ACP 323: Audit Sampling

Supplementary Material
Audit Sampling

1. The entire set of data about which the auditor wishes to draw conclusions is called
a. Population. c. Sampling frame.
b. Sample. d. Sampling unit.

2. Which of the following constitutes audit sampling?

a. Selecting and examining specific items to determine whether or not a particular procedureis
being performed.
b. Examining items to obtain information about matters such as the client’s business, the
nature of transactions, accounting and internal control systems.
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.
d. Applying audit procedures to less than 100% of items within an account balance or class of
transactions such that all sampling units have a chance of selection.
3. Audit sampling is not involved in the following, except
a. Performing a walkthrough test.
b. Performing analytical procedures
c. Selecting the sample without following a structured technique.
d. Testing controls that leave no audit trail.

4. The following situations will likely lead the auditor to use 100% testing, except
a. When the population constitutes a small number of large value items.
b. When both inherent and control risks are high and other means do not provide sufficient
appropriate audit evidence
c. When the repetitive nature of a calculation or other process performed by a computer
information system makes a 100% examination cost effective.
d. When testing controls that leave audit trail.

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 called
a. Sampling error. c. Anomalous error.
b. Non-sampling error. d. Projected error.

6. Which of the following is true about sampling and non-sampling risks?

a. Sampling risk can be reduced by increasing sample size.
b. Sampling risk cannot be eliminated.
c. Non-sampling risk can be eliminated by proper engagement planning, supervision, and review.
d. Non-sampling risk arises from the possibility that the auditor’s conclusion, based on a sample
may be different from the conclusion reached if the entire population were subjected to the
same audit procedure.

7. Which statement is incorrect about sampling risk?

a. Sampling risk arises from the possibility that the auditor’s conclusion, based on a sample may
be different from the conclusion reached if the entire population were subjected to the same
audit procedure.
b. Risk of assessing control risk too low and risk of incorrect acceptance affects audit
effectiveness as it would usually lead to additional work to establish that initial conclusions were
incorrect.
c. The mathematical complements of sampling risks are termed confidence levels.
d. Risk of assessing control risk too high is the risk that the auditor will conclude, in the caseof
a test of control, that control risk is higher than it actually is.

8. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling

helps an auditor to
a. Minimize the failure to detect errors and frauds.
b. Eliminate nonsampling risk.
c. Reduce the level of audit risk and materiality to a relatively low amount.
d. Measure the sufficiency of the evidential matter obtained.
9. Each time an auditor draws a conclusion based on evidence 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 tested.
b. Properly applying an improper audit procedure to sample data.
c. Improperly applying a proper audit procedure to sample data.
d. Drawing an erroneous conclusion from sample data.

10. 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
characteristic 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.

11. Which of the following statements is not correct?

a. It is acceptable for auditor to use statistical sampling methods.
b. It is acceptable for auditor to use non-statistical sampling methods.
c. The primary benefit of statistical sampling methods is the quantification of sampling risk.
d. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.

12. A sample in which every possible combination of items in the population has an equal chanceof
constituting the sample is a
a. Representative sample c. Random sample
b. Statistical sample d. Judgment sample

13. The process which requires the calculation of an interval and then selects the items based onthe
size of the interval is
a. Statistical sampling c. Systematic selection
b. Random selection d. Computerized selection

14. 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 c. Systematic selection
b. Random selection d. Haphazard selection

15. Which of the following statistical selection techniques is least desirable for use by an auditor?
a. Systematic selection c. Block selection
b. Stratified selection d. Sequential selection
16. Tests of controls provide reasonable assurance that controls are applied as prescribed. A
sampling method that is useful when testing controls is:
a. Nonstatistical sampling c. Discovery sampling
b. Attribute estimation sampling d. Stratified random sampling

17. Statistical sampling may be applied to test controls when a client’s control procedures
a. Depend primarily on segregation of duties.
b. Are carefully reduced to writing and are included in client accounting manuals.
c. Leave an audit trail as evidence of compliance.
d. Enable the detection of fraud.

18. Since auditors are interested in the occurrence of exceptions in population, they refer to the
occurrence as
a. Exception rate c. Deviation rate
b. Population rate d. Confidence level

19. The deviation rate the auditor will permit in the population and still be willing to reduce the
assessed level of control risk is called the
a. Tolerable deviation rate c. Acceptable risk of over-reliance
b. Estimated population deviation rate d. Sample deviation rate
20. Which of the following statements is correct?
a. The expected population deviation rate has little or no effect on sample size.
b. As the population size doubles, the sample size also should double.
c. For a given tolerable rate, a larger sample size should be selected as the expectedpopulation
deviation rate decreases.
d. The population size has little or no effect on sample size except for very small populations.

