Exam 2 Practice

If all other factors specified in a sampling plan remain constant, changing the ARO from 5 percent to 10 percent will cause the required sample size to

• increase.

• remain the same.

• decrease.

• become indeterminate.

Of the four factors that determine the initial sample size in attributes sampling (population size, tolerable exception rate, acceptable risk of overreliance, and expected population exception rate), which factor has the least effect on sample size?

• Population size

• Expected population exception rate

• Tolerable exception rate

• Acceptable risk of overreliance

What is an auditor’s evaluation of a statistical sample for attributes when a test of 50 documents results in two exceptions if the tolerable exception rate is 7 percent, the expected population exception rate is 5 percent, and the allowance for sampling risk is 2 percent?

• Modify the assessed level of control risk because the tolerable exception rate plus the allowance for sampling risk exceeds the population exception rate.

• Accept the sample results as support for the assessed level of control risk because the sample exception rate plus the allowance for sampling risk is less than the tolerable exception rate.

• Accept the sample results as support for the assessed level of control risk because the tolerable exception rate minus the allowance for sampling risk equals the expected population exception rate.

• Modify the assessed level of control risk because the sample exception rate plus the allowance for sampling risk exceeds the tolerable exception rate.

An auditor most likely would give additional consideration to the implications of a deviation if it was

• the only deviation discovered in the sample.

• identical to a deviation discovered during the prior year’s audit.

• caused by an employee’s misunderstanding of instructions.

• initially concealed by a forged document.

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor

• minimize the failure to detect errors and fraud.

• eliminate the risk of nonsampling errors.

• design more effective audit procedures.

• measure the sufficiency of the audit evidence by quantifying sampling risk.

Which of the following best illustrates the concept of sampling risk?

• The documents related to the chosen sample may not be available to the auditor for inspection.

• An auditor may fail to recognize errors in the documents from the sample.

• A randomly chosen sample may not be representative of the population as a whole for the characteristic of interest.

• An auditor may select audit procedures that are not appropriate to achieve the specific objective.

For which of the following tests would an auditor most likely use attributes sampling?

• Selecting accounts receivable for confirmation of account balances.

• Inspecting employee time records for proper approval by supervisors.

• Making an independent estimate of the amount of a LIFO inventory.

• Examining invoices in support of the valuation of fixed asset additions.

As compared to a nonstatistical sampling plan, a statistical sampling plan

• eliminates the need to apply professional judgment in determining sample size.

• provides a more representative sample from the population.

• makes greater use of mathematical methods in determining an appropriate sample size.

• emphasizes qualitative evaluation of results as opposed to quantitative evaluations.

Which of the following is true?

• Since the tolerable deviation rate exceeds the sample deviation rate, the auditor may rely on the control.

• Since the tolerable deviation plus the allowance for sampling risk exceeds the sample deviation rate, the auditor may not rely on the control.

• Since the sample deviation rate exceeds the tolerable deviation rate less the allowance for sampling risk, the auditor may rely on the control.

• Since the tolerable deviation rate less the allowance for sampling risk is less than the sample deviation rate, the auditor may not rely on the control.

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

• efficiency of the audit.

• effectiveness of the audit.

• selection of the items in the sample.

• audit quality controls.