SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

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AUDITING THEORY
FIRST SEMESTER SY 2020-
2021
AT08 – Audit Sampling

1. Audit sampling involves the

A. Selection of all items over a certain amount.
B. Application of audit procedures to less than 100% of items within a class of transactions or an account balance
such that all items have a chance of selection.
C. Application of audit procedures to all items that comprise a class of transactions or an account balance.
D. Application of audit procedures to all items over a certain amount and those that are unusual or have a history of
error.
2. Population, as defined in PSA 530, means the entire set of data which a sample is selected and about which auditor
wishes to draw conclusions. It is important for the auditor to ensure that the population is
I. Appropriate to the objective of the audit procedure.
II. Complete.
A. I only
B. II Only
C. Both I and II
D. Neither I nor II
3. An advantage of statistical over non-statistical sampling methods in tests of controls is that the statistical
methods.
A. Afford greater assurance than a non-statistical sample of equal size.
B. Provide an objective basis for quantitatively evaluating sampling risks.
C. Can more easily convert the sample into a dual-purpose test useful for substantive testing.
D. Eliminate the need to use judgment in determining appropriate sample sizes.
4. The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the
A. Effectiveness of the audit.
B. Efficiency of the audit.
C. Preliminary estimate of materiality levels.
D. Tolerable misstatement
5. The likelihood of assessing control risk too high is the risk that the sample selected to test controls
A. Does not support the auditor’s planned assessed level of control risk when the true operating
effectiveness of internal control justifies such assessment.
B. Contains misstatements that could be material to the financial statements when aggregated with misstatements
in other account balances or transactions classes.
C. Contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class
as a whole.
D. Does not support the tolerable misstatements for some or all of management’s assertions.
6. While performing a test of details in an audit, the auditor determined that the sample results supported the conclusion
that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation
illustrates the risk of:
A. Incorrect rejection
B. Incorrect acceptance
C. Assessing control risk too low
D. Assessing control risk too high

7. Which of the following sample planning factors would influence the sample size for a substantive test of details for a
specific account?
I. Expected error
II. Tolerable error
A. No, No
B. Yes, Yes
C. No, Yes
D. Yes, No
8. An underlying feature of random-based selection of items 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.
9. 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.
10. Which of the following statistical selection techniques is least desirable for use by an auditor?
A. Systematic selection
B. Stratified selection
C. Block selection
D. Sequential selection
11. The expected population deviation rate of client billing errors is 3%. The auditor established a tolerable rate of
5%. In the review of client invoices, the auditor should use
A. Stratified sampling
B. Variable sampling
C. Discovery sampling
D. Attribute sampling
12. Which of the following sample methods would be used to estimate a numerical measurement of a population, such as a
peso value?
A. Attributes sampling
B. Stop-or-go sampling
C. Variables sampling
D. Random number sampling
13. Which of the following statements is correct concerning statistical sampling in tests of controls?
A. Deviations from control procedures at a given rate usually result in misstatements at a higher rate.
B. As the population size is doubled, the sample size should also double.
C. The qualitative aspects of deviation are not considered by the auditor.
D. There is an inverse relationship between the sample size and the tolerable rate.

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14. Which of the following statistical sampling plans does not use a fixed sample size for tests of controls?
A. Attributes sampling
B. Sequential sampling
C. PPS sampling
D. Variables sampling
15. If certain forms are not consecutively numbered
A. Selection of a random sample probably is not possible.
B. Systematic sampling maybe appropriate
C. Stratified sampling should be used
D. Random number tables cannot be used
16. When performing a test of a control with respect to control over cash receipts, an auditor may use a systematic
sampling technique with a start in any randomly selected item. The biggest disadvantage of this type of sampling is
that the items in the population.
A. Must be systematically replaced in the population after sampling.
B. May systematically occur more than once in the sample
C. Must be recorded in a systematic pattern, before the sample can be drawn.
D. May occur in a systematic pattern, thus destroying the sample randomness.
17. Which of the following combinations results in a decrease in sample size in a sample for attributes?
I. Risk of assessing control risk too low
II. Tolerable rate
III. Expected population deviation rate
A. Increase, Decrease, Increase
B. Decrease, Increase, Decrease
C. Increase, Increase, Decrease
D. Increase, Increase, Increase
18. An auditor is testing internal control procedures that are evidenced on an entity’s vouchers by matching random
numbers with voucher numbers. If a random number matches the number of voided voucher, that voucher ordinarily
should be replaced by another voucher in the random sample if the voucher.
A. Constitutes a deviation
B. Has been properly voided
C. Cannot be located
D. Represents an immaterial peso amount
19. An auditor plans to examine a sample of 20 purchase orders for proper approvals as prescribed by the client’s internal
control procedures. One of the purchase orders in the chosen sample cannot be found, and the auditor is unable to use
alternative procedures to test whether that purchase was properly approved. The auditor should
A. Choose another purchase order to replace the missing purchase order in the sample.
B. Consider this test of control invalid and proceed with substantive tests since internal control cannot be relied
upon.
C. Treat the missing purchase order as deviation for the purpose of evaluating the sample.
D. Select a completely new set of 20 purchase orders.
20. The tolerable rate of deviations for a test of a control is generally
A. Lower than the expected rate of errors in the related accounting records.
B. Higher than the expected rate of error in the related accounting records.
C. Identical to the expected rate of errors in the related accounting records.
D. Unrelated to the expected rate of errors in the related accounting records.
21. If the auditor is concerned that a population may contain exceptions, the determination of a sample size
sufficient to include at least one such exception is a characteristic of
A. Discovery sampling
 B. Variables sampling
C. Random sampling
D. PPS sampling
22. Which of the following courses of action would an auditor most likely follow in planning a sample of cash
disbursements if the auditor is aware of several unusually large cash disbursements?
A. Set the tolerable rate of deviation at a lower level than originally planned
B. Stratify the cash disbursements population so that the unusually large disbursements are selected
C. Increase the sample size to reduce the effect of the unusually large disbursements
D. Continue to draw new samples until all the unusually large disbursements appear in the sample
23. While performing a test of details during an audit, an auditor determined that the sample results supported the
conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This
situation illustrates the risk of
A. Assessing control risk too high
B. Assessing control risk too low
C. Incorrect rejection
D. Incorrect acceptance
24. For which of the following audit tests would an auditor most likely use attribute sampling?
A. Making an independent estimate of the amount of FIFO inventory
B. Examining invoices in support of the valuation of fixed asset additions
C. Selecting accounts receivable for confirmation of account balances
D. Inspecting employee time cards for proper approval by supervisors
25. Which of the following factors is usually not considered in determining the sample size for a test of controls?
A. Population size, when the population is large
B. Tolerable deviation rate
C. Risk of assessing control risk too low
D. Expected population deviation rate
26. The diagram below depicts the auditor’s estimated maximum deviation rate compared with the tolerable rate and
also depicts the true population deviation rate compared with the tolerable rate.
True State of Population
Auditor's estimate based
Deviation rate is less Deviation rate exceeds
on sample results
than tolerable rate. tolerable rate.
Maximum deviation rate
is less than tolerable I III
rate.
Maximum deviation rate
exceeds tolerable rate. II IV

