Chapter 9 Exam

Question 1

The risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance under audit is greater than the tolerable misstatement is the acceptable risk of incorrect acceptance.

T or F?

Answer 1

TRUE

Question 2

An auditor using nonstatistical sampling cannot formally measure sampling error and therefore must subjectively consider the possibility that the true population misstatement exceeds a tolerable amount. The peso difference between the point estimate and tolerable misstatement should be considered by the auditor in making this assessment.

T or F?

Answer 2

TRUE

Question 3

Tolerable misstatement is used to select the sample.

T or F?

Answer 3

FALSE

Tolerable misstatement is used to evaluate results

Question 4

An auditor using nonstatistical sampling cannot formally measure sampling error.

T or F?

Answer 4

TRUE

Question 5

In evaluating results for tests of details, auditors must evaluate exceptions identified.

T or F?

Answer 5

FALSE

Question 6

Difference estimation frequently results in smaller sample sizes than any other variables sampling method.

T or F?

Answer 6

TRUE

Question 7

Sampling used for tests of details provides results in terms of:

a. percentages.
b. exception rates.
c. expectation rates.
d. pesos.

Answer 7

D

Question 8

The purpose of applying stratified sampling to a population is to emphasize certain items and deemphasize others.

T or F?

Answer 8

TRUE

Question 9

When using systematic selection procedures with monetary-unit sampling of accounts receivable, the interval is determined by dividing the population size by the desired sample size.

T or F?

Answer 9

TRUE

Question 10

When auditors sample for tests of details of balances, the objective is to determine whether the account balance being audited is fairly stated.

T or F?

Answer 10

TRUE

Question 11

In difference estimation sampling, the confidence limits are calculated by combining the point estimate of the total misstatements and the computed precision interval at the desired confidence level.

T or F?

Answer 11

TRUE

Question 12

The population standard deviation of the misstatements from the sample is inversely related to the computed precision interval in difference estimation; that is, as the standard deviation increases, the computed precision interval decreases.

T or F?

Answer 12

FALSE

Question 13

The primary factor affecting the auditor’s decision about ARIA is assessed inherent risk.

T or F?

Answer 13

FALSE

Question 14

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will decrease.

T or F?

Answer 14

FALSE

Question 15

The two primary types of sampling methods used for calculating dollar misstatements are attributable sampling and monetary unit sampling.

T or F?

Answer 15

FALSE

Question 16

The acceptable risk of incorrect acceptance is most related to audit efficiency.

T or F?

Answer 16

FALSE

The acceptable risk of incorrect acceptance (beta risk) is most related to audit effectiveness.

Question 17

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will vary based on characteristics of the population.

T or F?

Answer 17

FALSE

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will increase.

Question 18

Tolerable misstatements for overstatements and understatements must be different amounts.

T or F?

Answer 18

FALSE

Question 19

Tolerable misstatement is used to determine sample size.

T or F?

Answer 19

FALSE

Tolerable misstatement is used to evaluate results

Question 20

Estimated misstatement in the population and sample size are inversely related; that is, as estimated misstatement increases, sample size decreases.

T or F?

Answer 20

FALSE

Question 21

In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is varied.

T or F?

Answer 21

FALSE

Question 22

The final step in the evaluation of the audit results is the decision to project the point estimate

T or F?

Answer 22

FALSE

Steps in Evaluating the Results:
1. Project the misstatements of the population
2. Compare the projected misstatements with the tolerable misstatements and draw an overall conclusion

Question 23

The primary factor affecting the auditor’s acceptable risk of incorrect acceptance is assessed inherent risk.

T or F?

Answer 23

FALSE

Question 24

Both sampling and nonsampling risks are associated with substantive tests of transactions.

T or F?

Answer 24

TRUE

Question 25

When using systematic selection procedures with monetary-unit sampling of accounts receivable, the interval is determined by consulting a random number table. | T or F?

Answer 25

FALSE

Question 26

The auditor must consider the possibility that the true population misstatement is greater than the amount of misstatement that is tolerable when the auditor is performing monetary-unit sampling. | T or F?

Answer 26

TRUE

Question 27

In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is inverse. | T or F?

