Audit Sampling PSA 530 (Substantive Testing)

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1. C 4. Sampling risk that leads the auditor to conclude that a material misstatement exists when in fact it does not is
A. Risk of assessing control risk too low
B. Risk of assessing control risk too high
C. Risk of incorrect rejection
D. Risk of incorrect acceptance
2. C 5. Of the four erroneous conclusions from a sampling risk, the auditor is primarily concerned with
A. Risk of assessing control risk too low
B. Risk of assessing control risk too high
C. Risk of incorrect rejection
D. Risk of incorrect acceptance
3. B 6. Which is not true of an "Alpha risk" in sampling?
I. It is the risk of assessing control risk too high or the risk of incorrect rejection.
II. It relates to the effectiveness of the audit.
III. It usually leads the auditor to additional work to establish that initial conclusions were incorrect.
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
4. B 8. A misstatement or deviation that is demonstrably not representative of misstatements or deviations in a population
A. Sampling risk
B. Anomaly
C. Error
D. Corruption
5. B 9. The process of dividing a population into subpopulations, each of which is a group of sampling units which have similar
characteristics (often monetary value) is
A. Division
B. Stratification
C. Grouping
D. Characterization
6. B 10. The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk is
A. Sampling risk
B. Non-sampling risk
C. Audit risk
D. Detection risk
7. C 13. If the auditor is unable to apply the designed audit procedures, or suitable alternative procedures, to a selected item
I. The auditor shall treat that item as a deviation from the prescribed control in the case of tests of controls,
II. The auditor shall treat that item as a misstatement, in the case of tests of details
A. I only
B. II only
C. Both I and II
D. Neither I nor II
8. A 17. S1. With statistical sampling, items are selected in a way that each sampling unit has a known probability of being selected.
S2. With non-statistical sampling, judgment is used to select sample items.
A. True True
B. True False
C. False False
D. False True
9. D 18. Per PSA 530, the principal methods of selecting samples are (choose the exception)
A. Random selection
B. Systematic selection
C. Haphazard selection
D. Block selection
10. D 20. In a systematic selection, the number of sampling units in the population is divided by the sample size to give a sampling
interval, for example 50, and having determined a starting point within the first 50, each 50th sampling unit thereafter is selected.
Which of the following is incorrect about the systematic selection technique?
A. The starting point in this technique may be determined haphazardly.
B. The sample is more likely to be truly random if it is determined by use of a computerized random number generator or random
number tables.
C. The auditor would need to determine that sampling units within the population are not structured in such a way that the
sampling interval corresponds with a particular pattern in the population.
D. If an audit procedure is not applicable on a unit in the sample selected, the auditor treats it as an error.
11. D 21. Which is incorrect regarding stratification?
A. Audit efficiency is improved because its objective is to reduce the variability of items within each stratum and therefore allow
sample size to be reduced without increasing sampling risk.
B. In performing test of details, it allows greater audit effort to be directed to the larger value items, as these items may contain
the greatest potential misstatement in terms of overstatement.
C. If, say, 20% of the items in a population makes up 905 of value of an account balance, the auditor may decide to examine a
sample of these items, evaluates the results of this sample and reaches a conclusion on the 905 of value separately from the
remaining 105 (on which a further sample or other means of gathering audit evidence will be used, or which may be considered
immaterial).
D. The results of audit procedures applied to a sample of items within a stratum can be projected to the entire population.
12. B 22. Per PSA 530, one benefit of this approach to defining the sampling unit is that audit effort directed to the larger value items
because they have a greater chance of selection, and can result I smaller sample sizes.
A. Stratification
B. Value-weighted selection
C. Random selection
D. Haphazard selection
13. C 25. Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a
peso value?
A. Attribute sampling
B. Stop-or-go sampling
C. Variables sampling
D. Random-number sampling
14. A 26. If the auditor is concerned that a population may contain exceptions, the determination of a sample size sufficient to include
at least one such exception is a characteristic of
A. Discovery sampling
B. Variables sampling
C. Random sampling
D. Peso-unit sampling
15. A 27. The relationship between the sampling risk that the auditor is willing to accept and the sample size is selected is
A. Inverse
B. Direct
C. Parallel
D. Indeterminate
