TIF CH15 - auditing PDF

Preview

Summary

CHAPTER 15Multiple-Choice Questions1.easyA sample in which the characteristics of the sample are the same as those of the population is a(n) b a. variables sample. b. representative sample. c. attributes sample. d. random sample.2.easyWhen the auditor decides to select less than 100 percent of the p...

Description

CHAPTER 15 Multiple-Choice Questions 1. easy b

A sample in which the characteristics of the sample are the same as those of the population is a(n) a. variables sample. b. representative sample. c. attributes sample. d. random sample.

2. easy a

When the auditor decides to select less than 100 percent of the population for testing, the auditor is said to be using a. audit sampling. b. representative sampling. c. poor judgment. d. none of the above.

3. easy b

One of the ways to eliminate nonsampling risk is through a. proper supervision and instruction of the client’s employees. b. proper supervision and instruction of the audit team. c. the use of attributes sampling rather than variables sampling. d. controls which ensure that the sample drawn is random and representative.

4. easy a

One cause of nonsampling risk is a. ineffective use of audit procedures. b. testing less than the entire population. c. use of extensive tests of controls. d. any of the above.

5. easy b

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 sample selection. b. haphazard selection. c. systematic sample selection. d. statistical selection.

6. easy a

When the auditor intends to evaluate a sample statistically, the only acceptable selection method is a. probabilistic selection. b. judgmental selection. c. haphazard selection. d. block sample selection.

7. easy a

A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a a. random sample. b. statistical sample. c. judgment sample. d. representative sample.

15-1

8. easy c

The process which requires the calculation of an interval and then selects the items based on the size of the interval is a. statistical sampling. b. random sample selection. c. systematic sample selection. d. computerized sample selection.

9. easy a

In systematic sample selection, the population size is divided by the number of sample items desired in order to determine the a. interval. b. tolerable exception rate. c. computed upper exceptions rate. d. mean.

10. easy d

Sampling risk may be controlled by a. adjusting the sample size. b. always using random sampling . c. using whatever sample selection technique is appropriate for the population. d. a and c.

11. easy b

Which of the following material occurrences would be least likely to attract the auditor’s attention? a. Deviations from client’s established control procedures. b. Deviations from client’s budgeted values. c. Monetary errors or irregularities in populations of transaction data. d. Monetary errors or irregularities in populations of account balance details.

12. easy d

Which of the following statements is correct? a. A sample of all items of a population will eliminate sampling risk, but increase nonsampling risk. b. The use of an appropriate sample selection technique ensures a representative sample. c. The auditor’s failure to recognize an exception is a significant cause of sampling risk. d. The use of inappropriate audit procedures is a significant cause of nonsampling risk.

13. easy c

The risk which the auditor is willing to take of accepting a control as being effective when it is not is the a. finite correction factor. b. tolerable exception rate. c. acceptable risk of assessing control risk too low. d. estimated population exception rate.

14. easy a

The exception rate the auditor will permit in the population and still be willing to usethe assessed level of control risk is called the a. tolerable exception rate. b. estimated population exception rate. c. acceptable risk of overreliance. d. sample exception rate.

15. easy c

If the auditor decides to assess control risk at the maximum level, tests of controls are a. increased in number. b. reduced in number. c. not performed. d. unchanged from prior planned settings.

16. easy

Attributes sampling would be an appropriate method to use on which one of the following procedures in an audit program?

15-2

c

a. b. c. d.

Review sales transactions for large and unreasonable amounts. Observe whether the duties of the accounts receivable clerk are separate from handling cash. Examine a sample of duplicate sales invoices for credit approval by the credit manager. Review the aged schedule of accounts receivable to determine if receivables from officers are included.

17. easy a

When the computed upper exception rate is greater than the tolerable exception rate, it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to defend if the auditor is ever subject to review by a court? a. Revise and relax the tolerable exception rate (TER) or the acceptable risk of assessing control risk too low (ARACR). b. Expand the sample size. c. Revise the assessed control risk. d. Write a letter to management.

18. easy a

Sampling risk is a. the risk that an auditor reaches an incorrect conclusion because the sample is not representative of the population. b. the risk that an auditor reaches the correct conclusion after considering the nonsampling risk introduced by auditor judgment. c. a and b. d. neither a nor b.

19. easy d

Which of the following factors is generally not considered in determining sample size for a test of controls? a. Expected population exception rate. b. Risk of assessing control risk too low. c. Tolerable exception rate. d. Population size.

20. easy c

Which of the following statement is correct with respect to the quantification of sampling risk? a. Sampling risk cannot be quantified. b. Sampling risk can only be quantified when nonstatistical sample selection techniques are used to select the sample. c. Sampling risk can be quantified only when probabilistic sampling techniques are used to select the sample. d. None of the above.

21. easy d

When using the directed sample selection technique, the auditor may use which of the following criteria? a. Items most likely to contain misstatements. b. Items containing selected population characteristics. c. Large dollar coverage. d. Any of the above.

22. medium b

Nonsampling errors occur when audit tests do not uncover existing exceptions in the a. population. b. sample. c. planning stage. d. financial statements.

15-3

23. medium d

One of the ways to reduce sampling risk is to a. carefully design the audit procedures to be used. b. use variables sampling rather than attributes sampling. c. provide proper supervision and instruction of the audit team. d. use an appropriate method of selecting sample items from the population.

24. medium c

Which of the following statements is correct with respect to the evaluation of sample results? a. It is acceptable to make nonstatistical evaluations only when probabilistic sample selection is used. b. It is acceptable to make nonstatistical evaluations only if the auditor cannot quantify sampling risk. c. It is never acceptable to evaluate a nonprobabilistic sample as if it were a statistical one. d. All of the above are correct.

25. medium d

Which of the following statements is a valid criticism of the use of non-statistical sampling methods? a. Many audit tests, such as footing of journals, must be performed outside a statistical sampling context. b. The cost of performing random selection or testing often exceeds the benefits. c. Non-statistical sampling does not differ substantially from statistical sampling methods. d. Conclusions may be drawn in more precise ways when using statistical sampling methods.

26. medium d

Which of the following methods of sample selection is appropriately used when selecting a random sample? a. Use of random number tables. b. Use computer generated random numbers. c. Auditor’s random selection of items. d. a and b, but not c.

27. medium b

Correspondence is established between the random number table and the population by a. identifying each item in the population with a unique number. b. deciding the number of digits to use in the random number table and their association with the population numbering system. c. defining which digits the auditor uses in a column and the method of reading the table. d. selecting a random starting point on the table.

28. (Public) medium c

The acceptable risk of assessing control risk too low will normally be assessed at a ____ level when auditing a public company. a. higher b. compensating c. lower d. nominal

29. medium b and c

Which of the following statements is not correct (select all that apply)? a. It is acceptable to pick a starting point on a random number table by using a “blind stab” method. b. It is impossible to draw a six-digit random number from a table that is separated into columns of five digits. c. The only reason for selecting a random starting point on a random number table is to eliminate the predictability of the sample. d. When selecting a three-digit number from a table that is separated into columns of five digits, it is permissible to use the first three digits, the middle three digits, or the last three digits.

30. medium

Which of the following is not one of the types of computer tools used to generate random samples?

15-4

d

a. b. c. d.

Electronic spreadsheet programs. Random number generators. Generalized audit software. Random application search software.

31. medium d

Auditors are concerned with which type of exceptions in populations of accounting data? a. Deviations from client established controls. b. Monetary misstatements in transaction data. c. Monetary misstatements in account balance details. d. Auditors are concerned with all of these exceptions.

32. medium b

In using audit sampling for exception rates, the auditor is primarily interested in determining the _____ the exception rate might be. a. lowest. b. most. c. average range in which. d. none of the above.

33. medium c

The highest estimated exception rate in the population at a given acceptable risk of assessing control risk too low is a. the upper exception rate. b. estimated population exception rate. c. the computed upper exception rate. d. the tolerable exception rate.

34. medium a

The advantage of systematic sample selection is that a. it is easy to use. b. there is limited possibility of it being biased. c. it is unnecessary to determine if the population is arranged randomly. d. all three of the above.

35. medium a

A statistical method used to estimate the proportion of items in a population containing a characteristic of interest is a. attributes sampling. b. variables sampling. c. estimation sampling. d. population-proportional-to-size sampling.

36. medium d

The exception rate that the auditor will permit in the population and still be willing to use the assessed control risk is called the a. acceptable exception rate. b. estimated population exception rate. c. sample exception rate. d. tolerable exception rate.

37. medium a

The auditor’s best estimate of the population exception rate is the a. sample exception rate. b. tolerable exception rate (TER). c. experience of the previous year. d. computed upper exception rate (CUER).

15-5

38. medium c

Place the following steps in their proper order: 1. Analyze exceptions 2. Select the sample 3. Define attributes and exception conditions 4. State the objectives of the audit test 5. Define the sampling unit a. b. c. d.

1,3,2,4,5. 4,3,1,2,5. 4,3,5,2,1. 1,2,3,4,5.

39. medium a

If an auditor, without statistical sampling, selects a sample of one hundred items from a population and finds two exceptions, the auditor a. can conclude that the sample exception rate is 2%. b. can conclude that the population exception rate is 2%. c. can calculate the highest exception rate expected in the population. d. cannot make any conclusions about either the sample or the population.

40. medium a

For which of the following audit procedures is audit sampling inappropriate? a. Review sales transactions for large and unusual amounts. b. Examine a sample of duplicate sales invoices for credit approval. c. Compare the quantity on duplicate sales invoices with the quantity on related shipping documents. d. Audit sampling is appropriate for each of the above procedures.

41. medium d

Which of the following statements regarding the process of defining the population is not correct? a. The auditor can define the population to include whatever data is desired. b. The auditor may generalize only about that population which has been sampled. c. The population represents the body of data about which the auditor wishes to generalize. d. The auditor can randomly sample from whatever part of the population that he or she chooses.

42. medium b

Which of the following is the exception rate that the auditor expects to find before testing? a. Sample exception rate. b. Estimated population exception rate. c. Computed exception rate. d. Tolerable exception rate. The tolerable exception rate (TER) has a significant effect on sample size. The relationship of TER to sample size is a. direct (larger TER = larger sample). b. inverse (larger TER = smaller sample). c. variable (sometimes larger, sometimes smaller). d. not determinable.

43. medium b

44. medium c

The acceptable risk of accessing control risk too low (ARACR) has a significant effect on sample size. The relationship of ARACR to sample size is a. variable (sometimes larger, sometimes smaller). b. direct (larger ARACR = larger sample). c. inverse (larger ARACR = smaller sample). d. nonexistent.

15-6

45. medium a

The that a. b. c. d.

acceptable risk of assessing control risk too low (ARACR) is a measure of the level of risk

46. medium a

In attributes sampling, an advance estimate of the estimated population exception rate is necessary to plan the appropriate sample size. The relationship of expected population exception rate (EPER) to sample size is a. direct (small EPER = small sample). b. inverse (small EPER = large sample). c. a variable (sometimes small, sometimes large) dependent on other factors present. d. indeterminate.

47. medium d

The initial sample size is so called because a. there is always another sample to be done. b. the auditor must take several samples to ensure randomness. c. the auditor must take several samples to ensure that the final sample is representative of the population. d. the exceptions must be evaluated before deciding whether the sample is sufficiently large to achieve the objectives.

48. medium b

Statistical theory proves that in most types of populations to which attributes sampling applies, the population size is a. not a consideration in determining sample size. b. a minor consideration in determining sample size. c. a major consideration in determining sample size. d. the determining factor in establishing sample size.

49. medium c

The sample exception rate equals a. the number of exceptions in the population divided by the sample size. b. the number of items in the population multiplied by the number of exceptions in the sample. c. the number of exceptions in the sample divided by the sample size. d. the number of exceptions in the population divided by the population size.

50. medium c

Before the population can be considered acceptable based on the acceptable risk of assessing control risk too low (ARACR), the computed upper exception rate (CUER) must be a. greater than or equal to the TER. b. greater than the TER. c. less than or equal to the TER. d. less than the tolerable exception rate (TER).

51. medium d

Which of the following combinations of attributes and exception conditions is inappropriate. a. Existence of sales invoice number in the sales journal – No record of sales invoice number in the sales journal. b. Credit is approved – Lack of initials indicating credit approval. c. Quantity on customer order agree with duplicate sales invoice – Quantity on customer order do not agree with quantity on duplicate sales invoice. d. Evidence that pricing are checked – Lack of initials on duplicate sales invoice indicating that extensions were checked.

the auditor is willing to take. is predicted by the random number table. is predicted by the statistical frequency table. is generated as a result of the auditor’s knowledge of the true population exception rate.

15-7

52. medium a

Which of the following statements is not true? a. Random selection is statistical measurement. b. It is acceptable to use random selection procedures without drawing statistical conclusions. c. It would be inappropriate to draw a statistical conclusion unless the sample were randomly selected. d. Random selection is a part of statistical sampling.

53. medium d

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to satisfy the audit objective of a. accuracy. b. existence. c. control. d. completeness.

54. medium c

An example of sampling for attributes would be estimating the a. quantity of specific inventory items. b. probability of losing a patent infringement case. c. percentage of overdue accounts receivable. d. dollar value of accounts receivable.

55. medium d

The acceptable risk of assessing control risk too low is a. the risk that the auditor is willing to take of accepting a control as ineffective when it is effective. b. the risk that the auditor is willing to take of accepting a control as effective when it is ineffective. c. the auditor’s measure of sampling risk. d. b and c, but not a.

56. medium b

When using statistical sampling, the auditor would probably require a smaller sample if the a. population increases. b. desired reliability decreases. c. desired precision interval narrows. d. expected exception rate increases.

57. medium a

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 characteristics 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.

58. medium d

A principal advantage of statistical methods of attributes sampling over nonstatistical methods is that they provide a scientific basis for planning the a. risk of assessing control risk too low. b. tolerable exception rate. c. expected population exception rate. d. sample size.

15-8

59. medium c

In performing a review of his client’s cash disbursements, a CPA uses systematic sample selection with a random start. The primary disadvantage of systematic sample selection is that population items a. may occur twice in the sample. b. must be reordered...