As a result of tests of controls, the auditor assesses control risk higher than necessary and thereby increases
substantive testing. This is illustrated by
A. I
B. II
C. III
D. IV
Questions 27 and 28 are based on the following information.
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a
statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that not more than 7% of
the sales invoices lacked approval. The auditor estimated from
previous experience that about 2.5% of the sales invoices lacked approval. A sample of 200 invoices was examined and
seven of them were lacking approval. The auditor then determined the achieved upper precision limit to be 8%.
27. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of
control risk because the
A. Tolerable rate (7%) was less than the achieved upper precision limit (8%)
B. Expected deviation rate (7%) was more than the percentage of errors in the sample (3.5%)
C. Achieved upper precision limit (8%) was more than the percentage of errors in the sample (3.5%)
D. Expected deviation rate (2.5%) was less than the tolerable rate (7%)
28. The allowance for sampling risk was A.
5.5%
B. 4.5%
C. 3.5%
D. 1%
29. In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain
qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of
a deviation if it was
A. The only deviation discovered in the sample
B. Identical to a deviation discovered during the prior year’s audit
C. Caused by an employee’s misunderstanding of instructions
D. Initially concealed by a forged document
30. 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. Systematic selection
C. Haphazard selection
D. Random selection
31. When an auditor has chosen a random sample and is using nonstatistical attributes sampling, that auditor
A. Need not consider the risk of assessing control risk too low
B. Has committed a nonsampling error
C. Will have to use discovery sampling to evaluate the results
D. Should compare the deviation rate of the sample to the tolerable deviation rate
32. An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions
and is therefore not representative of similar errors in the population is an
A. Anomalous error
B. Isolated error
C. Individual error
D. Non-recurring error

The following items apply to random sampling from large populations for attributes sampling. Select the most appropriate
response for each question.

33. If all other factors specified in a sampling plan remain constant, changing the acceptable risk of assessing control
risk too low from 10 percent to 5 percent would cause the required sample size to
A. Increase
B. Remain the same
C. Decrease
D. Become indeterminate
34. If all other factors specified in a sampling plan remain constant, changing the tolerable deviation rate from 8 percent
to 12 percent would cause the required sample size to
A. Increase
B. Remain the same
C. Decrease
D. Become indeterminate
35. Which of the following is an element of sampling risk?
A. Choosing an audit procedure that is inconsistent with the audit objective
B. Choosing a sample size that is too small to achieve the sampling objective
C. Failing to detect an error on a document that has been inspected by the auditor
D. Failing to perform audit procedures that are required by the sampling
36. One of the ways to reduce sampling risk is to
A. Increase the sample size
B. Carefully design the audit procedures to be used
C Provide proper supervision and instruction of the audit team
D. Use variable sampling rather than attribute sampling
37. One of the causes of nonsampling risk is
A. The use of inappropriate or ineffective audit procedures
B. Failure to draw a random sample
C. Failure to draw a representative sample
D. The use of attribute sampling instead of variables sampling
38. Which of the following combinations results in a decrease in sample size for attributes? Allowable Risk
of Assessing Control Risk Too Low
Tolerable Deviation Rate
Expected Population Deviation Rate
A. Increase; decrease; increase
B. Decrease; increase; decrease
C. Increase; increase; decrease
D. Increase; increase; increase
39. In planning a statistical sample for a test of controls, an auditor increased the expected population deviation rate from
the prior year’s rate because of the results of the prior year’s tests of controls and the overall control environment. The
auditor most likely would then increase the planned
A. Tolerable rate
B. Allowance for sampling risk
C. Risk of assessing control risk too low
D. Sample size
40. In performing substantive tests, the auditor is concerned with two risks or errors of sampling: the risk of incorrect
rejection (also known as Alpha or Type I error) and the risk of incorrect acceptance (also known as Beta or Type II
error). Which of the following is true about alpha and beta errors?
A. The alpha error is of greater concern to the auditor than the beta error
B. The beta error is greater concern to the auditor than the alpha error
C. The beta error and the alpha error are of equal importance to the auditor
D. Neither the alpha error nor the beta error need be considered by the auditor