16. A 28. 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 is
A. Tolerable misstatement
B. Tolerable rate of deviation
C. Anomaly
D. Expected misstatement
17. C 33. How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of
details?
Increase in tolerable misstatement Increase in assessed level of control risk
A. Increase sample size Increase sample size
B. Increase sample size Decrease sample size
C. Decrease sample size Increase sample size
D. Decrease sample size Decrease sample size
18. B 35. Per PSA 530, projection of sample results to the population, is only necessary in the case of
A. Deviations (test of controls)
B. Misstatement (test of details)
C. A or B
D. Neither A nor B
19. C 5. An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions and is
therefore not representative of errors in the population is called
a. Sampling error. c. Anomalous error.
b. Non-sampling error. d. Projected error.
20. A 6. Which of the following is true about sampling and non-sampling risks?
a. Sampling risk can be reduced by increasing sample size.
b. Sampling risk cannot be eliminated.
c. Non-sampling risk can be eliminated by proper engagement planning, supervision, and
review.
d. Non-sampling risk arises from the possibility that the auditor's conclusion, based on a
sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure.
21. B 7. Which statement is incorrect about sampling risk?
a. Sampling risk arises from the possibility that the auditor's conclusion, based on a sample
may be different from the conclusion reached if the entire population were subjected to the
same audit procedure.
b. Risk of assessing control risk too low and risk of incorrect acceptance affects audit effectiveness as it would usually lead to
additional work to establish that initial conclusions were incorrect.
c. The mathematical complements of sampling risks are termed confidence levels.
d. Risk of assessing control risk too high is the risk that the auditor will conclude, in the case
of a test of control, that control risk is higher than it actually is.
22. D 9. Each time an auditor draws a conclusion based on evidence from a sample, an additional risk, sampling risk, is introduced. An
example of sampling risk is
a. Projecting the results of sampling beyond the population tested.
b. Properly applying an improper audit procedure to sample data.
c. Improperly applying a proper audit procedure to sample data.
d. Drawing an erroneous conclusion from sample data.
23. A 10. 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 characteristic 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.
24. C 12. A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a
a. Representative sample c. Random sample
b. Statistical sample d. Judgment sample
25. C 13. 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 c. Systematic selection
b. Random selection d. Computerized selection
26. D 14. 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 selection c. Systematic selection
b. Random selection d. Haphazard selection
27. C 15. Which of the following statistical selection techniques is least desirable for use by an auditor? a. Systematic selection c. Block
selection
b. Stratified selection d. Sequential selection
28. B 1. "Whenever a sample is taken, there is a risk that the quantitative conclusions about the population will be incorrect."
a. This is always true.
b. This is always true unless 100 percent of the population is tested.
c. This is true for statistical sampling, but not for non-statistical sampling. d. This is true for non-statistical sampling but not for
statistical sampling.
29. C 2. Which of the following sampling methods is used to estimate a numerical measurement of a population, such as a dollar value?
a. Attribute sampling. c. Variables sampling. b. Stop-or-go sampling. d. Random-number sampling.
30. D 3. In applying variables sampling, an auditor attempts to
a. Estimate a qualitative characteristic of interest.
b. Determine various rates of occurrence for specified attributes.
c. Discover at least one instance of a critical deviation.
d. Predict a monetary population value within a range of precision.
31. C 4. Several risks are inherent in the evaluation of audit evidence that has been obtained through the use of statistical sampling. An
example of a beta or Type II error related to sampling risk is the failure to
a. Properly define the population to be sampled.
b. Draw a random sample from the population.
c. Reject the statistical hypothesis that a book value is not materially misstated when the true book value is materially misstated.
d. Accept the statistical hypothesis that the book value is not materially misstated when the true book value is not materially
misstated.
32. A 5. As lower acceptable levels of both audit risk and materiality are established, the auditor should plan more work on individual
accounts to
a. Find smaller misstatements. c. Increase the tolerable misstatement in the accounts. b. Find larger misstatements. d. Decrease the
risk of assessing control risk too low.
33. B 6. In performing substantive tests, the auditor is concerned with two risks or errors of sampling:

