AUDIT SAMPLING 8.

An advantage of statistical sampling over nonstatistical

sampling is that statistical sampling helps an auditor to
BASIC SAMPLING CONCEPTS/PSA 530 – AUDIT a. Minimize the failure to detect errors and frauds.
SAMPLING AND OTHER SELECTIVE TESTING b. Eliminate nonsampling risk.
PROCEDURES c. Reduce the level of audit risk and materiality to a relatively
low amount.
d. Measure the sufficiency of the evidential matter obtained.
1. The entire set of data about which the auditor wishes to draw
conclusions is called
a. Population. c. Sampling frame. 9. Each time an auditor draws a conclusion based on evidence
b. Sample. d. Sampling unit. from a sample, an additional risk, sampling risk, is introduced.
An example of sampling risk is
a. Projecting the results of sampling beyond the population
2. Which of the following constitutes audit sampling? tested.
a. Selecting and examining specific items to determine b. Properly applying an improper audit procedure to sample
whether or not a particular procedure is being performed. data.
b. Examining items to obtain information about matters c. Improperly applying a proper audit procedure to sample
such as the client’s business, the nature of transactions, data.
accounting and internal control systems. d. Drawing an erroneous conclusion from sample data.
c. Examining items whose values exceed a certain amount so
as to verify a large proportion of the total amount of an
account balance or class of transactions. 10. Which of the following best illustrates the concept of sampling
d. Applying audit procedures to less than 100% of items risk?
within an account balance or class of transactions such a. A randomly chosen sample may not be representative of
that all sampling units have a chance of selection. the population as a whole on the characteristic of interest.
b. An auditor may select audit procedures that are not
appropriate to achieve the specific objective.
3. Audit sampling is not involved in the following, except c. An auditor may fail to recognize errors in the documents
a. Performing a walkthrough test. examined for the chosen sample.
b. Performing analytical procedures d. The documents related to the chosen sample may not be
c. Selecting the sample without following a structured available for inspection.
technique.
d. Testing controls that leave no audit trail.
11. Which of the following statements is not correct?
a. It is acceptable for auditor to use statistical sampling
4. The following situations will likely lead the auditor to use 100% methods.
testing, except b. It is acceptable for auditor to use non-statistical sampling
a. When the population constitutes a small number of large methods.
value items. c. The primary benefit of statistical sampling methods is the
b. When both inherent and control risks are high and other quantification of sampling risk.
means do not provide sufficient appropriate audit d. An advantage of using statistical sampling is that the
evidence cost/benefit ratio is always positive.
c. When the repetitive nature of a calculation or other
process performed by a computer information system
makes a 100% examination cost effective. 12. A sample in which every possible combination of items in the
d. When testing controls that leave audit trail. population has an equal chance of constituting the sample is a
a. Representative sample c. Random sample
b. Statistical sample d. Judgment sample
5. An error that arises from an isolated event that has not
recurred other than on specifically identifiable occasions and is
therefore not representative of errors in the population is 13. The process which requires the calculation of an interval and
called then selects the items based on the size of the interval is
a. Sampling error. c. Anomalous error. a. Statistical sampling c. Systematic selection
b. Non-sampling error. d. Projected error. b. Random selection d. Computerized selection

Which of the following is true about sampling and non- 14. When the auditor goes through a population and selects items
6.
sampling risks? for the sample without regard to their size, source, or other
a. Sampling risk can be reduced by increasing sample size. distinguishing characteristics, it is called
b. Sampling risk cannot be eliminated. a. Block selection c. Systematic selection
c. Non-sampling risk can be eliminated by proper b. Random selection d. Haphazard selection
engagement planning, supervision, and review.
d. Non-sampling risk arises from the possibility that the 15. Which of the following statistical selection techniques is least
auditor’s conclusion, based on a sample may be different desirable for use by an auditor?
from the conclusion reached if the entire population were a. Systematic selection c. Block selection
subjected to the same audit procedure. b. Stratified selection d. Sequential selection

7. Which statement is incorrect about sampling risk? Sampling for Attributes

a. Sampling risk arises from the possibility that the auditor’s
conclusion, based on a sample may be different from the 1. Tests of controls provide reasonable assurance that controls
conclusion reached if the entire population were subjected are applied as prescribed. A sampling method that is useful
to the same audit procedure. when testing controls is:
b. Risk of assessing control risk too low and risk of incorrect a. Nonstatistical sampling c. Discovery sampling
acceptance affects audit effectiveness as it would usually b. Attribute estimation sampling d. Stratified random
lead to additional work to establish that initial conclusions sampling
were incorrect.
c. The mathematical complements of sampling risks are 2. Statistical sampling may be applied to test controls when a
termed confidence levels. client’s control procedures
d. Risk of assessing control risk too high is the risk that the a. Depend primarily on segregation of duties.
auditor will conclude, in the case of a test of control, that b. Are carefully reduced to writing and are included in client
control risk is higher than it actually is. accounting manuals.
c. Leave an audit trail as evidence of compliance.

