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Yaeger AUD > Mod 7 Wrong Answers > Flashcards

Mod 7 Wrong Answers Flashcards

0
Q

Both statistical and nonstatistical sampling require the use…

A

Of judgement

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1
Q

Identify 3 advantages of statistical sampling over nonstatistical sampling:

Statistical sampling helps an auditor to…

A

1 design an efficient sample

2 measures sufficiency of evidential matter obtained

3 evaluate the sample results

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2
Q

If certain forms are not consecutively numbered…

A

Systematic sampling may be appropriate

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3
Q

Random number tables can be used even though…

A

The forms are not consecutively numbered

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4
Q

In random number tables, if random numbers are selected for which there are no forms…

A

They are ignored

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5
Q

Stratified sampling is a technique of…2

A

1 Breaking the population down into subpopulations and

2 applying different sample selection methods to the subpopulations

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6
Q

Stratified sampling is used to…

A

Minimize the variance within the overall population

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7
Q

As variance increases so does required sample size because of…

A

Extreme values

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8
Q

Stratification allows the selection of subpopulations to…

A

Reduce the effect of dispersion of the population

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9
Q

Give an example of a deviation from control procedures that does not necessarily result in an error

A

Lack of documentation of transaction approval

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10
Q

Lack of documentation of transaction approval, deviation from the control procedure exists even though…

A

The entry was authorized and proper, so it might not result in
Financial statement error

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11
Q

A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material error. This is…

A

Not an example of a deviation of a control

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12
Q

The objective of the tolerable rate of sampling, tolerable rate is calculated to…

A

Determine the range of procedural deviations in the population

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13
Q

Probabilities relate…

2) what do they not relate to?

A

More directly to reliability,

2) not tolerable rate

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14
Q

Determine the relationship between the tolerable rate of deviations and the expected rate of deviations for a test of a control:

Tolerable rate of deviations is…2

A

1 The maximum rate of deviations from a prescribed control
procedure that an auditor would be willing to accept

2 unless expected error rate is lower, reliance on internal control
Is not justified

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15
Q

To perform tests of controls one must assume that the tolerable rate of deviations is…

A

More than the expected error rate

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16
Q

An auditor will consider the likely rate of deviations, but will not ordinarily consider…

A

The allowable risk of assessing control risk too high

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17
Q

While deviations from pertinent control procedures increase the risk of material misstatements, any specific…

A

Deviation need not necessarily result in misstatement

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18
Q

A recorded disbursement that does not show evidence of required approval might…

A

Be a transaction that is properly authorized and recorded

Thus necessarily resulting in misstatement

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19
Q

When determining the tolerable rate…

A

The auditor does not yet have the required sample size

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20
Q

When considering the allowance for sampling risk, one may consider both…2

A

1 planned allowance for sampling risk or

2 adjusted allowance based on sample results

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21
Q

Assume the tolerable rate is 7%, the auditor estimated that 2.5% of invoices lacked approval from past experience, there were 7 errors in 200 documents actually examined and the auditor determined the upper precision limit to be 8%. How do you calculate planned allowance for sampling risk?

A

Planned allowance for sampling risk =
Tolerable rate - expected deviation rate
7% - 2.5% = 4.5%

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22
Q

Assume the tolerable rate is 7%, the auditor estimated that 2.5% of invoices lacked approval from past experience, there were 7 errors in 200 documents actually examined and the auditor determined the upper precision limit to be 8%.

A

Adjusted allowance based on sample results =
Upper precision limit - actual deviations found
8% - 3.5% = 4.5%

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23
Q

The auditor must set an acceptable level of risk for…

A

Both variables sampling and attribute sampling

24
Q

The rate of error in the population relates to…

A

Attributes sampling only

25
Q

When using probability proportional to size (PPS) sampling, the auditor…

A

Controls the risk of incorrect acceptance by specifying a risk
Level when planning the sample

26
Q

In probability proportional to size (PPS) sampling, how is the sampling interval calculated?

A

Sampling interval = book value of population/ sample size

27
Q

How do you compute the sample size under probability proportional to size (PPS) sampling. 2 steps

A

Tolerable misstatements/reliability factors of over statements = x

Sample size = population BV/x

28
Q

Identify the circumstance in which an auditor most likely would stratify population into meaningful groups:

Stratified sampling is used to…2

A

1 minimize the effect on sample size of variation within the overall
Population and

2 results in the largest savings for populations with high variability

29
Q

probability proportional to size (PPS) sampling may in essence stratify a population, the items selected, other than those larger than the sampling interval are…

A

Not in meaningful groups

30
Q

The ratio estimation sampling technique uses the ratio between…

A

Audited to book value amounts as a measure of standard

deviation in its sample size computation

31
Q

Determine when ratio estimation sampling is most effective…2

A

1 When audit difference are approximately proportional to account
size, the standard deviation of the ratio is small

2 And it results in a relatively small required sample size

32
Q

Absolute size of differences does not…

A

Make the ratio method most effective

33
Q

It is necessary to obtain an estimate of a population’s standard deviation (variability)…

