Module E

Overview of Sampling
Multiple Choice Questions
1. The set of items about which a statement is made in a sampling application is referred to as a
(n):
A. Sampling unit
B. Sample
C. Population unit
D. Population

2. Which of the following is not an advantage of statistical sampling?

A. It requires a precise and definite approach to the audit problem
B. It incorporates evaluation that calculates a direct relation between the sample results and the
entire population under audit
C. It requires auditors to specify particular judgments on risk and materiality
D. It permits the auditor to reapply evaluation judgments based on factors in addition to the
sample evidence

3. Nonsampling risk can occur in which of the following types of sampling plans:
A. Statistical sampling: Yes; Nonstatistical sampling: Yes
B. Statistical sampling: Yes; Nonstatistical sampling: No
C. Statistical sampling: No; Nonstatistical sampling: Yes
D. Statistical sampling: No; Nonstatistical sampling: No

4. The probability that an auditor's conclusion based on a sample might be different from the
conclusion based on the entire population identifies the concept of:
A. Confidence levels
B. Nonsampling risk
C. Nonstatistical sampling
D. Sampling risk

5. Select the description that best illustrates sampling risk.

A. Applying audit procedures, which are inappropriate for the audit objectives
B. Failing to recognize misstatements or deviations in the documents examined
C. Arriving at incorrect statistical conclusions due to computational errors
D. Choosing a sample which has proportionately more errors than the population

6. An auditor is most likely to use statistical sampling under which of the following situations?
A. Random numbers can be associated with population items
B. Strictly defensible results based on mathematics are not necessary
C. The auditor has a very good knowledge of the population
D. The population is very diverse with some segments especially prone to misstatement

7. In which of the following situations would the use of sampling be most appropriate?
A. The need for precise information is less important
B. The number of items comprising the population is smaller
C. The likelihood of selecting a representative sample is relatively low
D. The use of sampling would be appropriate in all of the above situations

8. Which of the following measures would not be used to measure the auditor's exposure to
sampling risk?
A. Determining an appropriate sample size
B. Ensuring that all items have an equal likelihood of being selected
C. Applying the appropriate type of substantive procedure
D. Evaluating sample results to consider the possibility that the sample does not appropriately
represent the population

9. Which of the following types of sampling applications can appropriately be used under
generally accepted auditing standards?
A. Statistical sampling: Yes; Nonstatistical sampling: Yes
B. Statistical sampling: Yes; Nonstatistical sampling: No
C. Statistical sampling: No; Nonstatistical sampling: Yes
D. Statistical sampling: No; Nonstatistical sampling: No

Difficulty: Easy
Source: Original

10. Which of the following would typically result in nonsampling risk?

A. Selecting a nonrepresentative sample
B. Making a mistake in recording sample results
C. Intentionally omitting several items in the population from examination
D. None of the above result in nonsampling risk

Difficulty: Easy
Source: Original

11. If a golf professional is interested in determining whether a golf ball can be hit over 300
yards, which of the following relationships between the adjusted sample estimate of distance
and the actual distance would represent sampling risk?
A. Adjusted Estimate = 295 yards, Actual = 298 yards
B. Adjusted Estimate = 305 yards, Actual = 301 yards
C. Adjusted Estimate = 310 yards, Actual = 295 yards
D. All of the above are examples of sampling risk

Difficulty: Medium
Source: Original

12. In which of the following types of sampling applications is the auditor exposed to sampling
risk?
A. Statistical sampling: Yes; Nonstatistical sampling: Yes
B. Statistical sampling: Yes; Nonstatistical sampling: No
C. Statistical sampling: No; Nonstatistical sampling: Yes
D. Statistical sampling: No; Nonstatistical sampling: No

13. Which of the following allow the auditor to limit the exposure to sampling risk?
A. Determining an appropriate sample size: Yes; Performing an appropriate audit procedure:
Yes
B. Determining an appropriate sample size: Yes; Performing an appropriate audit procedure: No
C. Determining an appropriate sample size: No; Performing an appropriate audit procedure: Yes
D. Determining an appropriate sample size: No; Performing an appropriate audit procedure: No

Difficulty: Medium
Source: Original

14. What is the primary drawback with respect to the use of sampling?
A. Individuals may fail to obtain a true understanding of the question they are examining
B. The time spent in planning and selecting the sample may exceed the time savings from
examining only a subset of the items
C. The conclusion reached by examining a sample of items may differ from the conclusion that
would be reached if the entire population were examined
D. Sampling cannot be used to examine account balances that are material to the financial
statements

