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Exam 9: Audit Sampling

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Question 31

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In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the:

A) Efficiency of the audit.
B) Effectiveness of the audit.
C) Selection of the sample.
D) Audit quality controls.

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Question 32

Multiple Choice

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When performing tests of controls over authorization of cash receipts, which of the following sampling methods would be most appropriate?

A) Attributes.
B) Ratio.
C) Stratified.
D) Variables.

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Question 33

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Stratification of the population generally results in a more efficient sampling plan.

Assume a mean-per-unit estimation variables sampling application with a tolerable misstatement of $70,000 and a book value of $700,000. After performing the sampling plan, the auditors calculated an adjusted allowance for sampling risk of $45,000 and a point estimate of the population's total audited value to be $640,000. The projected misstatement based on this sample is:

What is the estimated total audited value using mean-per-unit sampling?

The 3,000 accounts receivable of DEF Company have a total book value of $60,000. Bob Smith, CPA, has selected and audited a sample of 100 accounts with a total book value of $2,100. Using the difference estimation technique, Smith has properly estimated a projected misstatement of a $9,000 overstatement for the entire population. The estimated total audited value of the population is:

Auditors project the misstatements found in the sample to the population when using statistical sampling, but not when using nonstatistical sampling.

The definition of a "deviation" for a test of a control should include only those deviations that result in misstatements in the financial statements.

When using a statistical sampling plan, the auditors would probably require a smaller sample if the:

Increases in the tolerable misstatement result in a decreased sample size when using mean-per-unit estimation.

Audit sampling is used in conjunction with many audit tests, and may be performed on a statistical or nonstatistical basis. a. Define the term audit sampling. b. List and explain two advantages of the use of statistical sampling as compared to nonstatistical sampling.

When using sampling for tests of controls, which of the following audit consequences may follow?

A dual purpose test simultaneously:

Various factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?

Which of the following situations will result in the auditors concluding that the risk of material misstatement is too high when using nonstatistical sampling for substantive tests?

The auditors are using mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 10,000 receivable accounts with a total book value of $800,000. The auditors estimate the population's standard deviation as being equal to $25. After examining the overall audit plan, the auditors believe that the account's tolerable misstatement is $40,000, and that a risk of incorrect rejection of .10 (risk coefficient = 1.64) and a risk of incorrect acceptance of .15 (risk coefficient = 1.04) should be used. Required: a. Calculate the required sample size. Now ignore your sample size calculation in part "a," and assume that your answer was a sample size of 289 (the square root of 289 is 17) and that you obtained the following results: Average audited value of items in sample: $76 Average book value of items in sample: $78 Standard Deviation in the sample (audited values): $24 Standard Deviation in the sample (book values): $26 b. Using mean-per-unit sampling, calculate the projected misstatement for the population. c. Using mean-per-unit sampling, calculate the adjusted allowance for sampling risk and use it to form a statistical conclusion concerning the book value of the population ($800,000). That is, calculate an interval and either "accept" or "reject" the client's book value.

Using the ratio estimation technique, Rotter's estimate (to the nearest dollar) of year-end accounts receivable balance would be:

What is the estimated total audited value using difference estimation sampling?

Which of the following statistical selection techniques is least desirable for use by an auditor?

Assume a mean-per-unit estimation variables sampling application with a tolerable misstatement of $70,000 and a book value of $700,000. After performing the sampling plan, the auditors calculated an adjusted allowance for sampling risk of $45,000 and a point estimate of the population's total audited value to be $650,000. Based on these results, the auditor would: