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Chapter 8: Specialized Audit Tools: Sampling and Generalized

Audit Software Key


51. Which of the following is not considered when obtaining audit evidence through sampling?
A. The effectiveness of control procedures.
B. The efficiency of control procedures.
C. The dollar accuracy of account balances.
D. The dollar accuracy of classes of transactions.

52. Which one of the following accounting constraints supports the concept of audit sampling?
A. Conservatism.
B. Materiality.
C. Cost-benefit.
D. Industry practice.

53. Which one of the following is not a decision the auditor makes when using attribute sampling?
A. Sample size.
B. Selection of items included in the sample.
C. Evaluation of sample information.
D. Whether to document all phases.
54. Which one of the following is a decision the auditor makes when using attribute sampling?
A. The sampling unit.
B. Period covered by testing.
C. Completeness of the population.
D. All of the above are auditor decisions.

55. Which of the following is not considered to be non-sampling risk?


A. Misinterpretation of information.
B. Use of improper audit procedure.
C. Improper projection of results to the population.
D. Carelessness of the auditor.

56. Which of the following describes sampling risk?


A. The sample will not contain characteristics representative of the population such that inferences made about
that population will be incorrect.
B. The population will not contain characteristics representative of the sample such that inferences made about
that sample will be incorrect.
C. Neither A nor B is correct.
D. Both A and B are correct.

57. Which of the following occurs when, based on sample results, control risk is assessed excessively high?
A. Audit inefficiency.
B. A less expensive audit.
C. Reduction of substantive testing.
D. Errors that are more likely to occur than anticipated.

58. Concluding that the book value of inventory is correct when it is materially misstated is an example of
which of the following risks?
A. Incorrect rejection.
B. Incorrect acceptance.
C. Insufficient sample size.
D. None of the above.

59. Incorrect acceptance is directly related to which of the following?


A. The efficiency of the audit.
B. The ineffectiveness of the audit.
C. The cost of the audit.
D. All of the above.
60. When performing sampling, the auditor is most concerned with which of the following?
A. Risk of incorrect rejection.
B. Risk of incorrect acceptance.
C. Risk of excess sample size.
D. Risk of errors in the population.

61. While auditors may use either statistical or non-statistical sampling, some auditors restrict the use of non-
statistical sampling for what reason?
A. It is less effective.
B. It is less objective.
C. It is less efficient.
D. It is less risky.

62. Which of the following applications are incorporated into statistical sampling?
A. Binomial and confidence intervals.
B. Random and haphazard selection.
C. Hypergeometric distribution with audit risk.
D. Probability and statistical inference with audit judgment.

63. Which one of the following issues need not be addressed when planning an audit sample to test control
procedures?
A. Audit objective of the test.
B. Minimum failure rate.
C. Expected population deviation rate.
D. Auditor's allowable risk of assessing control risk too low.

64. Which of the following is the level at which the controls failure to operate would cause the auditor to
conclude that the control is not effective and would likely change the auditors planned assessment of control
risk in performing tests of account balances?
A. Tolerable failure rate.
B. Allowable risk of assessing control risk too low.
C. Expected failure rate.
D. Allowance for sampling error.

65. Which of the following statistical sampling methods is most commonly used to test control procedures?
A. Variable sampling.
B. Ratio estimation sampling.
C. Attribute sampling.
D. Dollar unit sampling.

66. Which one of the following is not a typical step used to implement an attribute sampling plan?
A. Define the attributes of interest and what constitutes failure(s).
B. Select and test the sample items.
C. Evaluate the sample results.
D. Define the non-statistical sampling method that is most effective and efficient.
67. When performing attribute sampling, which of the following varies directly with the sample size?
A. The expected failure rate.
B. The tolerable failure rate.
C. The risk of overreliance.
D. The nonsampling risk.

68. In analyzing misstatements using sampling techniques, the auditor should analyze the misstatements in what
manners?
A. Qualitatively and quantitatively.
B. Absolutely and proportionately.
C. Haphazardly and randomly.
D. Methodically and systematically.