15. Which of the following statements best describes nonstatistical sampling?

A. Nonstatistical sampling does not allow the auditor to measure the exposure to sampling risk
B. Nonstatistical sampling only selects very large dollar items for examination
C. Nonstatistical sampling should be used only in situations in which the auditor anticipates
issuing a qualified or adverse opinion on the client's financial statements
D. Nonstatistical sampling should be used when the auditor selects a substantive audit approach

Difficulty: Easy
Source: Original

16. In sampling, an individual makes a statement about a _____ of interest by examining a

_____ (or subset) of items
A. Sample; population
B. Sampling unit; population
C. Population; sample
D. Population; sampling unit

17. Which of the following statements is true with regard to sampling?

A. Sampling can only be used in situations in which the population is relatively homogenous in
nature
B. Sampling is typically more efficient than examining the entire population
C. Sampling is typically more effective than examining the entire population
D. Sampling should be used when the need for more precise information is important

18. Which of the following is not a condition that must be met for an application to be classified
as audit sampling?
A. Less than 100 percent of the items comprising the population must be examined
B. The results of the sample must be projected to the population being examined
C. The population being examined must have a dollar balance greater than materiality
D. All of the above are conditions that must be met for an application to be classified as audit
sampling
19. The risk that the decision made by the auditor differs from the decision that would have
been made if the entire population were examined is referred to as:
A. Audit risk
B. Risk of material misstatement
C. Nonsampling risk
D. Sampling risk

20. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling
helps an auditor to:
A. Eliminate the risk of nonsampling error
B. Reduce the level of audit risk and materiality to a relatively low level
C. Measure the sufficiency of the evidence gathered
D. Minimize the failure to detect misstatements and irregularities

21. Place the following steps in the sampling process in the order in which they are performed.
1 = Measure sample items
2 = Select sample items
3 = Define the population
A. 1, 2, 3
B. 3, 1, 2
C. 2, 1, 3
D. 3, 2, 1
22. Why is defining the population so important in a sampling application?
A. To permit the auditor to select the appropriate type of substantive procedure
B. To ensure that the results appropriately represent the entire population
C. To reduce sampling risk to the appropriate level
D. To allow the auditor to appropriately measure sample items

Difficulty: Medium
Source: Original

23. Which of the following steps in the sampling process is ordinarily performed last?
A. Determine the objective of sampling
B. Measure sample items
C. Evaluate the sample results
D. Define the characteristic of interest

Difficulty: Easy
Source: Original

24. After the auditor has defined the population to be examined, the next step would be to:
A. Define the characteristic of interest
B. Select the sample items
C. Determine the sample size
D. Measure the sample items

Difficulty: Easy
Source: Original

25. Which of the following most closely represents an unrestricted random selection
procedure?
A. Identifying a starting point within the population and bypassing a fixed number of items
B. Matching items in the population to a series of randomly-selected numbers
C. Randomly selecting invoices to customers whose last names start with "W"
D. Randomly picking items from an accounts receivable file

Difficulty: Easy
Source: Original

26. A disadvantage of using a systematic random selection procedure is that:

A. This type of procedure does not permit the auditor to measure the exposure to sampling risk
B. This type of procedure does not make all items available for selection
C. This type of procedure requires that the population be arranged in a random order
D. This type of procedure provides the auditor with a higher level of exposure to nonsampling
risk compared to other selection procedures

Difficulty: Hard
Source: Original

27. Which of the following is not a criterion for using a selection method with statistical
sampling?
A. The method provides a reasonable likelihood of selecting a representative sample
B. The method allows the probability of selecting sample items to be determined
C. The method specifically identifies each item in the population with a number
D. The method allows the selection process to be replicated

Difficulty: Medium
Source: Original

28. The method of sample selection in which a random starting point is selected and a fixed
number of items are bypassed prior to the next item being selected is referred to as:
A. Block selection
B. Haphazard selection
C. Systematic random selection
D. Unrestricted random selection

Difficulty: Easy
Source: Original

29. A sample selection method in which items are selected in a nonsystematic manner is referred
to as:
A. Block selection
B. Haphazard selection
C. Systematic random selection
D. Unrestricted random selection

30. A sample selection method in which a series of contiguous items are selected from the
population is referred to as:
A. Block selection
B. Haphazard selection
C. Systematic random selection
D. Unrestricted random selection

