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BSA 33P > Chapter 8 TB > Flashcards

Chapter 8 TB Flashcards

1
Q

Audit sampling implies the gathering of evidence to use as a basis for making valid inferences about the characteristics of the population as a whole without examining every transaction.

T or F?

A

TRUE

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2
Q

Audit sampling is the application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic.

T or F?

A

TRUE

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3
Q

When performing substantive tests using sampling methods, the auditor’s main concern is the risk of incorrect rejection.

T or F?

A

FALSE

When performing substantive tests using sampling methods, the auditor’s main concern is the risk of incorrect acceptance.

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4
Q

The risk of incorrect acceptance of an account balance as correct, when in fact it is not correct, bears directly on the effectiveness of an audit.

T or F?

A

TRUE

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5
Q

The tolerable misstatement is the level of misstatement the auditor expects to detect in the population.

T or F?

A

FALSE

The expected misstatement is the level of misstatement the auditor expects to detect in the populatio

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6
Q

Statistical sampling is used when an auditor chooses to examine all purchases of equipment exceeding $1,000.00 and to test the remaining items by analytical procedures.

T or F?

A

FALSE

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7
Q

The most efficient method of testing a large population is the use of nonstatistical sampling.

T or F?

A

FALSE

The most efficient method of testing a large population is the use of statistical sampling.

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8
Q

Statistical sampling assists auditors in determining the sufficiency of evidence gathered.

T or F?

A

TRUE

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9
Q

When testing controls, the use of haphazard selection of a sample allows for random, statistical evaluation.

T or F?

A

FALSE

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10
Q

The tolerable failure rate is the level at which the control’s failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor’s planned assessment of control risk in performing tests of account balances.

T or F?

A

TRUE

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11
Q

The expected population deviation rate is the auditor’s best estimate of the percentage of transactions processed for which a control is not effectively applied.

T or F?

A

TRUE

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12
Q

An attribute is defined as a characteristic of the population of interest to the auditor.

T or F?

A

TRUE

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13
Q

The sample size decreases as the risk of overreliance decreases.

T or F?

A

FALSE

The sample size decreases as the risk of overreliance increases and the confidence level decreases.

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14
Q

For tests of controls, the most commonly used statistical method is attributes sampling.

T or F?

A

TRUE

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15
Q

Increasing the expected failure rate will cause the sample size to increase.

T or F?

A

TRUE

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16
Q

Sample size varies directly with sampling risk.

T or F?

A

FALSE

Sample size varies inversely with sampling risk.

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17
Q

Statistical sampling used in control testing eliminates the need for evaluation of errors from a qualitative perspective.

T or F?

A

FALSE

  1. Quantitative evaluation
  2. Qualitative evaluation
  3. Linkages of test of controls and substantive analytical procedures
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18
Q

The auditor must define the population to which sampling relates if the auditor is to use statistical sampling for substantive tests of account balances.

T or F?

A

TRUE

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19
Q

The individual auditable elements defined by the auditor are the sampling units.

T or F?

A

TRUE

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20
Q

The most common statistical approaches for substantive testing are classical variables sampling and MUS.

T or F?

A

TRUE

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21
Q

Nonstatistical samples should be based on the same audit considerations as those used for statistical sampling.

T or F?

A

TRUE

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22
Q

Random sampling can be used even if the auditor does not plan on using statistical sampling.

T or F?

A

TRUE

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23
Q

Either nonstatistical or statistical sampling is appropriate for substantive tests of details.

T or F?

A

TRUE

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24
Q

Monetary unit sampling (MUS) is designed to test whether there is an acceptable risk of account balance understatement.

T or F?

A

FALSE

Monetary unit sampling (MUS) is designed to test whether there is an acceptable risk of account balance overstatement.

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25
Q

Monetary unit sampling (MUS) results in an efficient sample size and concentrates on the dollar value of the account balances.

T or F?

A

TRUE

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26
Q

Sample size in a MUS sample is a function of risk of incorrect acceptance, tolerable misstatement, and expected misstatement.

T or F?