69. In testing account balances, haphazard sampling is an acceptable method of sampling provided the auditor
believes the sample to be which of the following?
A. Statistically sound.
B. Representative of the population.
C. Representative of the sample.
D. In the upper stratum.

70. When determining sampling size in attribute sampling, which of the following is usually true?
A. Sampling risk will be too high.
B. Tolerable failure rate is predetermined.
C. A failure rate is not to be expected.
D. Population size is not a major factor.

71. Which of the following is not a step the auditor needs to determine in designing sampling for substantive
testing?
A. The audit objective.
B. The method of selecting a sample.
C. Expected misstatement conditions.
D. Control failure risk.

72. Which of the following is a method of eliminating non-sampling risk?


A. Proper supervision and instruction of the clients employees.
B. Proper supervision and instruction of the audit team.
C. The use of attributes sampling rather than variables sampling.
D. Controls to ensure that the sample drawn is random and representative.

73. Which of the following is a factor that the auditor should consider when choosing between non-statistical
and statistical sampling?
A. Whether the audit staff is adequately trained to use statistical sampling.
B. Whether the population lends itself to a random-based selection method.
C. Whether the auditor wants a statistical measure of the risk of drawing a wrong conclusion.
D. All of the above.
74. When confirming receivables in testing for overstatements, assume that there are few or no misstatements
expected and the selection will be based on the dollar value of individual items. Which of the following is the
auditor most likely to use?
A. MUS sampling.
B. Stratified mean-per-unit sampling.
C. Ratio estimation sampling.
D. Attribute sampling.

75. The results of MUS sampling will be unacceptable when the total estimated misstatement exceeds which of
the following?
A. Greater than tolerable misstatement.
B. Less than tolerable misstatement.
C. Equal to tolerable misstatement.
D. Either A or C.

76. MUS is based on which of following?


A. Attributes sampling theory.
B. Classical variables sampling.
C. Both a. and b...
D. Neither a. or b.

77. MUS is designed to test for which of the following?


A. Overstatements.
B. Understatements.
C. Neither understatements nor overstatements.
D. Either understatements or overstatements.

78. Which of the following does the design of a MUS sample not require the auditor to determine?
A. Risk of incorrect acceptance.
B. Inherent risk.
C. Ratio of expected misstatement to tolerable misstatement.
D. Ratio of tolerable misstatement to the total population value.

79. When using MUS, an auditor found that the sampling interval should be $15,755. If selecting the sample
manually, the auditor should round the sample interval to which of the following amounts?
A. $16,000.
B. $15,000.
C. $14,000.
D. $10,000.

80. When planning a test of details using MUS sampling, tolerable misstatement is usually set at what level?
A. Higher than planning materiality.
B. Lower than planning materiality.
C. Either higher or lower than planning materiality.
D. The same as materiality.
81.

In MUS, what is meant by a sampling interval of 900?


A. Every 900th item will be selected.
B. Every 900th dollar will be selected.
C. Expected misstatement is 900.
D. Tolerable misstatement is 900.

82.

In using MUS, once the auditor has determined the sample size, which of the following is needed to determine the sampling interval?
A. Expected misstatement.
B. Tolerable misstatement.
C. Population size.
D. Mean.

83. Which one of the following is a proper course of action for the auditor when the total estimated
misstatement exceeds the tolerable misstatement?
A. The auditor can ask the client to correct the known misstatements.
B. The auditor will analyze the detected misstatements for some common problems.
C. The auditor can expand the sample.
D. All of the above.
84. MUS sampling has all of the following advantages over other statistical methods except which of the
following?
A. Easier to apply than other statistical sampling approaches.
B. Sample sizes are relatively small.
C. It is a relatively easy way to make sure that negative balances and zero balances are included in the sample.
D. Usually results in a highly efficient sample size.
E. None of the above is an advantage.