Answer 27

TRUE

Question 28

When using nonstatistical sampling, the larger the sample size, the greater the auditor’s confidence that the point estimate is close to the true population value. | T or F?

Answer 28

TRUE

Question 29

The relationship between required sample size and the acceptable risk of incorrect acceptance is: a. proportional. b. inverse. c. direct. d. indeterminate.

Answer 29

B

Question 30

Acceptable risk of incorrect acceptance is indirectly affected by acceptable audit risk. | T or F?

Answer 30

FALSE ## Footnote Acceptable risk of incorrect acceptance is directly affected by acceptable audit risk.

Question 31

In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is direct. | T or F?

Answer 31

FALSE

Question 32

Accounts with zero or negative year-end balances have no chance of being included in a standard probability proportional to size (PPS) sample. | T or F?

Answer 32

TRUE

Question 33

The final step in the evaluation of the audit results is the decision to accept the population as fairly stated or to require further action. | T or F?

Answer 33

TRUE

Question 34

As the acceptable risk of incorrect acceptance is reduced, the required sample size is unaffected. | T or F?

Answer 34

FALSE

Question 35

Which of the following does not have to be considered in determining the initial sample size of a test of details? a. acceptable audit risk b. acceptable risk of incorrect rejection c. estimate of misstatements in the population d. tolerable misstatement

Answer 35

B

Question 36

The auditor must consider the possibility that the true population misstatement is greater than the amount of misstatement that is tolerable when the auditor is performing nonstatistical sampling. | T or F?

Answer 36

FALSE

Question 37

As the acceptable risk of incorrect acceptance is reduced, the required sample size decreases. | T or F?

Answer 37

FALSE

Question 38

Tolerable misstatements for overstatements and understatements must be set at the same amount. | T or F?

Answer 38

FALSE

Question 39

Acceptable risk of incorrect rejection is the statistical risk that the auditor has concluded that a population is materially misstated when it is not. | T or F?

Answer 39

TRUE

Question 40

If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance is reduced. | T or F?

Answer 40

TRUE

Question 41

If an auditor concludes that internal controls are likely to be effective, the preliminary assessment of control risk can be reduced, leading to an increase in the acceptable risk of incorrect acceptance. | T or F?

Answer 41

TRUE

Question 42

When auditors apply MUS to a sample, the sample is selected using random sampling techniques. | T or F?

Answer 42

FALSE

Question 43

As the acceptable risk of incorrect acceptance is reduced, the required sample size increases. | T or F?

Answer 43

TRUE

Question 44

When using monetary-unit sampling, the recorded peso population is a definition of all the items in the population which the auditor has included in the sample. | T or F?

Answer 44

FALSE ## Footnote When using monetary-unit sampling, the recorded peso population is a definition of all the items in the population.

Question 45

The most commonly used method of statistical sampling for tests of details of balances is: a. monetary-unit sampling. b. systematic sampling. c. attributes sampling. d. discovery sampling.

Answer 45

A

Question 46

When using monetary-unit sampling, the recorded peso population is a definition of all the items in the population. | T or F?

Answer 46

TRUE

Question 47

Tolerable misstatement is used to evaluate results. | T or F?

Answer 47

TRUE

Question 48

The acceptable risk of incorrect acceptance is most related to audit results. | T or F?

Answer 48

FALSE ## Footnote The acceptable risk of incorrect acceptance is most related to audit effectiveness.

Question 49

The purpose of applying stratified sampling to a population is to avoid items that may contain misstatements. | T or F?

Answer 49

FALSE

Question 50

In monetary-unit sampling, the relationship between tolerable misstatement size and required sample size is indeterminable. | T or F?

Answer 50

FALSE

Question 51

Required sample size increases as the auditor’s tolerable misstatement for an account balance or class of transactions decreases. | T or F?

Answer 51

TRUE

Question 52

Tolerable misstatement is inversely related to sample size. | T or F?

Answer 52

TRUE

Question 53

Attributes sampling is not a type of statistical method that provides results in peso terms. | T or F?

Answer 53

TRUE

Question 54

Monetary-unit sampling is not particularly effective at detecting: a. errors in noncurrent assets. b. understatements. c. overstatements. d. errors in current assets.