A

When calculating the required sample size and when using

Sampling techniques

34
Q

The ratio estimation sampling technique can’t be used when…

A

There is no book value to make a comparison to

35
Q

Difference estimation method is a variable statistical method that…

A

Measures the difference between book values and audit values

36
Q

The difference and ratio estimation methods are…

A

Efficient

37
Q

The difference and ratio estimation methods are more efficient because…

A

The differences between audit and book values are expected to
Vary less than actual items in the population

38
Q

In both difference and ratio estimation methods, the differences between audit and book values should not be great, therefore the population of these differences will have…

A

Little variance

39
Q

In statistical sampling, the less variation in a population, the…

A

Smaller the required sample to provide an estimate of the

population

40
Q

The number of members in the population for differences or ratio methods would…

A

Be the same as the number of items in the population for the

Direct estimation method

41
Q

In difference sampling many items would be zero because…

A

Audit and book value are the same

42
Q

In ratio sampling, many members would be one because…

A

Audit and book value are the same

43
Q

In Probability-proportional-to-size (PPS) sampling:

How do you calculate the upper limit on misstatement?

A

Upper limit on misstatement =

projected misstatement + basic precision + incremental allowance

44
Q

In Probability-proportional-to-size (PPS) sampling:

How do you calculate the allowance for sampling risk?

A

Allowance for sampling risk = basic precision + incremental allowance

45
Q

because the precision uses a 3.0 factor the risk of incorrect acceptance is…

A

5%

46
Q

Size of a PPS sample is not based on…

A

The estimated variation of audited amounts

47
Q

Problem A, determine if correct, or why the statement is incorrect:

After obtaining an understanding of Mill’s internal control, Baker decided to obtain evidential matter about the effectiveness of both the design and operation of the controls that may support a low assessed level of control risk concerning Mill’s shipping and billing functions.

A

Correct

48
Q

Problem A, determine if correct, or why the statement is incorrect:

Baker decided to defer consideration of allowable risk of assessing control risk too low (risk of overreliance) until evaluating the sample results.

A

Correct

49
Q

Problem A, determine if correct, or why the statement is incorrect:

Baker used the tolerable rate, population size, and the expected error rate to determine sample size of eighty would be sufficient.

A

Baker failed to consider the allowable risk of assessing control
Risk too low (risk of overreliance) in determining sample size

50
Q

Problem A, determine if correct, or why the statement is incorrect:

When it was subsequently determined that the actual population was about 10,000 shipping documents, Baker increased the sample size to 100.

A

Increase in population size has little or no effect on determining
Sample size

51
Q

Problem A, determine if correct, or why the statement is incorrect:

In evaluating sample results Baker made the initial determination that a reliability level of 95% (risk of assessing control risk too low 5%)…Baker then calculated the allowance for sampling risk to be 5%

A

Allowance for sampling risk is not correctly determined

52
Q

Problem A, determine if correct, or why the statement is incorrect:

Baker reasoned that the actual sample deviation (8%) plus allowance for sampling risk (5%) was less than the achieved UPL (14%); therefore, the sample supported a low level of control risk.

A

Baker’s reasoning concerning the decision that the sample

supported a low assessed level of control risk was erroneous

53
Q

Problem B, determine if correct, or why the statement is incorrect:

During the prior years’ audit Mead used classical variables sampling in performing tests of controls on Jiffy’s accounts receivable.

A

Classical variables sampling is not designed for tests of controls

54
Q

Problem B, determine if correct, or why the statement is incorrect:

Mead computed the sample size using the risk of incorrect acceptance, the total recorded book amount of the receivables, and the number of misstated accounts allowed.2

A

1 Tolerable misstatement was not considered in calculating the
Sample size

2 expected (anticipated) misstatement was not considered in
Calculating the sample size
55
Q

Problem B, determine if correct, or why the statement is incorrect:

Mead divided the total recorded book amount of the receivables by the sample size to determine the sampling interval

A

Correct

56
Q

Problem B, determine if correct, or why the statement is incorrect:

Mead’s calculated sample size was sixty and the sampling interval was determined to be $10,000…The confirmation process revealed two differences. One account with an audited amount of $3,000 had been recorded at $4,000. Mead projected this to be a $1,000 misstatement.

A

Incorrect

Projected misstatement = [(BV - AV)/BV] X sampling interval
$2,500 = ($1,000/$4,000) X $10,000

57
Q

Problem B, determine if correct, or why the statement is incorrect:

Mead’s calculated sample size was sixty and the sampling interval was determined to be $10,000…Another account with an audited amount of $2,000 had been recorded at $1,900. Mead did not count the $100 difference because the purpose of the test was to detect overstatements.

A

The difference in the understated account should not have been
Omitted from calculation of projected misstatement

Yaeger AUD (38 decks)

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