Chapter 17: Audit Sampling for Tests of Details of Balances

Question 1

Test of controls concern is testing the ___________ of internal controls

Answer 1

effectiveness

Question 2

Substantive tests of transactions concern is both the ___________ of the controls and the monetary _________ of transactions in the accounting system

Answer 2

effectiveness

correctness

Question 3

Tests of details and balances concern is determining whether the dollar amount of an account balance is ________ ________.

Answer 3

materially misstated

Question 4

For tests of details of balances, auditors use sampling methods that provide results in dollar terms. 3 primary types of sampling methods for calculating dollar misstatements include:

1) nonstatistical sampling
2) _________ _____ sampling
3) _________ sampling

Answer 4

monetary unit

variables

Question 5

With regards to tests of details of balances, the sampling unit for nonstatistical sampling is usually a customer account, and individual ________, or a line item on a transaction. Auditor often selects key items to test individually and subjects the rest to sampling.

Answer 5

transactions

Question 6

_______ ______ of ________ _________ is the risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than the tolerable misstatement

Answer 6

acceptable risk of incorrect acceptance (ARIA)

Question 7

If the auditor wants more assurance in auditing a balance, ARIA is set _______.

Answer 7

lower

Question 8

There is a _______ relationship between ARIA and sample size.

Answer 8

inverse

Question 9

Primary factor affecting auditor’s decision about ARIA is assessed control risk: when controls are effective, can _______ assessed control risk and _______ ARIA- this in turn reduces sample size

Answer 9

reduce

increase

Question 10

What action are you to take if a population is rejected?
Take no action until tests of other audit areas are completed
perform _______ audit tests in specific areas.
________ sample size
________ account balance
request the client to correct the population
Refuse to give an __________ opinoin

Answer 10

expanded
increase
adjust
unqualified

Question 11

______ _______ sampling is an innovation in statistical sampling methodology that was developed specifically for use by auditors

Answer 11

monetary unit

Question 12

MUS uses _____-sampling theory to express a conclusion in dollar amounts rather than as a rate of occurrence

Answer 12

attribute

Question 13

MUS is designed primarily to test for __________ errors.

Answer 13

overstatement

Question 14

MUS is most appropriate for ____ _____-rate population

Answer 14

low error-rate

Question 15

In comparing the audit sampling for tests of details and balances and tests of controls and substantive tests of transactions:

1) state the objectives of the audit test
2) decide whether the audit _______ applies
3) define the ______ conditions
4) define the ______
5) define the sampling _____

which one is different in test of controls and substantive test of transactions?

Answer 15

2) sample
3) misstatement
4) population
5) unit

3- define the attributes and exception conditions

Question 16

What is it supposed to be in the tests of controls and test of substantive tests of transactions:
6) specify tolerable misstatement

Answer 16

specify the tolerable exception rate

Question 17

What is it supposed to be in the tests of controls and test of substantive tests of transactions:
7) specify acceptable risk of incorrect acceptance

Answer 17

specify acceptable risk of assessing control risk too low

Question 18

What is it supposed to be in the tests of controls and test of substantive tests of transactions:
8) estimate the misstatements in the population

Answer 18

estimate the population exception rate

Question 19

In comparing the audit sampling for tests of details and balances and tests of controls and substantive tests of transactions:

9) determine the _____ sample size
10) select the sample
11) perform the audit ________
12) generalize form the sample to the ______-

Answer 19

9) initial
11) procedures
12) population

Question 20

What is it supposed to be in the tests of controls and test of substantive tests of transactions:
13) analyze the misstatements

Answer 20

analyze the exceptions

Question 21

14) Decide the _________ of the population

Answer 21

acceptability

Question 22

Differences between MUS and nonstatistical sampling:

The definition of the sampling unit is an individual __________

Answer 22

dollar

Question 23

Differences between MUS and nonstatistical sampling:

the population size is the recorded _________ population

Answer 23

dollar

Question 24

Differences between MUS and nonstatistical sampling:

preliminary judgment of __________ is used for each account instead of tolerable misstatement

Answer 24

materiality

Question 25

Differences between MUS and nonstatistical sampling:

sample size is determined using a ____________ _________

Answer 25

statistical formula

Question 26

Differences between MUS and nonstatistical sampling:

a formal decision rule is used for deciding the _________ of the population

Answer 26

acceptability

Question 27

Differences between MUS and nonstatistical sampling:

sample selection is done using ___________ __________ to size sample selection

Answer 27

probability proportional

Question 28

Differences between MUS and nonstatistical sampling:

auditor _____________ form the sample to the population using MUS techniques.

Answer 28

generalizes

Question 29

Auditor must generalize from sample to population by:

1) projecting _________ from the sample results to the population
2) determining the related sample ______

Answer 29

misstatements

error

Question 30

__________ sampling is using knowledge of sampling distributions to draw statistical conclusions about the population

Answer 30

variable

Question 31

some methods of variable sampling are:
________ estimation
_____ estimation
____-per-unit estimation

Answer 31

difference
ratio
mean

Question 32

in regards to variable sampling:
mathematical computations for variables sampling are complex, therefore auditors typically ________ _________ to perform the computations

Answer 32

computer software

Question 33

in regards to variable sampling:

can easily handle both ____________ and ____________ errors

Answer 33

overstatement

understatement

Question 34

in regards to variable sampling:

most appropriate for populations that contain a moderate to ___ rate of misstatement

Answer 34

high