A

TRUE

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27
Q

The population for MUS is defined as the number of dollars in the population being tested.

T or F?

A

TRUE

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28
Q

Sampling risk is defined as the risk that an inference drawn from a sample will be incorrect.

T or F?

A

TRUE

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29
Q

Projected misstatements are developed by extrapolation from the misstatements in sample items to the population.

T or F?

A

TRUE

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30
Q

When evaluating an MUS sample, if the auditor finds no misstatements in the sample, the misstatement projection is zero dollars, and the total estimated misstatement will equal the projected misstatement for items in lower-stratum.

T or F?

A

FALSE

When evaluating an MUS sample, if the auditor finds no misstatements in the sample, the misstatement projection is zero dollars, and the total estimated misstatement will equal the basic precision.

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31
Q

Population items with zero balances have no chance of being selected using PPS sampling.

T or F?

A

TRUE

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32
Q

Population items with a zero balance have the same chance of being chosen as those with dollar balances when using MUS sampling.

T or F?

A

FALSE

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33
Q

Evaluating statistical sample results is one of the tasks that can be performed by data analytics tools.

T or F?

A

TRUE

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34
Q

In sampling for substantive tests of details, the population is a group of items in an account balance that the auditor wants to test.

T or F?

A

TRUE

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35
Q

Tolerable misstatement is the maximum amount of misstatement the auditor can accept in the population without requiring an audit adjustment or a qualified audit opinion.

T or F?

A

TRUE

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36
Q

Extracting data from the client’s computer system is one of the tasks that can be performed by data analytics tools.

T or F?

A

TRUE

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37
Q

Statistical sampling combines the theory of probability and statistical inference with audit judgment and experience.

T or F?

A

TRUE

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38
Q

An example of attributes testing involves obtaining evidence that the client has matched the vendor invoice details with a purchase order and receiving report before payment approval.

T or F?

A

TRUE

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39
Q

A sample which exceeds the tolerable rate of deviation results in the auditor’s reliance on internal control effectiveness.

T or F?

A

FALSE

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40
Q

Attributes sampling for testing controls should only be done by the auditor at the end of the fiscal period under audit.

T or F?

A

FALSE

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41
Q

In analysis of the results of an attributes sampling plan, an auditor may determine that the sample size must be increased.

T or F?

A

TRUE

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42
Q

Simple random sampling, systematic sampling, and block sampling are acceptable sample selection methods for statistical sampling.

T or F?

A

FALSE

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43
Q

Random number, haphazard selection, and block sampling are acceptable sample selection methods for nonstatistical sampling.

T or F?

A

TRUE

44
Q

Random number, haphazard selection, and block sampling are acceptable sample selection methods for nonstatistical sampling.

T or F?

A

TRUE

45
Q

By using data analytics tools, the auditor can potentially audit the whole population rather than taking a sample.

T or F?

A

TRUE

46
Q

Using attributes sampling the auditor can test for multiple attributes using the same source documents.

T or F?

A

TRUE

47
Q

The audit objective of attributes sampling is to test the correctness of an account balance.

T or F?

A

FALSE

The audit objective of attributes sampling is to test the operating effectiveness of internal control

48
Q

Stratification of the population into several homogeneous subpopulations generally creates audit efficiency.

T or F?

A

TRUE

49
Q

In attributes sampling, if the upper limit of the possible deviation rate exceeds the tolerable rate, the auditor can rely upon the control as being effective.

T or F?

A

FALSE

50
Q

In MUS sampling basic precision is the upper misstatement limit when no misstatements are detected in a MUS sample. It is computed by multiplying the sampling interval by the error expansion factor.

T or F?

A

FALSE

In MUS sampling basic precision is the upper misstatement limit when no misstatements are detected in a MUS sample. It is computed by multiplying the sampling interval by the confidence factor.

51
Q

In attributes sampling if the selected item cannot be located, the auditor should assume that the control procedure was not followed and assess that item as a failure.

T or F?

A

TRUE

52
Q

Which of the following is not considered when obtaining audit evidence through sampling?