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 d. Enable the detection of fraud. 11. The tolerable rate of deviation for tests of controls necessary
to justify a control risk assessment depends primarily on which
3. Since auditors are interested in the occurrence of exceptions in of the following? a. The cause of errors. b. The extent of
population, they refer to the occurrence as reliance to be placed on the procedures.
a. Exception rate c. Deviation rate c. The amount of any substantive errors.
b. Population rate d. Confidence level d. The limit used in audits of similar clients.

4. The deviation rate the auditor will permit in the population and 12. If the auditor is concerned that a population may contain
still be willing to reduce the assessed level of control risk is exceptions, the determination of a sample size sufficient to
called the include at least one such exception is a characteristic of
a. Tolerable deviation rate c. Acceptable risk of over- a. Discovery sampling c. random sampling
reliance b. Variable sampling d. PPS
b. Estimated population deviation rate d. Sample deviation
rate 13. At times a sample may indicate that the auditor’s assessed
level of control risk for a given control is reasonable when, in
5. Which of the following statements is correct? fact, the true compliance rate does not justify the assessed
a. The expected population deviation rate has little or no level.
effect on sample size. This situation illustrates the risk of
b. As the population size doubles, the sample size also a. Assessing control risk too low c. Incorrect precision
should double. b. Assessing control risk too high d. Incorrect rejection
c. For a given tolerable rate, a larger sample size should be
selected as the expected population deviation rate 14. In attribute estimation, which of the following must be known
decreases. in order to appraise the results of the auditor’s sample?
d. The population size has little or no effect on sample size a. Estimated peso value of the population
except for very small populations. b. Standard deviation of the values in the population
c. Actual occurrence rate of the attribute in the population
6. When sampling for attributes, which of the following would d. Sample size
decrease sample size? Risk of assessing Tolerable rate
Expected population 15. Assuming the tolerable deviation rate is 5 percent, the
Control risk too low of deviation expected population rate is 3 percent, and the allowance for
a. Increase Decrease sampling risk is 2 percent, what should an auditor conclude if
tests of 100 randomly selected documents reveals 4
b. Decrease Increase deviations?
c. Increase Increase a. Accept the sample results as support for assessing control
risk below the maximum because the tolerable rate less
d. Increase Increase the allowance for sampling risk equals the expected
7. A statistical sampling technique that will minimize sample size population deviation rate.
whenever a low deviation rate is expected is b. Assess control risk at the maximum because the sample
a. Ratio-estimation sampling. c. Stratified deviation rate plus the allowance for sampling risk
mean-per-unit sampling. exceeds the tolerable rate.
b. Difference-estimation sampling. d. Stop- c. Assess control risk at the maximum because the tolerable
or-go sampling. rate plus the allowance for sampling risk exceeds the
expected population deviation rate.
8. For which of the following audit tests would an auditor most d. Accept the sample results as support for assessing control
likely use attribute sampling? risk below the maximum because the sample deviation
a. Making an independent estimate of the amount of a FIFO rate plus the allowance for sampling risk exceeds the
inventory. tolerable rate.
b. Examining invoices in support of the valuation of fixed
asset additions. 16. As a result of tests of controls, an auditor assessed control risk
c. Selecting accounts receivable for confirmation of account too low and decreased substantive testing. This assessment
balances. occurred because the true deviation rate in the population was
d. Inspecting employee time cards for proper approval by a. Less than the risk of assessing control risk too low, based
supervisors. on the auditor’s sample.
b. Less than the deviation rate in the auditor’s sample.
9. In addition to evaluating the frequency of deviations in tests of c. More than the risk of assessing control risk too low, based
controls, an auditor also considers certain qualitative aspects on the auditor’s sample.
of the deviations. The auditor most likely will give broader d. More than the deviation rate in the auditor’s sample.
consideration to the implications of a deviation if it is a. The
only deviation discovered in the sample. 17. The diagram below depicts the auditor’s estimated maximum
b. Identical to a deviation discovered during the prior year’s deviation rate compared with the tolerable rate, and also
audit. depicts the true population deviation rate compared with the
c. Caused by an employee’s misunderstanding of tolerable rate. (Cut)
instructions.
d. Initially concealed by a forged document. As a result of testing controls, the auditor assesses control risk
too high and thereby increases testing. This is illustrated by
10. An auditor plans to test a sample of 20 checks for counter situation
signatures as prescribed by the client’s control procedures. a. I. b. II. c. III.
One of the checks in the chosen sample of 20 cannot be found. d. IV.
The auditor should consider the reasons for this limitation and 18. As a result of sampling procedures applied as tests of controls,
a. Evaluate the results as if the sample size had been 19. an auditor incorrectly assesses control risk lower than
appropriate. The most likely explanation for this situation is
b. Treat the missing check as a deviation for the purpose of
that
evaluating the sample.
a. The deviation rates of both the auditor’s sample and the
c. Treat the missing check in the same manner as the population exceed the tolerable rate.
majority of the other 19 checks, i.e., countersigned or not. b. The deviation rates of both the auditor’s sample and the
d. Choose another check to replace the missing check in the population are less than the tolerable rate.
sample.

