Question 1

Monetary-unit sampling typically provides a more representative sample of the population since each dollar is used as a sampling unit as opposed to each transaction. This gives higher dollar value & more material items a higher likelihood of being selected in a sample.

Group of answer choices

True

False

Question 2

An auditor is typically more concerned with a Type I (Risk of Incorrect Rejection) risk as opposed to a Type II (Risk of Incorrect Acceptance) due to the higher likelihood that a material misstatement is included within the financial statements as the result of a Type I risk.

Group of answer choices

True

False

Question 3

An auditor determined that the results of a sample testing a company's right-of-use lease asset supported the conclusion that the recorded balance was materially misstated. It was, in fact, not materially misstated. This situation illustrates the risk of:

Group of answer choices

A. Assessing control risk too high

B. Incorrect acceptance

C. Assessing control risk too low

D. Incorrect rejection

Question 4

A staff auditor on the Nike audit engagement has been tasked with testing the accounts receivable balance. The auditor determines to send accounts receivable confirmations to test for overstatements of the recorded balance. Historically, there have been no misstatements, and the audit team assumes there will be few or no misstatements this year based on Nike's strong internal controls. The auditor determines to make audit selections based on the dollar value of the individual accounts receivable amount and wants to favor the more prominent customers. Which of the following is the auditor most likely to use?

Group of answer choices

A. Cluster Sampling

B. Attribute Sampling

C. Monetary Unit Sampling

D. Random Sampling

Question 5

An audit senior on the Walmart audit engagement is using attribute sampling in testing whether cash payments were properly authorized in accordance with the company's internal controls. The audit team has relied on Walmart's internal controls in prior year audits. This year's sample results indicate that the rate of the control not operating effectively exceeds the acceptable rate set by the auditor. Under these circumstances, the auditor most likely would reduce the:

Group of answer choices

A. Planned reliance on Walmart's internal controls

B. Assessed level of control risk

C. Extent of substantive testing

D. Planned reliance on substantive testing

Question 6

Thornton & Kaye, CPAs, are in the process of planning their substantive audit procedures for the audit of Quick Foodz, a large fast-food restaurant chain. For each situation below, determine if the sample sizes for substantive testing should be smaller or larger, all else equal. If the factor will not affect the sample size, choose "No Difference." Consider each situation independently.

1. Early in the year, the Company acquired 70 Burger King stores and converted them into Quick Foodz. The expected average revenue per store was approximately $5,500,000 per year.

2. After identifying control deficiencies in the prior year, the auditor determined that the controls are operating effectively in the current year. As a result, the Company plans to take a reliance strategy for their auditing procedures.

3. Quick Foodz's accounts receivable balance has increased in the current year, resulting in the auditor adjusting the nature, timing, and extent of accounts receivable substantive procedures.

4. The audit firm calculates its materiality using the Company's operating expenses as a benchmark prior to applying professional judgment. In the current year, operating expenses decreased by 1.6x, resulting in a lower materiality threshold.

5. The auditors will use a mix of statistical sampling and nonstatistical sampling, per their professional judgement.

6. Quick Foodz's accounting department has been working from home due to COVID-19. The majority of the company's relevant internal controls are system controls that are still operating effectively, consistent with the prior year, in a work-from-home setting.

7. The audit firm determined to add an additional audit senior to the engagement team. This individual has recently transferred and has extensive knowledge of the fast food industry.

8. Quick Foodz released a new double-decker burger that became extremely popular after Kylie Jenner posted a video on Instagram of her saying how great it tasted. The Company's revenue doubled in the current year as a result of the increased demand.

9. Quick Foodz's accounting department hired three new staff accountants that all had extensive fast food industry knowledge. As a result, the Controller eliminated a few internal controls since they didn't feel the need to review the new staff's work based on their qualifications.

10. Quick Foodz incurred material legal expenses in the current year for using the hit song 'Closer' by The Chainsmokers in their commercial without permission. Management's bonuses are directly tied to net income.