The effectiveness of control procedures.
The efficiency of control procedures.
The dollar accuracy of account balances.
The dollar accuracy of classes of transactions

A

B

53
Q

For which of the following audit procedures would sampling be most appropriate?

Inquiry.
Observation.
Confirmation.
Analytics

A

C

54
Q

For which of the following audit procedures would sampling be most appropriate?

Inquiry.
Observation.
Confirmation.
Analytics

A

D

55
Q

Which one of the following is a decision the auditor makes when using attributes sampling?

The sampling unit.
Period covered by testing.
Completeness of the population.
All of the above are auditor decisions.

A

D

56
Q

Which of the following is not considered to be nonsampling risk?

Misinterpretation of information.
Use of improper audit procedure.
The sample does not represent the population.
Carelessness of the auditor.

A

C

57
Q

Which of the following describes sampling risk?

The sample will not contain characteristics representative of the population such that inferences made about that population will be incorrect.
The population will not contain characteristics representative of the sample such that inferences made about that sample will be incorrect.
The auditor incorrectly applies sampling methodology.
The sample size will be larger than needed.

A

A

58
Q

Errors that are more likely to occur than anticipated. Which of the following occurs when, based on sample results, control risk is assessed excessively high?

Audit inefficiency.
A less expensive audit.
Reduction of substantive testing.

A

A

59
Q

Concluding that the book value of inventory is correct when it is materially misstated is an example of which of the following risks?

Incorrect rejection.
Incorrect acceptance.
Insufficient sample size.
None of the above.

A

B

60
Q

Incorrect acceptance is directly related to which of the following?

The efficiency of the audit.
The ineffectiveness of the audit.
The cost of the audit.
All of the above.

A

B

61
Q

When performing sampling, the auditor is most concerned with which of the following?

Risk of incorrect rejection.
Risk of incorrect acceptance.
Risk of excess sample size.
Risk of errors in the population.

A

B

62
Q

While auditors may use either statistical or nonstatistical sampling, some auditors restrict the use of nonstatistical sampling for what reason?

It is less effective.
It is less objective.
It is less efficient.
It is less risky

A

B

63
Q

Which of the following applications are incorporated into statistical sampling?

Binomial and confidence intervals.
Random and haphazard selection.
Hypergeometric distribution with audit risk.
Probability and statistical inference with audit judgment.

A

D

64
Q

Which one of the following issues need not be addressed when planning an audit sample to test control procedures?

Audit objective of the test.
Minimum failure rate.
Expected population deviation rate.
Auditor’s allowable risk of assessing control risk too low.

A

B

65
Q

Which of the following is the level at which the control’s failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor’s planned assessment of control risk in performing tests of account balances?

Tolerable failure rate.
Allowable risk of assessing control risk too low.
Expected failure rate.
Allowance for sampling error.

A

A

66
Q

Which of the following statistical sampling methods is most commonly used to test control procedures?

Variable sampling.
Ratio estimation sampling.
Attributes sampling.
Dollar unit sampling.

A

C

67
Q

Which one of the following is not a typical step used to implement an attributes sampling plan?

Define the attributes of interest and what constitutes failure(s).
Select and test the sample items.
Evaluate the sample results.
Define the nonstatistical sampling method that is most effective and efficient.

A

D

68
Q

When performing attributes sampling, which of the following varies directly with the sample size?

The expected failure rate.
The tolerable failure rate.
The risk of overreliance.
The nonsampling risk.

A

A

69
Q

In analyzing misstatements using sampling techniques, the auditor should analyze the misstatements in what manners?

Qualitatively and quantitatively.
Absolutely and proportionately.
Haphazardly and randomly.
Methodically and systematically.

A

A

70
Q

In testing account balances, haphazard sampling is an acceptable method of sampling provided the auditor believes the sample to be which of the following?

Statistically sound.
Representative of the population.
Representative of the sample.
In the upper stratum

A

B

71
Q

When determining sample size in attributes sampling, which of the following is usually true?

Sampling risk will be too high.
Tolerable misstatement amount is determined.
A failure rate is not to be expected.
Population size is not a major factor.

