# Question: MULTIPLE CHOICE QUESTIONS 1 Refer to Exhibit Assume a 5 risk

MULTIPLE-CHOICE QUESTIONS

1. Refer to Exhibit. Assume a 5% risk of overreliance, a tolerable deviation rate of 8%, a sample size of 100, and that the number of deviations is 5. What is the upper limit of the possible deviation rate, and what does it mean?

a. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 10.3%.

b. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 5%.

c. 5%. The auditor is 92% confident that the real error rate in the population is no greater than 10.3%.

d. 5%. The auditor is 92% confident that the real error rate in the population is no greater than 5%.

2. Which of the following definitions is correct?

a. Factual misstatement-A misstatement that has been specifically identified and about which there is no doubt.

b. Projected misstatement-The auditor's best estimate of the misstatement in a given population based on the sample results.

c. Tolerable misstatement-A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population.

d. Expected misstatement-The level of misstatement that the auditor expects to detect.

e. All of the above are correct.

3. Which of the following statements is false?

a. Top-stratum items are population items whose book values exceed the sampling interval and are therefore all included in the sample.

b. Because the auditor knows the amount of errors in the topstratum (all items were evaluated), no estimate of errors is required.

c. Stratification of the population into several homogeneous subpopulations generally reduces audit efficiency.

d. The audit sampling evaluation reflects the sum of top-stratum items and the projected misstatement derived from lower stratum items.

e. None of the above.

4. Refer to Exhibit. Assume that the risk of incorrect acceptance is 10%, tolerable misstatement is 5% of population dollars, and expected misstatement is 30% of tolerable misstatement (in other words, 1.5% of the population dollars). What is the minimum sample size that the auditor should use?

a. 28

b. 87

c. 120

d. 162

5. Which of the following represents the correct calculation of the sampling interval?

a. Tolerable error ÷ Risk of incorrect acceptance.

b. Sample size ÷ Population size.

c. Tolerable error × Risk of incorrect acceptance.

d. Population size ÷ Sample size.

6. Which of the following is a task commonly performed using GAS?

a. Selecting transactions based on logical identifiers.

b. Selecting samples.

c. Evaluating samples.

d. Printing confirmations.

e. All of the above.

7. Which of the following auditing procedures would be conducted using GAS to assess the validity of the valuation assertion?

a. Foot a file.

b. Compare sales invoices with shipping documents and/or sales contracts.

c. Select a sample of shipping documents and electronically compare them with invoices to determine if billed in the proper period.

d. Select contracts for audit review.

1. Refer to Exhibit. Assume a 5% risk of overreliance, a tolerable deviation rate of 8%, a sample size of 100, and that the number of deviations is 5. What is the upper limit of the possible deviation rate, and what does it mean?

a. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 10.3%.

b. 10.3%. The auditor is 95% confident that the real error rate in the population is no greater than 5%.

c. 5%. The auditor is 92% confident that the real error rate in the population is no greater than 10.3%.

d. 5%. The auditor is 92% confident that the real error rate in the population is no greater than 5%.

2. Which of the following definitions is correct?

a. Factual misstatement-A misstatement that has been specifically identified and about which there is no doubt.

b. Projected misstatement-The auditor's best estimate of the misstatement in a given population based on the sample results.

c. Tolerable misstatement-A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population.

d. Expected misstatement-The level of misstatement that the auditor expects to detect.

e. All of the above are correct.

3. Which of the following statements is false?

a. Top-stratum items are population items whose book values exceed the sampling interval and are therefore all included in the sample.

b. Because the auditor knows the amount of errors in the topstratum (all items were evaluated), no estimate of errors is required.

c. Stratification of the population into several homogeneous subpopulations generally reduces audit efficiency.

d. The audit sampling evaluation reflects the sum of top-stratum items and the projected misstatement derived from lower stratum items.

e. None of the above.

4. Refer to Exhibit. Assume that the risk of incorrect acceptance is 10%, tolerable misstatement is 5% of population dollars, and expected misstatement is 30% of tolerable misstatement (in other words, 1.5% of the population dollars). What is the minimum sample size that the auditor should use?

a. 28

b. 87

c. 120

d. 162

5. Which of the following represents the correct calculation of the sampling interval?

a. Tolerable error ÷ Risk of incorrect acceptance.

b. Sample size ÷ Population size.

c. Tolerable error × Risk of incorrect acceptance.

d. Population size ÷ Sample size.

6. Which of the following is a task commonly performed using GAS?

a. Selecting transactions based on logical identifiers.

b. Selecting samples.

c. Evaluating samples.

d. Printing confirmations.

e. All of the above.

7. Which of the following auditing procedures would be conducted using GAS to assess the validity of the valuation assertion?

a. Foot a file.

b. Compare sales invoices with shipping documents and/or sales contracts.

c. Select a sample of shipping documents and electronically compare them with invoices to determine if billed in the proper period.

d. Select contracts for audit review.

## Answer to relevant Questions

Describe how auditors use sampling and GAS for gathering audit evidence.Define the term tolerable rate of deviation in formal terms (in other words, in the manner in which the AICPA’s 2012 Audit Sampling guide formally defines it) and in more practical terms.Define the following terms: (a) Misstatement, (b) Factual misstatement, (c) Projected misstatement, (d) Tolerable misstatement, (e) Expected misstatement.Assume that you are auditing the inventory of Husky Manufacturing Company for the year ended December 31, 2013, and you are using MUS. The book value is $8,124,998.66. The risk of incorrect acceptance is 10% (90% confidence ...Distinguish between the terms sampling risk and nonsampling risk.Post your question