Difficulty: Easy

Source: Original

31. The precision interval has a ____ percent probability of including the ____.
A. Sampling risk; adjusted sample estimate
B. Sampling risk; true population value
C. 1 minus sampling risk; adjusted sample estimate
D. 1 minus sampling risk; true population value

Difficulty: Hard
Source: Original

32. What is the appropriate precision interval?

A. 47 to 51 years
B. 47 to 53 years
C. 47 to 57 years
D. 51 to 57 years

Difficulty: Medium
Source: Original

33. What is the likelihood that the precision interval includes the true population value?
A. 2.5 percent
B. 5 percent
C. 95 percent
D. 97.5 percent

Difficulty: Medium
Source: Original

34. What would your conclusion be with respect to the sample results?
A. The average age is greater than 50 years
B. The average age is not greater than 50 years
C. The average age is greater than 54 years
D. The average age is not greater than 54 years

Difficulty: Medium
Source: Original

35. Which of the following does not affect the sample size in an attribute sampling application?
A. Expected deviation rate
B. Upper limit deviation rate
C. Sampling risk
D. Tolerable deviation rate

Difficulty: Easy
Source: Original

36. If the upper limit deviation rate exceeds the tolerable deviation rate, the auditor would most
likely:
A. Accept the account balance as fairly stated
B. Reject the account balance as fairly stated
C. Increase the planned effectiveness of substantive procedures
D. Not increase the planned effectiveness of substantive procedures

Difficulty: Medium
Source: Original

37. In the study of internal control, the auditor uses sampling to compare the ____ to the ____.
A. Adjusted estimate of misstatement; materiality
B. Sampling risk; precision
C. Adjusted estimate of the deviation rate; tolerable deviation rate
D. Precision interval; upper error limit

Difficulty: Medium
Source: Original

38. Why is the auditor most concerned with the risk of assessing control risk too low rather
than the risk of assessing control risk too high?
A. The risk of assessing control risk too high is not a type of sampling risk
B. The risk of assessing control risk too low exposes the auditor to an efficiency loss
C. The risk of assessing control risk too low may result in the auditor failing to perform
sufficient substantive procedures
D. The risk of assessing control risk too low cannot be measured by the auditor during the
sampling process

Difficulty: Medium

Source: Original

39. While performing an audit of accounts receivable, Allen, CPA, found that the sample results
supported the conclusion that the accounts receivable balance was materially misstated.
However, the balance was, in fact, not materially misstated. This situation illustrates the risk of:
A. Incorrect rejection
B. Incorrect acceptance
C. Assessing control risk too low
D. Assessing control risk too high

Difficulty: Easy
Source: Original

40. Which of the following risks expose the auditor to effectiveness losses?
A. Risk of assessing control risk too high, risk of incorrect acceptance
B. Risk of assessing control risk too low, risk of incorrect rejection
C. Risk of assessing control risk too high, risk of incorrect rejection
D. Risk of assessing control risk too low, risk of incorrect acceptance

Difficulty: Easy
Source: Original

41. The type of sampling most frequently used by the auditors during their substantive
procedures is referred to as:
A. Account balance sampling
B. Attribute sampling
C. Item sampling
D. Variables sampling

Difficulty: Easy
Source: Original

42. Which of the following characteristics of substantive procedures is most closely associated
with the use of sampling?
A. Extent of substantive procedures
B. Nature of substantive procedures
C. Timing of substantive procedures
D. All of the above are closely associated with the use of sampling.

Difficulty: Easy
Source: Original

43. Which of the following sampling risks is associated with the use of variables sampling?
A. Risk of assessing control risk too high: Yes; Risk of incorrect rejection: Yes
B. Risk of assessing control risk too high: Yes; Risk of incorrect rejection: No
C. Risk of assessing control risk too high: No; Risk of incorrect rejection: Yes
D. Risk of assessing control risk too high: No; Risk of incorrect rejection: No

Difficulty: Easy
Source: Original

44. Which of the following does not have a direct relationship with sample size?
A. Expected deviation rate
B. Population size
C. Risk of assessing control risk too low
D. All of the above have a direct relationship with sample size.