A

D

72
Q

Which of the following is not an item the auditor needs to determine in designing sampling for substantive testing?

The audit objective.
The method of selecting a sample.
Expected misstatement conditions.
Expected deviation rate.

A

D

73
Q

Which of the following is a method of reducing nonsampling risk?

Proper supervision and instruction of the client’s employees.
Proper supervision and instruction of the audit team.
The use of attributes sampling rather than variables sampling.
Controls to ensure that the sample drawn is random and representative.

A

B

74
Q

Which of the following is a factor that the auditor should consider when choosing between nonstatistical and statistical sampling?

Whether the audit staff is adequately trained to use statistical sampling.
Whether the population lends itself to a random-based selection method.
Whether the auditor wants a statistical measure of the risk of drawing a wrong conclusion.
All of the above.

A

D

75
Q

When confirming receivables in testing for overstatements, assume that there are few or no misstatements expected and the selection will be based on the dollar value of individual items. Which of the following is the auditor most likely to use?

MUS sampling.
Stratified mean-per-unit sampling.
Ratio estimation sampling.
Attribute sampling.

A

A

76
Q

The results of MUS sampling will be unacceptable when the total estimated misstatement exceeds which of the following?

The tolerable error rate.
The tolerable misstatement amount.
The expected deviation rate.
The expected deviation amount.

A

B

77
Q

MUS is based on which of following?

Attributes sampling.
Classical variables sampling.
Population variability sampling.
Expected error sampling.

A

A

78
Q

MUS is designed to test for which of the following?

Overstatements.
Understatements.
Neither understatements nor overstatements.
Either understatements or overstatements.

A

A

79
Q

Which of the following does the design of a MUS sample not require the auditor to determine?

Risk of incorrect acceptance.
Inherent risk.
Ratio of expected misstatement to tolerable misstatement.
Ratio of tolerable misstatement to the total population value.

A

B

80
Q

When using MUS, an auditor found that the sampling interval should be $15,755. If selecting the sample manually, the auditor should round the sample interval to which of the following amounts?

a. $16,000.
b. $15,000.
c. $14,000.
d. $10,000.

A

B

81
Q

When planning a test of details using MUS sampling, tolerable misstatement is usually set at what level?

Higher than performance materiality.
Lower than performance materiality
Higher than the expected error amount.
Lower than the expected error amount.

A

B

To be prudent

82
Q

In MUS, what is meant by a sampling interval of 900?

Every 900th item will be selected.
Every 900th dollar will be selected.
Expected misstatement is 900.
Tolerable misstatement is 900.

A

B

83
Q

In using MUS, once the auditor has determined the sample size, which of the following is needed to determine the sampling interval?

Expected misstatement.
Tolerable misstatement.
Population size.
Mean.

A

C

84
Q

Which one of the following is a proper course of action for the auditor when the total estimated misstatement exceeds the tolerable misstatement?

The auditor can ask the client to correct the known misstatements.
The auditor will analyze the detected misstatements for some common problems.
The auditor can expand the sample.
All of the above.

A

D

85
Q

MUS sampling has all of the following advantages over other statistical methods except which of the following?

Easier to apply than other statistical sampling approaches.
Sample sizes are relatively small.
It is a relatively easy way to make sure that negative balances and zero balances are included in the sample.
Usually results in a highly efficient sample size.

A

C

86
Q

Which of the following is a disadvantage of MUS sampling?

Sample selection is relatively easy.
Sample sizes are relatively small.
It is not designed to test for understatement.
It directly controls for the risk of incorrect acceptance.

A

C

87
Q

The auditor will do which of the following when the results of sample testing conclude that there is misstatement in excess of the tolerable misstatement?

Issue a disclaimer of opinion.
Throw out the sample.
Propose adjustments to the client.
Disclose the misstatement in the client’s financial statements.

A

C

88
Q

Which of the following is not a type of statistical method that provides results in dollar terms?

Variables sampling.
Attributes sampling.
Monetary unit sampling.
Probability proportional to size sampling.

