in prescribed controls or monetary correctness

Answer 8

Exception Rate/Occurrence Rate

Question 9

A non-probabilistic method of sample selection where items are chosen without regard to their size, source, or other distinguishing characteristics

Answer 9

Haphazard Sample Selection

Question 10

Sample size determined by professional judgment (non-statistical sampling) or by statistical tables (attributes sampling)

Answer 10

Initial Sample Size

Question 11

A method of sample selection where the auditor uses professional judgment to select items from the population

Answer 11

Non-probabilistic Sample Selection

Question 12

The risk that the auditor fails to identify existing exceptions in the sample caused by a failure to recognize exceptions and by inappropriate or ineffective audit procedures

Answer 12

Nonsampling Risk

Question 13

A sampling procedure that does not permit the numerical measurement of the sampling risk

Answer 13

Non-statistical Sampling

Question 14

A method of selecting a sample where each population item has a known probability of being included in the sample and the sample is selected by a random process

Answer 14

Probabilistic Sample Selection

Question 15

A sample where every possible combination of elements in the population has an equal chance of constituting the sample

Answer 15

Random Sample

Question 16

A sample with characteristics the same as those of the population

Answer 16

Representative Sample

Question 17

Number of exceptions in the sample divided by the sample size

Answer 17

Sample Exception Rate (SER)

Question 18

A frequency distribution of the results of all possible samples of a specified size that could be obtained from a population containing some specific parameters

Answer 18

Sampling distribution

Question 19

Risk of reaching an incorrect conclusion inherent in tests of less than the entire population because the sample is not representative of the population; may be reduced through an increase of sample size

Answer 19

Sampling Risk

Question 20

The use of mathematical measurement techniques to calculate formal statistical results and quantify sampling risk

Answer 20

Statistical Sampling

Question 21

A probabilistic method of sampling where the auditor calculates an interval and selects the items for the sample based on the size of the interval and a randomly selected starting point between zero and the length of the number

Answer 21

Systematic Sample Selection

Question 22

The exception rate that the auditor will permit in the population and still be willing to conclude the control is operating effectively and the amount of monetary misstatements in the transaction established during planning is acceptable

Answer 22

Tolerable Exception Rate (TER)

Question 23

Advantages to random sample

Answer 23

All items have an equal chance of being picked.

Question 24

Disadvantages to random sample

Answer 24

Possibility of choosing all low number invoices.

Question 25

Advantages to systematic sample selection

Answer 25

The ease of use.

Question 26

Disadvantages to systematic sample selection

Answer 26

The possibility of bias, since once the first item is selected, the rest of the samples are selected.

Question 27

Advantages to Haphazard sample selection

Answer 27

Equal chance of being picked and being unbiased.

Question 28

Disadvantages to Haphazard sample selection

Answer 28

The difficulty of remaining completely unbiased throughout the entire process.

Question 29

Advantages to Block sample selection

Answer 29

Quick and easy.

Question 30

Disadvantages to Block sample selection

Answer 30

Not random and less likely to get a mix of samples.

Question 31

Probabilistic Sample Selection Methods

Answer 31

Random Sample and Systematic Sample Selection

Question 32

Nonprobabilistic Sample Selection Methods

Answer 32

Haphazard Sample Selection and Block Sample Selection

Question 33

Attribute Existence of the sales invoice number in the sales journal

Answer 33

Exception Condition No record of sales invoice number in the sales journal

Question 34

Attribute Amount and other data in the master file agree with sales journal entry

Answer 34

Exception Condition The amount recorded in the master file differs from the amount recorded in the sales journal

Question 35

Attribute Amount and other data on the duplicate sales invoice agree with the sales journal entry

Answer 35

Exception Condition Customer name and account number on the invoice differ from the information recorded in the sales journal

Question 36

Attribute Evidence that pricing, extensions, and footings are checked

Answer 36

Exception Condition Lack of initials indicating verification of pricing, extensions, and footings

Question 37

Attribute Quantity and other data on the bill of lading agree with the duplicate sales invoice and sales journal

Answer 37

Exception Condition Quantity of goods shipped differ from quantity on the duplicate sales invoice

Question 38

Attribute Quantity and other data on the sales order agree with the duplicate sales invoice

Answer 38

Exception Condition Quantity on the sales order differs from the quantity on the duplicate sales invoice

Question 39

Attribute Quantity and other data on the customer order agree with the duplicate sales invoice

Answer 39

Exception Condition Product number and description on the customer order differ from information on the duplicate sales invoice

Question 40

Attribute Credit is approved

Answer 40

Exception Condition Lack initials indicating credit approval

Question 41

Attribute For recorded sales in the sales journal, the file of supporting documents includes a duplicate sales invoice, bill of lading, sales order, and customer order

Answer 41

Exception Condition Bill of lading is not attached to the duplicate sales invoice and the customer order