Difficulty: Easy
Source: Original

45. Which of the following components of the audit risk model is most closely associated with
variables sampling?
A. Audit risk
B. Risk of material misstatement
C. Detection risk
D. Analytical procedures risk

Difficulty: Easy
Source: Original

46. In performing variables sampling, the auditor will conclude that the account balance is not
materially misstated if the ____ is less than or equal to ____.
A. Upper error limit; tolerable error
B. Expected error; tolerable error
C. Tolerable error; upper error limit
D. Tolerable error; expected error

Difficulty: Medium
Source: Original

47. When the auditor concludes that the account balance is not materially misstated when, in
fact, it is materially misstated, the auditor has committed the:
A. Risk of assessing control risk too high
B. Risk of assessing control risk too low
C. Risk of incorrect acceptance
D. Risk of incorrect rejection

Difficulty: Easy
Source: Original

48. Why does the risk of incorrect rejection result in an efficiency loss to the auditor?
A. Additional time is necessary to propose adjustments to the client's account balances
B. The auditor typically expands the sample to examine additional components or transactions
of the account balance
C. More detailed audit procedures are performed on sample items already examined by the
auditor
D. The auditor typically extends the study of internal control to attempt to obtain a reduction in
the level of risk of material misstatement

49. Which of the following is not true with respect to the risk of incorrect acceptance?
A. It results in an efficiency loss to the auditor
B. It occurs when the auditor's sample indicates that the account balance is fairly stated
C. It occurs when the true misstatement in the account balance exceeds tolerable error
(materiality)
D. The auditor can measure the exposure to this risk when using statistical sampling
applications

50. Which of the following has a direct relationship with sample size in a variables sampling
application?
A. Tolerable error: Yes; Expected error: Yes
B. Tolerable error: Yes; Expected error: No
C. Tolerable error: No; Expected error: Yes
D. Tolerable error: No; Expected error: No

Essay Questions

51. Below is a listing of major steps in the sampling process. Indicate, using the correct letter,
the phase in which each step belongs. Each phase may be associated with more than one step.
A. Planning
B. Performing
C. Evaluating.
___ 1. Determine the sample size.
___ 2. Determine the objective of sampling.
___ 3. Evaluate the sample results.
___ 4. Define the population.
___ 5. Measure sample items.
___ 6. Select sample items.
___ 7. Define the characteristic of interest.
1. B; 2. A; 3. C; 4. A; 5. B; 6. B; 7. A

52. Below are statements or examples related to audit sampling applications. Indicate, using the
correct letter, which concept is most closely associated with the statement or example. Each
concept may be related to more than one statement or example.
A. Statistical sampling
B. Nonstatistical sampling
C. Sampling risk
D. Nonsampling risk.
___ 1. Jones, CPA, selected a sample and evaluated the results of her sample using the laws of
probability.
___ 2. Wilson, CPA, checked to see if any signature was in the credit approval box on a sample
of sales orders rather than looking for only authorized signatures.
___ 3. Based on a statistical sample, Jackson, CPA, concluded the client's control was
functioning effectively when the deviation rate in the population was actually unacceptable.
___ 4. Barnum, CPA, selected all invoices over $1,000 and all invoices recorded on the 15th of
each month for his sample.
___ 5. When a client could not produce an invoice for a sample selected by the auditor, the
auditor accepted the client's assurance that the invoice contained the appropriate approval.

1. A; 2. D; 3. C; 4. B; 5. D

53. Below are some examples of methods used to select sample items. Indicate, using the
correct letter, which sample selection method is most closely associated with the example. Each
selection method is associated with only one example.
A. Unrestricted random selection
B. Systematic random selection
C. Haphazard selection
D. Block selection.
___ 1. Haley, CPA, selected all invoices prepared on five different days throughout the year.
___ 2. Hannah, CPA, identified 30 random numbers using a computerized random number
program and matched these numbers to items in the population.
___ 3. Courtney, CPA, selected a sample of invoices associated with customer files drawn
nonsystematically from a file drawer.
___ 4. Meghan, CPA, selected every 10th item in a randomly ordered population.

1. D; 2. A; 3. C; 4. B

54. Below are definitions of terms related to audit sampling. Indicate, using the correct letter,
which term is most closely associated with the definition. Each term is associated with only one
definition.
A. Sampling interval
B. Precision
C. Reliability
D. Precision interval.
___ 1. The numeric distance from the estimated population value in which the true (but
unknown) population value may lie with a given probability.
___ 2. An interval that has a certain likelihood (equal to reliability) of including the true
population value.
___ 3. The number of items in the population divided by the sample size.
___ 4. The likelihood of achieving a given level of precision.