A

B

89
Q

When an auditor uses MUS and analyzes misstatements in the lower stratum, which of the following will be multiplied by the sampling interval to calculate the projected misstatement for each misstated item?

Audit value.
Tolerable misstatement.
Sampling interval.
Tainting percentage

A

D

90
Q

In attributes sampling, which of the following does the risk of incorrect acceptance deal with?

Effectiveness.
Efficiency.
Reliability.
Both A and B.

A

A

91
Q

In attributes sampling, the risk of incorrect rejection deals with which of the following?

Effectiveness.
Efficiency.
Reliability.
Both A and B.

A

B

92
Q

In attributes sampling, the risk of incorrect rejection deals with which of the following?

Effectiveness.
Efficiency.
Reliability.
Both A and B.

A

B

93
Q

Which of the following is a factor of nonsampling risk?

Not carrying out the appropriate audit procedure.
Having a sample which does not represent the population.
Using a random sample selection.
Using nonstatistical sampling.

A

A

94
Q

Attributes sampling is used in which of the following situations?

Testing rates of deviations of controls.
Testing the reasonableness of account balances.
Testing accuracy of estimates in accounts.
Both A and B.

A

A

95
Q

In selecting a sample for attributes testing, systematic selection involves which of the following approaches?

Each item in the population having an equal chance of selection.
Every nth item being selected after a random start.
An arbitrary selection with no conscious bias.
Selecting all items on a day or week.

A

B

96
Q

In selecting a sample for attributes testing, haphazard selection involves which of the following approaches?

Each item in the population having an equal chance of selection.
Every nth item being selected after a random start.
An arbitrary selection with no conscious bias.
Selecting all items on a day or week.

A

C

97
Q

In selecting a sample for attributes testing, block sampling involves which of the following approaches?

Each item in the population having an equal chance of selection.
Every nth item being selected after a random start.
An arbitrary selection with no conscious bias.
Selecting all items on a day or week.

A

D

98
Q

Sampling risk deals with which of the following?

Not carrying out the appropriate audit procedure.
Drawing an incorrect inference from the sample results.
Inappropriately diagnosing client’s problems.
Both A and C.

A

B

99
Q

Which of the following are limitations of using the MUS sampling method?

MUS is not very useful in testing for understatement.
MUS is not very useful in testing for zero and negative amounts.
MUS is not very useful in testing if the auditor expects numerous misstatements.
All of the above.

A

D

100
Q

In testing the reasonableness of an account balance, if MUS sampling cannot be used because of its limitations, what is an alternative statistical method?

Attribute sampling.
Classical variables sampling.
Discovery sampling.
All of the above.

A

B

101
Q

When evaluating the MUS sample results, the auditor calculates the total estimated misstatement in the account balance based on the sampling process using which of the following components?

Basic precision.
Projected misstatement for items in lower-stratum.
Incremental Allowance for Sampling Error.
All of the above.

A

D

102
Q

Which of the following tasks is not performed by data analytics tools?

Footing a file.
Obtaining file statistics.
Checking for gaps in processing sequences.
Preparing custom reports.
All of the above tasks can be performed using data analytics tools.

A

E

103
Q

Dividing the population into relatively homogeneous groups in order to reduce sample size is the definition of which of the following terms?

Ratio estimation.
Difference estimation.
Stratification.
MUS sampling

A

C

104
Q

Blockchain is a rapidly evolving phenomenon that is useful in recording which of the following types of transactions?

Multi-national transactions.
Digital currency transactions.
Transactions requiring a high level of authorization.
Related party transaction.

A

B

105
Q

Which of the following is not one of the processes involved in data mining?

Data capture and cleaning.
Deploying models.
Data exploration.
Data architecture.

A

D

106
Q

Which of the following data analytics tools might an auditor use to test the completeness assertion for sales?

Analyze data to assess the proper operation of sales cutoff tests around year-end.
Age accounts receivable.
Use data visualization tools to evaluate disclosures about sales and profitability.
All of the above.

A

A

BSA 33P (21 decks)

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