Module 9: SAMPLING

Question 1

1. Select the description which illustrates sampling risk.
   A. Applying audit procedures which are inappropriate for the audit objectives.
   B. Failing to recognize errors or deviations in the documents examined.
   C. Arriving at incorrect statistical conclusions due to computational errors.
   D. Choosing a sample which has proportionately more errors than the population.

Answer 1

D. Choosing a sample which has proportionately more errors than the population.

Question 2

2. Sampling risk is an inherent part of sampling results from
   A. the use of inappropriate audit procedures.
   B. a failure to recognize exceptions.
   C. testing a number of items less than the entire population.
   D. weaknesses in client’s internal control system.

Answer 2

C. testing a number of items less than the entire population.

Question 3

3. Sampling risk refers to the possibility that:
   A. The auditor may use a less than optimal statistical method for the circumstances, e.g.
   difference estimation instead of ratio estimation.
   B. The auditor may fail to recognize an error that exists in the sample.
   C. Even though a sample is properly chosen, it may not be representative of the population.
   D. The confidence level and/or precision established by the auditor are not appropriate.

Answer 3

C. Even though a sample is properly chosen, it may not be representative of the population.

Question 4

4. One of the causes of nonsampling error is the:
   A. use of inappropriate or ineffective audit procedures.
   B. failure to draw a random sample.
   C. failure to draw a representative sample.
   D. use of attributes sampling instead of variables sampling.

Answer 4

A. use of inappropriate or ineffective audit procedures.

Question 5

5. Statistical sampling:
   A. Measures quantitatively the risk from testing only a part of the audit population.
   B. Allows the same degree of confidence as nonstatistical sampling but with substantially less work.
   C. Allows the auditor to replace some judgments with quantitative measures.
   D. Measures the reliability of misstatements.

Answer 5

A. Measures quantitatively the risk from testing only a part of the audit population.

Question 5

6. Statistical sampling provides a technique for
   A. exactly defining materiality.
   B. greatly reducing the amount of substantive testing,
   C. eliminating judgment in testing.
   D. measuring the sufficiency of evidential matter.

Answer 5

D. measuring the sufficiency of evidential matter.

Question 6

7. Statistical samples as compared to non-statistical samples permit the auditor to
   A. quantify and control sampling risk.
   B. eliminate any type of non-sampling errors.
   C. obtain smaller sample sizes in all cases.
   D. use less complex formulas than those required to evaluate non-statistical samples.

Answer 6

A. quantify and control sampling risk.

Question 7

8. Of the following statements, which one best differentiates statistical sampling from nonstatistical sampling?
   A. Statistical sampling is a mathematical approach to inference, whereas nonstatistical sampling is a more subjective approach.
   B. Nonstatistical sampling has greater applicability to large populations that does statistical sampling.
   C. Nonstatistical sampling is more subjective, but produces greater consistency in the
   application of audit judgment.
   D. Nonstatistical sampling has greater applicability to populations that lend themselves to random selection.

Answer 7

A. Statistical sampling is a mathematical approach to inference, whereas nonstatistical sampling is a more subjective approach.

Question 8

9. One way to reduce sampling risk is to
   A. use an appropriate method of selecting sample items from the populations.
   B. carefully design the audit procedures to be used.
   C. provide proper supervision and instruction to the audit team.
   D. use variables sampling rather than attributes sampling.

Answer 8

A. use an appropriate method of selecting sample items from the populations.

Question 9

10. When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called
    A. block selection.
    B. haphazard selection.
    C. systematic selection.
    D. statistical selection.

Answer 9

B. haphazard selection.

Question 10

11. The tolerable deviation rate has a significant effect on sample size. The relationship of tolerable deviation rate to the sample is
    A. parallel.
    B. inverse.
    C. direct.
    D. variable.

Answer 10

B. inverse.

Question 11

12. The acceptable risk of assessing control risk too low in relation to the sample size is
    A. direct.
    B. indirect.
    C. parallel.
    D. not defined.

Answer 11

B. indirect.

Question 12

14. Which of the following statements is correct?
    A. The expected population deviation rate has little or no effect on the sample size.
    B. As the population size doubles, the sample size should also double.
    C. For a given tolerate rate, a larger sample size should be selected as the expected population deviation rate decreases.
    D. The population has little or no effect on sample size except for very small populations.

Answer 12

D. The population has little or no effect on sample size except for very small populations.

Question 12

15. Which of the following factors is generally not considered in determining the sample size for a test of controls?
    A. Population size
    B. Risk of assessing control risk too low
    C. Tolerable rate
    D. Expected population deviation rate

Answer 12

A. Population size

Question 12

13. The deviation rate that the auditor will permit in the population and still be willing to reduce the assessed level of control risk;
    A. tolerable deviation rate.
    B. estimated population deviation rate.
    C. acceptable risk of assessing control risk too low.
    D. sample deviation rate.