1. The risk of incorrect rejection (an alpha or Type I error)

2. The risk of incorrect acceptance (a beta or Type II error)

Which of the following is true about alpha and beta errors?

a. The alpha error is of greater concern to the auditor than the beta error.
b. The beta error is of greater concern to the auditor than the alpha error.
c. The beta error and the alpha error are of equal importance to the auditor.
d. Neither the alpha error nor the beta error need be considered by the auditor.
34. C 7. While performing a substantive test of details during an audit, the auditor determined that the sample results supported the
conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation
illustrates the risk of
a. Assessing control risk too low.
c. Incorrect rejection.
b. Assessing control risk too high.
d. Incorrect acceptance.
35. C 8. Conducting a substantive test of an account balance, an auditor hypothesis that no material misstatement exists. The risk that
sample results will support the hypothesis when a material misstatement actually does exist is the risk of
a. Incorrect rejection. c. Incorrect acceptance.
b. Alpha error. d. Type I error.
36. D 9. The risk of incorrect acceptance and the risk of assessing control risk too low relate to the a. Preliminary estimates of
materiality levels c. Efficiency of the audit
b. Allowable risk of tolerable error d. Effectiveness of the audit
37. A 10. When would difference estimation or ratio estimation sampling methods be inappropriate?
a. If differences between the book values and audit values of a population are rare.
b. If the average difference between the audit value and book value of a population is small. c. If differences between the book
value and audit value of a population are numerous.
d. If the average difference between the audit value and book value of a population is large.
38. C 11. Which of the following most likely would be an advantage in using classical variables sampling rather than probability-
proportional-to-size (PPS) sampling.
a. An estimate of the standard deviation of the population's recorded amounts is not required. b. The auditor rarely needs the
assistance of a computer program to design an efficient
sample.
c. Inclusion of zero and negative balances generally does not require special design considerations.
d. Any amount that is individually significant is automatically identified and selected.
39. C 12. An auditor is preparing to sample accounts receivable for overstatement. A statistical sampling method that automatically
provides stratification when using systematic selection is
a. Attribute sampling. c. Probability proportionate to size sampling
b. Ratio-estimation sampling. d. Mean-per-unit (MPU) sampling.
40. A 13. An auditor wishes to sample 200 sales receipts from a population of 5,000 receipts issued during the last year. The receipts
have preprinted serial numbers and are arranged in chronological (and thus serial number) order. The auditor randomly chooses
a receipt from the first 25 receipts and then selects every 25th receipt thereafter. The sampling procedure described here is
called
a. Systematic random sampling. c. Judgment interval sampling. b. Monetary-unit sampling. d. Variables sampling.
41. B 14.Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific
account?
Expected amount of misstatements Measure of tolerable misstatement
a. No No
b. Yes Yes
c. No Yes
d. Yes No
42. B 15. Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the
auditor is aware of several unusually large cash disbursements?
a. Set the tolerable rate deviation at a lower level than originally planned.
b. Stratify the cash disbursements population so that the unusually large disbursements are selected.
c. Increase the sample size to reduce the effect of the unusually large disbursements.
d. Continue to draw new samples until all the unusually large disbursements appear in the sample.
43. A 16. In statistical sampling methods used in substantive testing, when would an auditor most likely stratify a population into
meaningful groups?
a. If the population has highly variable recorded amounts.
b. If probability proportional to size sampling is used.
c. If the auditor's estimated tolerable misstatement is extremely small. d. If the standard deviation of recorded amounts is
relatively small.
44. C 17. How would increases in tolerable misstatement and assessed level of control risk affect the
sample size in a substantive test of details? Increase in tolerable misstatement, Increased in assessed level of control risk
a. Increase sample size, Increase sample size
b. Increase sample size, Decrease sample size
c. Decrease sample size, Increase sample size
d. Decrease sample size, Decrease sample size
45. B 19.An auditor is applying a difference estimation sampling plan. Recorded book value is P1,000,000 and the auditor estimates a
P75,000 understatement difference. In this case, the auditor's estimated population value is
a. P925,000 b. P1,075,000 c. P1,000,000 d. P1,025,000
46. A 20.An auditor is applying mean-per-unit estimation. Assuming estimated audited value is P950,000, the achieved allowance for
sampling risk is P75,000, and recorded book value is P925,000, what is the auditor's conclusion?
a. Recorded book value is not likely misstated by a material amount.
b. Recorded book value is misstated by a material amount.
c. Recorded book value is not likely misstated by a material amount, assuming the client
records an adjusting journal entry equal to the allowance for sampling risk. d. There is insufficient evidence to reach a conclusion.
47. C 21. In a probability-proportional-to-size sample interval of P10,000, an auditor discovered that a selected account receivable with
a recorded amount of P5,000 had an audit amount of P2,000. The projected error of this sample is
a. P3,000 b. P4,000 c. P6,000 d. P8,000
48. A 22. An auditor is evaluating the results of a variables sampling plan. Which of the following is not relevant to the auditor's
judgment about the sample?
a. Management's explanations for why errors in the sample occurred.
b. Projecting the sample error to the population.
c. Considering the effects of sampling risk.
d. Qualitative information that lends insight into errors found.
49. A 23. When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the
possible error in either direction. This statistical concept is known as
a. Precision. c. Projected error.
b. Reliability. d. Standard deviation.
50. D 1. In applying variables sampling, an auditor attempts to
a. Estimate a qualitative characteristic of interest.
b. Determine various rates of occurrence for specified attributes. c. Discover at least one instance of a critical error.
d. Predict a monetary population value within a range of precision.
51. C 2. The measure of variability of a statistical sample that serves as an estimate of the population variability is the
a. Basic precision. b. Range. c. Standard deviation. d. Interval.
52. B 3. An auditor selects a statistical sample from a large inventory of replacement parts. Which of the following audit objectives
would be most appropriate if the sampling method used is probability proportional to size (PPS)?
a. The auditor plans to estimate the total dollar value of the inventory when a recorded book value does not exist.
b. The auditor plans to make a statement concerning the total dollar amount of error in the population from the recorded book
value.
c. The auditor wishes to accept or reject the hypothesis that the proportion of defective parts in the population is less than 5%.
d. The auditor wishes to estimate the proportion of defective parts in the population.
53. B 4. Precision is defined as the range (plus or minus) within which the true answer most likely falls. Reliability, also referred to as the
confidence level, is the likelihood that the sample range contains the true value. Of the following statements concerning precision
and reliability, which one is not true?

