# Question

Multiple Choice

1. An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to

a. Eliminate the risk of non-sampling errors.

b. Reduce audit risk and materiality to a relatively low level.

c. Measure the sufficiency of the evidential matter obtained.

d. Minimize the failure to detect errors and fraud.

2. Samples to test internal controls are intended to provide a basis for an auditor to conclude whether

a. The controls are operating effectively.

b. The financial statements are materially misstated.

c. The risk of incorrect acceptance is too high.

d. Materiality for planning purposes is at a sufficiently low level.

3 When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why

a. A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.

b. Deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions.

c. Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate.

d. A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement.

4 Which of the following combinations results in the greatest decrease in sample size in an attribute sample for a test of controls?

5. An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 ½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent.

In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the

a. Tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent).

b. Expected population deviation rate (7 percent) was more than the percentage of errors in the sample (3 ½ percent).

c. Computed upper deviation rate (8 percent) was more than the percentage of errors in the sample (3 ½ percent).

d. Expected population deviation rate (2 ½ percent) was less than the tolerable deviation rate (7 percent).

6. An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 ½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent.

Based on the information above, the planned allowance for sampling risk was

a. 5 ½ percent.

b. 4 ½ percent.

c. 3 ½ percent.

d. 1 percent.

7 The following table depicts the auditor’s estimated computed upper deviation rate compared with the tolerable deviation rate, and it depicts the true population deviation rate compared with the tolerable deviation rate.

As a result of tests of controls, the auditor assesses control risk higher than necessary and thereby increases substantive testing. This is illustrated by situation

a. 1.

b. 2.

c. 3.

d. 4.

8. Which of the following statements is correct concerning statistical sampling in tests of controls?

a. Deviations from controls at a given rate usually result in misstatements at a higher rate.

b. As the population size doubles, the sample size should also double.

c. The qualitative aspects of deviations are not considered by the auditor.

d. There is an inverse relationship between the sample size and the tolerable deviation rate.

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

a. The planned assessed level of control risk should be modified because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate.

b. The sample results should be accepted as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

c. The sample results should be accepted as support for the planned assessed level of control risk because the tolerable deviation rate less the allowance for sampling risk equals the expected population deviation rate.

d. The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

10 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 deviation rate.

b. The deviation rates of both the auditor’s sample and the population are less than the tolerable deviation rate.

c. The deviation rate in the auditor’s sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate.

d. The deviation rate in the auditor’s sample exceeds the tolerable deviation rate, but the deviation rate in the population is less than the tolerable deviationrate.

1. An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to

a. Eliminate the risk of non-sampling errors.

b. Reduce audit risk and materiality to a relatively low level.

c. Measure the sufficiency of the evidential matter obtained.

d. Minimize the failure to detect errors and fraud.

2. Samples to test internal controls are intended to provide a basis for an auditor to conclude whether

a. The controls are operating effectively.

b. The financial statements are materially misstated.

c. The risk of incorrect acceptance is too high.

d. Materiality for planning purposes is at a sufficiently low level.

3 When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why

a. A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is properly authorized and recorded.

b. Deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on different transactions.

c. Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at a higher rate.

d. A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material misstatement.

4 Which of the following combinations results in the greatest decrease in sample size in an attribute sample for a test of controls?

5. An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 ½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent.

In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the

a. Tolerable deviation rate (7 percent) was less than the computed upper deviation rate (8 percent).

b. Expected population deviation rate (7 percent) was more than the percentage of errors in the sample (3 ½ percent).

c. Computed upper deviation rate (8 percent) was more than the percentage of errors in the sample (3 ½ percent).

d. Expected population deviation rate (2 ½ percent) was less than the tolerable deviation rate (7 percent).

6. An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1 percent risk of assessing control risk too low for the assertion that not more than 7 percent of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 ½ percent of the sales invoices lacked approval. A sample of 200 invoices was examined, and 7 of them were lacking approval. The auditor then determined the computed upper deviation rate to be 8 percent.

Based on the information above, the planned allowance for sampling risk was

a. 5 ½ percent.

b. 4 ½ percent.

c. 3 ½ percent.

d. 1 percent.

7 The following table depicts the auditor’s estimated computed upper deviation rate compared with the tolerable deviation rate, and it depicts the true population deviation rate compared with the tolerable deviation rate.

As a result of tests of controls, the auditor assesses control risk higher than necessary and thereby increases substantive testing. This is illustrated by situation

a. 1.

b. 2.

c. 3.

d. 4.

8. Which of the following statements is correct concerning statistical sampling in tests of controls?

a. Deviations from controls at a given rate usually result in misstatements at a higher rate.

b. As the population size doubles, the sample size should also double.

c. The qualitative aspects of deviations are not considered by the auditor.

d. There is an inverse relationship between the sample size and the tolerable deviation rate.

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

a. The planned assessed level of control risk should be modified because the tolerable deviation rate plus the allowance for sampling risk exceeds the expected population deviation rate.

b. The sample results should be accepted as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

c. The sample results should be accepted as support for the planned assessed level of control risk because the tolerable deviation rate less the allowance for sampling risk equals the expected population deviation rate.

d. The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.

10 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 deviation rate.

b. The deviation rates of both the auditor’s sample and the population are less than the tolerable deviation rate.

c. The deviation rate in the auditor’s sample is less than the tolerable deviation rate, but the deviation rate in the population exceeds the tolerable deviation rate.

d. The deviation rate in the auditor’s sample exceeds the tolerable deviation rate, but the deviation rate in the population is less than the tolerable deviationrate.

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