21. When sampling for attributes, which of the following would decrease sample size?
Risk of assessing Tolerable rate Expected population
Control risk too low of deviation deviation rate
a. Increase Decrease Increase
b. Decrease Increase Decrease
c. Increase Increase Decrease
d. Increase Increase Increase

22. A statistical sampling technique that will minimize sample size whenever a low deviation rate is
expected is
a. Ratio-estimation sampling. c. Stratified mean-per-unit sampling.
b. Difference-estimation sampling. d. Stop-or-go sampling.
23. For which of the following audit tests would an auditor most likely use attribute sampling?
a. Making an independent estimate of the amount of a 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.

24. In addition to evaluating the frequency of deviations in tests of controls, an auditor alsoconsiders
certain qualitative aspects of the deviations. The auditor most likely will give broaderconsideration
to the implications of a deviation if it is
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.

25. An auditor plans to test a sample of 20 checks for counter signatures as prescribed by the
client’s control procedures. One of the checks in the chosen sample of 20 cannot be found.
The auditor should consider the reasons for this limitation and
a. Evaluate the results as if the sample size had been 19.
b. Treat the missing check as a deviation for the purpose of evaluating the sample.
c. Treat the missing check in the same manner as the majority of the other 19 checks, i.e.,
countersigned or not.
d. Choose another check to replace the missing check in the sample.

26. The tolerable rate of deviation for tests of controls necessary to justify a control risk
assessment depends primarily on which of the following?
a. The cause of errors.
b. The extent of reliance to be placed on the procedures.
c. The amount of any substantive errors.
d. The limit used in audits of similar clients.

27. 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 c. random sampling
b. Variable sampling d. PPS

28. At times a sample may indicate that the auditor’s assessed level of control risk for a given
control is reasonable when, in fact, the true compliance rate does not justify the assessed level.
This situation illustrates the risk of
a. Assessing control risk too low c. Incorrect precision
b. Assessing control risk too high d. Incorrect rejection
29. In attribute estimation, which of the following must be known in order to appraise the results of
the auditor’s sample?
a. Estimated peso value of the population
b. Standard deviation of the values in the population
c. Actual occurrence rate of the attribute in the population
d. Sample size

30. Assuming the tolerable deviation rate is 5 percent, the expected population rate is 3 percent, and
the allowance for sampling risk is 2 percent, what should an auditor conclude if tests of 100
randomly selected documents reveals 4 deviations?
a. Accept the sample results as support for assessing control risk below the maximum because
the tolerable rate less the allowance for sampling risk equals the expected population
deviation rate.
b. Assess control risk at the maximum because the sample deviation rate plus the allowance for
sampling risk exceeds the tolerable rate.
c. Assess control risk at the maximum because the tolerable rate plus the allowance for
sampling risk exceeds the expected population deviation rate.
d. Accept the sample results as support for assessing control risk below the maximum because
the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
31. As a result of tests of controls, an auditor assessed control risk too low and decreased
substantive testing. This assessment occurred because the true deviation rate in the population
was
a. Less than the risk of assessing control risk too low, based on the auditor’s sample.
b. Less than the deviation rate in the auditor’s sample.
c. More than the risk of assessing control risk too low, based on the auditor’s sample.
d. More than the deviation rate in the auditor’s sample.

32. As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses
control risk lower than appropriate. The most likely explanation for this situation is that
a. The deviation rates of both the auditor’s sample and the population exceed the tolerable
rate.
b. The deviation rates of both the auditor’s sample and the population are less than the
tolerable rate.
c. The deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation
rate in the population exceeds the tolerable rate.
d. The deviation rate in the auditor’s sample exceeds the tolerable rate, but the deviation ratein
the population is less than the tolerable rate.

33. 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 trueoperating
effectiveness of the control justifies such an assessment.
b. Contains misstatements that could be material to the financial statements when aggregated
with misstatements in other account balances or transaction classes.
c. Contains proportionately fewer monetary errors or deviations from prescribed internalcontrol
policies or procedures than exist in the balance or class as a whole.
d. Does not support the tolerable misstatement for some or all of management’s assertions.
34. Assessing control risk too high is the risk that the sample
a. Does not support tolerable error for some or all of management’s assertions.
b. Contains proportionately more deviations from prescribed control procedures than actually
exist in the population as a whole.
c. Contains monetary misstatements that could be material to the financial statements when
aggregated with misstatements in other account balances or classes of transactions.
d. Contains proportionately fewer deviations from prescribed control procedures than actually
exist in the population as a whole.