Answer 12

A. tolerable deviation rate.

Question 13

16. When an auditor does a sampling for attributes, which of the following would decrease sample size?
    I. Risk of assessing control risk too low
    II. Tolerable rate of Deviation
    III. Expected population deviation rate
    A. Increase Decrease Increase
    B. Decrease Increase Decrease
    C. Increase Increase Decrease
    D. Increase Increase Increase

Answer 13

C. Increase Increase Decrease

Question 14

17. If all other factors that are specified in a sampling plan remain constant, changing the expected population deviation rate from 1 percent to 2 percent would cause the required sample size to
    A. increase.
    B. decrease.
    C. remain the same.
    D. become indeterminate.

Answer 14

A. increase.

Question 15

18. Which of the following statements concerning the sample size is true?
    A. An increase in the tolerable occurrence rate, other factors remaining unchanged, increases the sample size.
    B. The higher the expected occurrence rate, other factors remaining unchanged, the larger will be the sample size.
    C. The more critical the attribute being tested, the higher will be the tolerable occurrence rate set by the auditor, and the larger will be the sample size.
    D. The lower the acceptable risk of underassessment of control risk, the smaller will the sample size be.

Answer 15

B. The higher the expected occurrence rate, other factors remaining unchanged, the larger will be the sample size.

Question 16

19. In attribute estimation, a 10 percent change in which of the following factors normally will have the least effect on the size of the statistical sample?
    A. Population size.
    B. Reliability.
    C. Precision interval.
    D. Standard deviation.

Answer 16

A. Population size.

Question 17

20. An important distinction between a statistical (judgmental) sample is that with a statistical sample:
    A. No judgment is required, everything is by formula.
    B. A smaller sample size can be used.
    C. More accurate results are obtained.
    D. Population estimates with measurable reliability can be made.

Answer 17

D. Population estimates with measurable reliability can be made.

Question 18

21. The application of statistical sampling technique is least related to which of the following generally accepted auditing standards?
    A. The work is to be adequately planned, and assistants, if any, are to be properly supervised.
    B. In all matters relating to the assignment, an independence in the mental attitude is to be maintained by the auditor or auditors.
    C. A sufficient understanding of internal control is to be obtained to plan the audit and to determine the nature, timing, and extent of the tests to be performed.
    D. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion about the financial statements under audit.

Answer 18

B. In all matters relating to the assignment, an independence in the mental attitude is to be maintained by the auditor or auditors.

Question 19

22. A sample in which the characteristics of the sample are the same as those of the population is a (an)
    A. Random sample.
    B. Variables sample.
    C. Attributes sample.
    D. Representative sample.

Answer 19

D. Representative sample.

Question 20

23. A bank auditor is interested in estimating the average account balance of its depositors based on a sample. This substantive test is an example of
    A. Attribute sampling.
    B. Discovery sampling.
    C. Acceptance sampling.
    D. Variables sampling.

Answer 20

D. Variables sampling.

Question 21

24. Nonsampling errors occur when audit tests do not uncover existing exceptions in the
    A. Population.
    B. Sample.
    C. Planning stage.
    D. Financial statements.

Answer 21

B. Sample.

Question 22

25. Which of the following best illustrates the concept of sampling risk?
    A. A randomly chosen sample may not be representative of the population as a whole on the characteristics of interest.
    B. An auditor may select audit procedures that are not appropriate to achieve the specific objective.
    C. An auditor may fail to recognize errors in the documents examined for the chosen sample.
    D. The documents related to the chosen sample may not be available for inspection.

Answer 22

A. A randomly chosen sample may not be representative of the population as a whole on the characteristics of interest.

Question 23

27. The primary reason for an auditor to use statistical sampling is to
    A. Obtain a smaller sample than would be required by non-statistical sampling technique.
    B. Obtain a sample more representative of the population than would be obtained by non-statistical sampling technique.
    C. Allow the auditor to quantify, and therefor control, the risk of making an incorrect decision based on sample evidence.
    D. Meet requirements of Philippine Standards on Auditing.

Answer 23

C. Allow the auditor to quantify, and therefor control, the risk of making an incorrect decision based on sample evidence.

Question 24

26. The auditor who prefer statistical to non-statistical sampling believe that the principal advantage of statistical sampling flows from its unique ability to
    A. Define the precision required to provide adequate satisfaction.
    B. Provide a mathematical measurement of risk.
    C. Establish conclusive audit evidence with decreased audit effort.
    D. Promote a more legally defensible procedural approach.

Answer 24

B. Provide a mathematical measurement of risk.

Question 25

28. One of the ways to reduce nonsampling risk is through
    A. Proper supervision and instruction of the client’s employees.
    B. Proper supervision and instruction of the audit team members.
    C. The use of attributes sampling, rather than variables sampling.
    D. Controls which ensure that the sample drawn is random and representative.