1. B; 2. D; 3. A; 4. C

55. Fishkin, CPA, is attempting to determine whether the average height of a player on a
basketball team is greater than 80 inches. Based on his sample of basketball players, he
determined an estimate of 76 inches with an associated precision of 10 inches. The confidence
in this estimate is 90 percent.
A. What is the precision interval associated with Fishkin's sample?
B. Based on this sampling interval, what is Fishkin's conclusion?
C. If Fishkin wanted a higher level of confidence in his sample estimate, would the precision be
greater or less than 10 inches?

A. The precision interval is 66 inches to 86 inches (76 inches 10 inches)

B. Because the lower end of the precision interval is less than 80 inches, Fishkin could not
conclude (with a confidence of 90 percent) that the average height of the players on the team
was greater than 80 inches
C. The appropriate precision would be less than 10 inches

56. Jones, CPA, is performing a sampling application to determine the average number of
patrons attending the performance of a musical on a weeknight. She randomly selects five
weeknight performances during the month of May and calculates an average of 230 patrons per
performance, with an associated precision of 25 patrons. This precision is determined based on
a confidence level of 95 percent.
A. What is Jones' exposure to sampling risk?
B. What is the precision interval associated with Jones' sample?
C. Provide an explanation of the sampling interval calculated in (b) above
D. If theaters needed an average attendance of 200 patrons per weeknight to remain profitable,
what would Jones' conclusion be with respect to this question?

A. The exposure to sampling risk is 5 percent (100 percent minus confidence of 95 percent)
B. The precision interval is 205 patrons to 255 patrons (230 patrons 25 patrons)
C. There is a 95 percent probability that the true average number of patrons attending the theater
during a weeknight is between 205 patrons and 255 patrons
D. Because the lower end of the precision interval is greater than 200 patrons, Jones would
conclude (with a confidence of 95 percent) that the average number of patrons attending the
theater on a weeknight is greater than 200.

57. Below are descriptions of components of the audit risk model. Indicate, using the correct
letter, which component is most closely associated with the example. Each component is
associated with only one description.
A. Audit risk
B. Inherent risk
C. Control risk
D. Detection risk.
___ 1. The client's controls are not functioning as effectively as the auditor had anticipated.
___ 2. Accounts such as revenue and receivables are highly susceptible to misstatement.
___ 3. The auditor issues an unqualified opinion on the client's financial statements when a
qualified or adverse opinion is more appropriate.
___ 4. The auditor performs more effective substantive procedures

1. C; 2. B; 3. A; 4. D

58. Below are descriptions representing different sampling risks associated with attribute and
variables sampling. Indicate, using the correct letter, which term is most closely associated with
the definition. Each term is associated with only one description.
A. Risk of incorrect acceptance
B. Risk of assessing control risk too low
C. Risk of incorrect rejection
D. Risk of assessing control risk too high.
___ 1. The auditor concludes that the account balance is fairly stated when, in fact, it is
misstated.
___ 2. The auditor's sample indicates that the client's control policies and procedures are not
functioning effectively.
___ 3. The client's internal controls are not functioning effectively.
___ 4. The auditor's substantive procedures reveal that the client's account balance is not fairly
stated.

1. A; 2. D; 3. B; 4. C

59. For each of the following statements, indicate whether it is more closely related to attribute
sampling or variables sampling by using the letter A (attribute) and V (variables).
___ 1. The population size affects the sample size.
___ 2. Used to allow the auditor to assess risk of material misstatement.
___ 3. Sampling risks include the risk of incorrect acceptance and risk of incorrect rejection.
___ 4. The population variability affects the sample size.
___ 5. The auditor's sample would include transactions or components comprising the account
balance.
___ 6. Sampling risks include the risk of assessing control risk too high and the risk of
assessing control risk too low.
___ 7. The auditor's sample would include potential applications of control policies and
procedures.
___ 8. This type of sampling is influenced by the auditor's acceptable level of detection risk.

1. A, V; 2. A; 3. V; 4. V; 5. V; 6. A; 7. A; 8. V

60. For each of the following situations related to determining the average weight of a National
Football League player, indicate how the appropriate sample size would change by using the
letter I (increase), D (decrease), or N (no change). Assume that all other factors are held
constant.
___ 1. The desired level of precision changes from 20 pounds to 10 pounds.
___ 2. The sampling risk increases from 5 percent to 10 percent.
___ 3. The number of football players in the population increases from 1,400 to 1,600.
___ 4. You initially want to estimate the weight for offensive linemen only but decide to in
include quarterbacks, running banks, and placekickers.
___ 5. Your initial sample estimate changes from 250 pounds to 230 pounds.

1. I; 2. D; 3. I; 4. I (because of an increase in the population variability); 5. N