Answer 54

B

Question 55

Which of the following is the auditor least likely to consider when estimating misstatements in the population? a. Acceptable audit risk. b. Prior experience with the client. c. Results of current year tests of controls. d. Results of analytical procedures already performed.

Answer 55

A

Question 56

In monetary-unit sampling, the likelihood of high dollar items from the population being included in the sample is lower than the likelihood for small dollar items. | T or F?

Answer 56

FALSE

Question 57

Tolerable misstatements for overstatements and understatements may be different amounts. | T or F?

Answer 57

TRUE

Question 58

Acceptable risk of incorrect acceptance (ARIA) and sample size are inversely related; that is, as ARIA increases, sample size decreases. | T or F?

Answer 58

TRUE

Question 59

The purpose of stratified sampling is to achieve a greater confidence level (lower risk of incorrect acceptance) for a given sample size. | T or F?

Answer 59

FALSE ## Footnote The purpose of stratified sampling is to emphasize certain items and deemphasize others.

Question 60

Tolerable misstatements for overstatements and understatements must be expressed in percentages. | T or F?

Answer 60

FALSE

Question 61

When using systematic selection procedures with monetary-unit sampling of accounts receivable, the interval is determined by dividing the sample size by the account with the largest peso value. | T or F?

Answer 61

FALSE ## Footnote Dividing the population size by the desired sample size.

Question 62

The sample size is inversely related to the computed precision interval in difference estimation; that is, as sample size increases, the computed precision interval decreases. | T or F?

Answer 62

TRUE

Question 63

Monetary-unit sampling is most commonly used when: a. the auditor is searching for understatements only. b. the population data are maintained on manual files. c. a peso result is desired. d. several exceptions are expected.

Answer 63

A ## Footnote MUS methods (Value weighted selection) are especially applicable when making selections for accounts receivable confirmations, loan receivable confirmations, inventory price tests, and fixed asset addition tests.

Question 64

As the amount of misstatements expected in the population approaches tolerable misstatement, the planned sample size will be unaffected. | T or F?

Answer 64

FALSE

Question 65

If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance may be reduced or increased depending upon other circumstances. | T or F?

Answer 65

FALSE

Question 66

When auditors sample for tests of details of balances, the objective is to determine whether the transactions and account balances being audited are fairly stated. | T or F?

Answer 66

FALSE

Question 67

The acceptable risk of incorrect acceptance is most related to audit effectiveness. | T or F?

Answer 67

TRUE

Question 68

The use of monetary-unit sampling is most appropriate when the auditor expects to find many errors and when a monetary result is desired. | T or F?

Answer 68

FALSE

Question 69

When auditors sample for tests of details of balances, the objective is to determine whether the controls being tested are operating effectively | T or F?

Answer 69

FALSE ## Footnote When auditors sample for tests of details of balances, the objective is to determine whether the account balance being audited is fairly stated.

Question 70

When auditors sample for tests of details of balances, the objective is to determine whether the transactions being audited are free of misstatements. | T or F?

Answer 70

FALSE

Question 71

The final step in the evaluation of the audit results is the decision to determine sampling error and calculate the estimated total population error. | T or F?

Answer 71

FALSE ## Footnote The final step in the evaluation of the audit results is the decision to accept the population as fairly stated or to require further action.

Question 72

The final step in the evaluation of the audit results is the decision to determine sampling error and calculate the estimated total population error. | T or F?

Answer 72

FALSE

Question 73

Which of the following is not a likely item on which to apply stratification techniques? a. peso value of accounts receivable b. customer names of account receivables c. aging of accounts receivable d. number of sales per customer in a period

Answer 73

B

Question 74

Acceptable risk of incorrect rejection is a term relevant to sampling for tests of details. | T or F?

Answer 74

TRUE

Question 75

In estimating the population misstatement, the first step in projecting from the sample to the population is to: a. make a point estimate. b. calculate the precision interval. c. revise the upper error bound. d. determine the population mean.

Answer 75

A ## Footnote A point estimate is a single value estimate of a parameter. For instance, a sample mean is a point estimate of a population mean.