Answer 25

B. Proper supervision and instruction of the audit team members.

Question 26

30. Which of the following statements is incorrect?
    A. It is acceptable for the auditors to use statistical sampling method.
    B. It is acceptable for the auditors to use non-statistical sampling method.
    C. The primary benefit of statistical sampling method is the quantification of sampling risk.
    D. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.

Answer 26

D. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.

Question 26

29. Detection risk may be subdivided into the risk that analytical procedures and other substantive procedures will fail to detect a material misstatements and the allowable:
    A. Risk of incorrect acceptance.
    B. Risk of incorrect rejection.
    C. Control risk.
    D. Audit risk.

Answer 26

A. Risk of incorrect acceptance.

Question 27

31. In applying variable sampling, an auditor attempts to
    A. Estimate a qualitative characteristic of interest.
    B. Determine various rates of occurrence for specified attributes.
    C. Discover at least one instance of a critical error.
    D. Predict a monetary population value within a range of precision.

Answer 27

D. Predict a monetary population value within a range of precision.

Question 28

32. Which of the following statements is valid criticism against the use of nonstatistical sampling methods?
    A. Many audit tests, such as footing of journals, must be performed outside a statistical sampling context.
    B. The cost of performing random selection or testing often exceeds the benefits.
    C. Nonstatistical sampling does not differ substantially from statistical sampling method.
    D. Conclusions may be drawn in more precise ways when using statistical sampling method.

Answer 28

D. Conclusions may be drawn in more precise ways when using statistical sampling method.

Question 29

34. Which one is not a sample selection method commonly associated with nonstatistical audit
    sampling?
    A. Directed sample selection.
    B. Block sample selection.
    C. Probability proportional to size sample selection.
    D. Haphazard sample selection.

Answer 29

C. Probability proportional to size sample selection.

Question 29

33. Which of the following statements is not correct regarding probabilistic and non probabilistic
    sample selection?
    A. In probabilistic selection, every population item has a known chance of being selected.
    B. Probabilistic selection is required for all statistical sampling methods.
    C. It is not acceptable to make nonstatistical evaluation using probabilistic selection.
    D. Both methods are acceptable and commonly used.

Answer 29

C. It is not acceptable to make nonstatistical evaluation using probabilistic selection.

Question 30

35. Which one is not a sample selection method commonly associated with statistical audit sampling?
    A. Simple random sample selection.
    B. Systematic sample selection.
    C. Block sample selection.
    D. Stratified sample selection.

Answer 30

C. Block sample selection.

Question 31

36. The major weakness of nonstatistical sampling is that it
    A. usually requires larger sample size than statistical sampling.
    B. does not allow sampling risk to be objectively measured.
    C. frequently results in samples that are not representative of the population.
    D. gives less accurate point estimates of parameters than statistical sampling does.

Answer 31

B. does not allow sampling risk to be objectively measured.

Question 32

37. Which of the following statements regarding statistical sampling in auditing is true?
    A. Inasmuch as audits are test-based, generally accepted auditing standards require the use of statistical sampling methods whenever the auditor decides to examine only a part of the population.
    B. Although statistical sampling may be applied to test controls, it is required for substantive testing purposes.
    C. Sampling methods are used by auditors in both testing of controls and substantive testing.
    D. Statistical sampling methods are more appropriate for testing of controls when the auditor elects to reprocess transactions, that when controls are tested by means of document examination.

Answer 32

C. Sampling methods are used by auditors in both testing of controls and substantive testing.

Question 33

38. Which of the following is not an aspect of sampling risk?
    A. Risk of assessing control risk too high.
    B. Risk of not identifying a misstatement included in a sample.
    C. Risk of incorrect acceptance.
    D. Risk of sampling results indicating that a population is materially misstated when it is not.

Answer 33

B. Risk of not identifying a misstatement included in a sample.

Question 34

39. Which of the following statements is true?
    A. The audit procedures will vary as a result of using either statistical or nonstatistical sampling.
    B. The audit procedures will be the same for either statistical or nonstatistical sampling, but they must be performed differently for each.
    C. Statistical sampling requires quantitative audit procedures whereas nonstatistical sampling requires judgmental audit procedures.
    D. The same audit procedures are performed in the same manner for either statistical or nonstatistical sampling.

Answer 34

D. The same audit procedures are performed in the same manner for either statistical or nonstatistical sampling.

Question 35

40. An underlying feature of random sampling is that each
    A. Stratum of the accounting population be given equal representation in the sample.
    B. Item in the accounting population be randomly ordered.
    C. Item in the accounting population should have an opportunity to be selected.
    D. Item must be systematically selected using replacement.

Answer 35

C. Item in the accounting population should have an opportunity to be selected.