35. When using statistical sampling for tests of controls, an auditor’s evaluation would include a
statistical conclusion about whether:
a. Deviations in the population are within an acceptable range.
b. Monetary precision exceeds a predetermined amount.
c. The population’s total monetary value is not in error by more than a predetermined amount.
d. Population characteristics occur at least once in the population.
36. An auditor, planning an attribute sample from a large number of invoices, intends to estimate the
actual rate of deviations. Which factor below is the most important for the auditor to consider?
a. Audit objective c. Population size
b. Desired confidence level d. Population variance

37. Which of the following sampling methods is used to estimate a numerical measurement of a
population, such as a dollar value?
a. Attribute sampling. c. Variables sampling.
b. Stop-or-go sampling. d. Random-number sampling.

38. In applying variables 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 deviation.
d. Predict a monetary population value within a range of precision.

39. Several risks are inherent in the evaluation of audit evidence that has been obtained through the
use of statistical sampling. An example of a beta or Type II error related to sampling risk is the
failure to
a. Properly define the population to be sampled.
b. Draw a random sample from the population.
c. Reject the statistical hypothesis that a book value is not materially misstated when the true
book value is materially misstated.
d. Accept the statistical hypothesis that the book value is not materially misstated when the true
book value is not materially misstated.

40. As lower acceptable levels of both audit risk and materiality are established, the auditor should
plan more work on individual accounts to
a. Find smaller misstatements. c. Increase the tolerable misstatement in the accounts.
b. Find larger misstatements. d. Decrease the risk of assessing control risk too low.
41. In performing substantive tests, the auditor is concerned with two risks or errors of sampling:
1. The risk of incorrect rejection (an alpha or Type I error)
2. The risk of incorrect acceptance (a 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 of 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.

42. Conducting a substantive test of an account balance, an auditor hypothesis that no material
misstatement exists. The risk that sample results will support the hypothesis when a material
misstatement actually does exist is the risk of
a. Incorrect rejection. c. Incorrect acceptance.
b. Alpha error. d. Type I error.

43. The risk of incorrect acceptance and the risk of assessing control risk too low relate to the
a. Preliminary estimates of materiality levels c. Efficiency of the audit
b. Allowable risk of tolerable error d. Effectiveness of the audit

44. When would difference estimation or ratio estimation sampling methods be inappropriate?
a. If differences between the book values and audit values of a population are rare.
b. If the average difference between the audit value and book value of a population is small.
c. If differences between the book value and audit value of a population are numerous.
d. If the average difference between the audit value and book value of a population is large.

45. Which of the following most likely would be an advantage in using classical variables sampling
rather than probability-proportional-to-size (PPS) sampling.
a. An estimate of the standard deviation of the population’s recorded amounts is not required.
b. The auditor rarely needs the assistance of a computer program to design an efficient
sample.
c. Inclusion of zero and negative balances generally does not require special design
considerations.
d. Any amount that is individually significant is automatically identified and selected.
46. An auditor is preparing to sample accounts receivable for overstatement. A statistical sampling
method that automatically provides stratification when using systematic selection is
a. Attribute sampling. c. Probability proportionate to size sampling
b. Ratio-estimation sampling. d. Mean-per-unit (MPU) sampling.

47. 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

48. 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.
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.
49. In statistical sampling methods used in substantive testing, when would an auditor most likely
stratify a population into meaningful groups?
a. If the population has highly variable recorded amounts.
b. If probability proportional to size sampling is used.
c. If the auditor’s estimated tolerable misstatement is extremely small.
d. If the standard deviation of recorded amounts is relatively small.

50. An auditor is applying mean-per-unit estimation. Assuming estimated audited value is P950,000,
the achieved allowance for sampling risk is P75,000, and recorded book value is P925,000, what
is the auditor's conclusion?
a. Recorded book value is not likely misstated by a material amount.
b. Recorded book value is misstated by a material amount.
c. Recorded book value is not likely misstated by a material amount, assuming the client
records an adjusting journal entry equal to the allowance for sampling risk.
d. There is insufficient evidence to reach a conclusion.