85. Which of the following is a major disadvantage of MUS sampling?


A. Sample selection is relatively easy.
B. Sample sizes are relatively small.
C. It is easy way to test for understatement.
D. It directly controls for the risk of incorrect acceptance.

86. That auditor will do which of the following when the results of sample testing conclude that there is
misstatement in excess of the tolerable misstatement?
A. Issue a disclaimer of opinion.
B. Throw out the sample.
C. Propose adjustments to the client.
D. Disclose the misstatement in the client's financial statements.

87. Which of the following is not a type of statistical method that provides results in dollar terms?
A. Variables sampling.
B. Attributes sampling.
C. Monetary unit sampling.
D. Probability proportional to size sampling.

88. When an auditor uses MUS and analyzes misstatements in the lower stratum, which of the following will be
multiplied by the sampling interval to calculate the projected misstatement for each misstated item?
A. Audit value.
B. Tolerable misstatement.
C. Sampling interval.
D. Tainting percentage.

89. In attribute sampling, which of the following does the risk of incorrect acceptance deal with?
A. Effectiveness.
B. Efficiency.
C. Reliability.
D. Both A and B.

90. In attribute sampling, the risk of incorrect rejection deals with which of the following?
A. Effectiveness.
B. Efficiency.
C. Reliability.
D. Both A and B.
91. Non-sampling risk deals with which of the following?
A. Not carrying out the appropriate audit procedure.
B. Drawing an incorrect inference from the sample results.
C. Inappropriately diagnosing clients problems.
D. Both A and C.

92. Attribute sampling is used in which of the following situations?


A. Testing rates of deviations of controls.
B. Testing the reasonableness of account balances.
C. Need to estimate some amount.
D. Both A and B.

93. In selecting a sample for attribute testing, systematic selection involves which of the following approaches?
A. Each item in the population having an equal chance of selection.
B. Every nth item being selected after a random start.
C. An arbitrary selection with no conscious bias.
D. Selecting all items on a day or week.

94. In selecting a sample for attribute testing, haphazard selection involves which of the following approaches?
A. Each item in the population having an equal chance of selection.
B. Every nth item being selected after a random start.
C. An arbitrary selection with no conscious bias.
D. Selecting all items on a day or week.

95. In selecting a sample for attribute testing, block sampling involves which of the following approaches?
A. Each item in the population having an equal chance of selection.
B. Every nth item being selected after a random start.
C. An arbitrary selection with no conscious bias.
D. Selecting all items on a day or week.

96. Sampling risk deals with which of the following?


A. Not carrying out the appropriate audit procedure.
B. Drawing an incorrect inference from the sample results.
C. Inappropriately diagnosing clients problems.
D. Both A and C.

97. Which of the following are limitations of using the MUS sampling method?
A. MUS is not very useful in testing for understatement.
B. MUS is not very useful in testing for zero and negative amounts.
C. N MUS is not very useful in testing if the auditor expects numerous misstatements.
D. All of the above.
98. In testing the reasonableness of an account balance, if MUS sampling cannot be used because of its
limitations, what is an alternative statistical method?
A. Attribute sampling.
B. Classical variables sampling.
C. Discovery sampling.
D. All of the above.

99. When evaluating the MUS sample results, the auditor calculates the total estimated misstatement in the
account balance based on the sampling process using which of the following components?
A. Basic Precision.
B. Projected misstatement for items in lower-stratum.
C. Incremental Allowance for Sampling Error.
D. All of the above.

100. Which of the following task is not performed by generalized audit software?
A. Footing a file.
B. Obtaining file statistics.
C. Checking for gaps in processing sequences.
D. Preparing custom reports.
E. All of the above tasks can be performed using GAS.

101. Dividing the population into relatively homogeneous groups in order to reduce sample size is the definition
of which of the following terms?
A. Ratio estimation.
B. Difference estimation.
C. Stratification.
D. MUS sampling.

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