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 c. The deviation rate in the auditor’s sample is less than the
tolerable rate, but the deviation rate in the population 25. An auditor, planning an attribute sample from a large number
exceeds the tolerable rate. of invoices, intends to estimate the actual rate of deviations.
d. The deviation rate in the auditor’s sample exceeds the Which factor below is the most important for the auditor to
tolerable rate, but the deviation rate in the population is consider?
less than the tolerable rate. a. Audit objective c. Population size
b. Desired confidence level d. Population variance
19. The likelihood of assessing control risk too low is the risk that
the sample selected to test controls Variables Sampling
a. Does not support the tolerable misstatement for some or
all of management’s assertions. 1. “Whenever a sample is taken, there is a risk that the
b. Does support the auditor’s planned assessed level of quantitative conclusions about the population will be
control risk when the true operating effectiveness of the incorrect.”
control does not justify such an assessment. a. This is always true.
c. Contains misstatements that could be material to the b. This is always true unless 100 percent of the population is
financial statements when aggregated with tested.
misstatements in other account balances. c. This is true for statistical sampling, but not for non-
d. Contains proportionately more deviations from prescribed statistical sampling.
internal control policies or procedures than exist in the d. This is true for non-statistical sampling but not for
population. statistical sampling.

20. The likelihood of assessing control risk too high is the risk that 2. Which of the following sampling methods is used to estimate a
the sample selected to test controls numerical measurement of a population, such as a dollar
a. Does not support the auditor’s planned assessed level of value?
control risk when the true operating effectiveness of the a. Attribute sampling. c. Variables sampling.
control justifies such an assessment. b. Stop-or-go sampling. d. Random-number sampling.
b. Contains misstatements that could be material to the
financial statements when aggregated with
3. In applying variables sampling, an auditor attempts to
misstatements in other account balances or transaction
a. Estimate a qualitative characteristic of interest.
classes.
b. Determine various rates of occurrence for specified
c. Contains proportionately fewer monetary errors or
attributes.
deviations from prescribed internal control policies or
c. Discover at least one instance of a critical deviation.
procedures than exist in the balance or class as a whole.
d. Predict a monetary population value within a range of
d. Does not support the tolerable misstatement for some or
precision.
all of management’s assertions.

4. Several risks are inherent in the evaluation of audit evidence

21. The tolerable rate of deviations for a test of controls is
that has been obtained through the use of statistical sampling.
generally
An example of a beta or Type II error related to sampling risk is
a. Lower than the expected rate of errors in the related
the failure to
accounting population.
a. Properly define the population to be sampled.
b. Higher than the expected rate of errors in the related
b. Draw a random sample from the population.
accounting records.
c. Reject the statistical hypothesis that a book value is not
c. Identical to the expected rate of errors in the related
materially misstated when the true book value is
accounting records.
materially misstated.
d. Unrelated to the expected rate of errors in the related
d. Accept the statistical hypothesis that the book value is not
accounting records.
materially misstated when the true book value is not
materially misstated.
22. If a selected random number matches the number of a voided 5. As lower acceptable levels of both audit risk and materiality
voucher, the voucher ordinarily should be replaced by another are established, the auditor should plan more work on
voucher in the sample if the voucher individual accounts to
a. Constitutes a deviation c. Cannot be located a. Find smaller misstatements. c. Increase the tolerable
b. Has been properly voided d. Represents an misstatement in the accounts.
immaterial peso amount b. Find larger misstatements. d. Decrease the risk of
assessing control risk too low.
23. Assessing control risk too high is the risk that the sample
a. Does not support tolerable error for some or all of 6. In performing substantive tests, the auditor is concerned with
management’s assertions. two risks or errors of sampling:
b. Contains proportionately more deviations from prescribed 1. The risk of incorrect rejection (an alpha or Type I
control procedures than actually exist in the population as error)
a whole. 2. The risk of incorrect acceptance (a beta or Type
c. Contains monetary misstatements that could be material II error)
to the financial statements when aggregated with
misstatements in other account balances or classes of
Which of the following is true about alpha and beta errors?
transactions.
a. The alpha error is of greater concern to the auditor than
d. Contains proportionately fewer deviations from
the beta error.
prescribed control procedures than actually exist in the
b. The beta error is of greater concern to the auditor than the
population as a whole.
alpha error.
c. The beta error and the alpha error are of equal importance
24. When using statistical sampling for tests of controls, an to the auditor.
auditor’s evaluation would include a statistical conclusion d. Neither the alpha error nor the beta error need be
about whether: considered by the auditor.
a. Deviations in the population are within an acceptable
range.
7. While performing a substantive test of details during an audit,
b. Monetary precision exceeds a predetermined amount.
the auditor determined that the sample results supported the
c. The population’s total monetary value is not in error by
conclusion that the recorded account balance was materially
more than a predetermined amount.
misstated. It was, in fact, not materially misstated. This
d. Population characteristics occur at least once in the
situation illustrates the risk of
population.
a. Assessing control risk too low. c. Incorrect rejection.

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 b. Assessing control risk too high. d. Incorrect b. Stratify the cash disbursements population so that the
acceptance. unusually large disbursements are selected.
c. Increase the sample size to reduce the effect of the
8. Conducting a substantive test of an account balance, an unusually large disbursements.
auditor hypothesis that no material misstatement exists. The d. Continue to draw new samples until all the unusually large
risk that sample results will support the hypothesis when a disbursements appear in the sample.
material misstatement actually does exist is the risk of
a. Incorrect rejection. c. Incorrect acceptance. 16. In statistical sampling methods used in substantive testing,
b. Alpha error. d. Type I error. when would an auditor most likely stratify a population into
meaningful groups?
9. The risk of incorrect acceptance and the risk of assessing a. If the population has highly variable recorded amounts.
control risk too low relate to the b. If probability proportional to size sampling is used.
a. Preliminary estimates of materiality levels c. c. If the auditor’s estimated tolerable misstatement is
Efficiency of the audit extremely small.
b. Allowable risk of tolerable error d. Effectiveness of the d. If the standard deviation of recorded amounts is relatively
audit small.

10. When would difference estimation or ratio estimation 17. How would increases in tolerable misstatement and assessed
sampling methods be inappropriate? level of control risk affect the sample size in a substantive test
a. If differences between the book values and audit values of of details?
a population are rare. Increase in tolerable Increased in assessed level of misstatement
b. If the average difference between the audit value and control risk
book value of a population is small. a. Increase sample size Increase sample size
c. If differences between the book value and audit value of a b. Increase sample size Decrease sample size
population are numerous. c. Decrease sample size Increase sample size
d. If the average difference between the audit value and d. Decrease sample size Decrease sample size
book value of a population is large.

11. Which of the following most likely would be an advantage in 18. An auditor is applying mean-per-unit estimation. Assuming
using classical variables sampling rather than probability- estimated audited value is P950,000, the achieved allowance
proportional-to-size (PPS) sampling. for sampling risk is P75,000, and recorded book value is
a. An estimate of the standard deviation of the population’s P925,000, what is the auditor's conclusion?
recorded amounts is not required. a. Recorded book value is not likely misstated by a material
b. The auditor rarely needs the assistance of a computer amount.
program to design an efficient sample. b. Recorded book value is misstated by a material amount.
c. Inclusion of zero and negative balances generally does not c. Recorded book value is not likely misstated by a material
require special design considerations. amount,
d. Any amount that is individually significant is automatically assuming the client records an adjusting journal entry equal to
identified and selected. the allowance for sampling risk.
d. There is insufficient evidence to reach a conclusion.
12. An auditor is preparing to sample accounts receivable for
overstatement. A statistical sampling method that 19. An auditor is evaluating the results of a variables sampling
automatically provides stratification when using systematic plan. Which of the following is not relevant to the auditor's
selection is judgment about the sample?
a. Attribute sampling. c. Probability proportionate to size a. Management's explanations for why errors in the sample
sampling occurred.
b. Ratio-estimation sampling. d. Mean-per-unit (MPU) b. Projecting the sample error to the population.
sampling. c. Considering the effects of sampling risk.
d. Qualitative information that lends insight into errors
13. An auditor wishes to sample 200 sales receipts from a found.
population of 5,000 receipts issued during the last year. The
receipts have preprinted serial numbers and are arranged in 20. When using classical variables sampling for estimation, an
chronological (and thus serial number) order. The auditor auditor normally evaluates the sampling results by calculating
randomly chooses a receipt from the first 25 receipts and then the possible error in either direction. This statistical concept is
selects every 25th receipt thereafter. The sampling procedure known as
described here is called a. Precision. c. Projected error.
a. Systematic random sampling. c. Judgment b. Reliability. d. Standard deviation.
interval sampling.
b. Monetary-unit sampling. d. Variables
sampling.

14. Which of the following sample planning factors would

influence the sample size for a substantive test of details for a
specific account?
Expected amount of misstatements Measure of tolerable
misstatement
a. No No
b. Yes Yes
c. No Yes
d. Yes No

15. 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 deviation at a lower level than
originally planned.