a. Precision is set by the auditor and is a function of materiality and risk.

b. The narrower the range of precision, the smaller the sample size.
c. An increase in control risk, other parameters remaining unchanged, causes a narrowing of the precision range.
d. Overall audit risk is the complement of reliability.
54. B 5. In an application of mean per unit sampling, the following information has been obtained:

Reported book value $600,000

Point estimate (estimated total value) 591,000 Allowance for sampling risk (precision) +-22,000
Tolerable error +- 45,000

The appropriate conclusion would be that the reported book value is

a. Acceptable only if the risk of incorrect rejection is at least twice the risk of incorrect acceptance.
b. Acceptable. c. Not acceptable. d. Acceptable only if the risk of incorrect acceptance is at least twice the risk of incorrect
rejection.
55. C 6. Sampling risk refers to the possibility that:
a. The auditor may use a less than optimal statistical method for the circumstances, e.g. difference estimation instead of ratio
estimation.
b. The auditor may fail to recognize an error that is included in the sample. c. Even though a sample is properly chosen, it may not
be representative of the population.
d. The confidence level and/or precision established by the auditor are not appropriate.
56. C 7. The primary reason for an auditor to use statistical sampling is to
a. Obtain a smaller sample than would be required by non-statistical sampling techniques.
b. Obtain a sample more representative of the population than would be obtained by non-statistical sampling techniques.
c. Allow the auditor to quantify, and therefore control, the risk of making an incorrect decision based on sample evidence. d.
Meet requirements of Statements on Auditing Standards.
57. A 8. The variability of a population, as measured by the standard deviation, is the
a. Extent to which the individual values of the items in the population are spread about the mean.
b. Degree of asymmetry of a distribution. c. Tendency of the means of large samples (at least 30 items) to be normally distributed.
d. Measure of the closeness of a sample estimate to a corresponding population characteristic.
58. C 9. Management has asked the internal auditing staff to evaluate the efficiency of the accounts payable system, particularly
whether it would be economically feasible to reduce the number of discounts lost through slow payment. The audit staff decides
that it needs to determine the amount currently being lost and can do so by taking a sample from payments made in the last six
months, examining each, and recording the amount, if any, of the discount lost. This information can be used to project the total
amount of discounts lost for the period. This proposed plan is an example of
a. Attribute sampling. b. Acceptance sampling. c. Variables sampling. d. Discovery sampling.
59. A 10. During an audit involving testing of accounts receivable balances, an auditor decides to specify a precision interval of
$100,000 instead of the $200,000 precision interval that was called for in the sampling plan contained in the audit program. Which
of the following would be a result of the auditor's decision to narrow the precision interval?
a. An increase in the required sample size. b. A decrease in the required sample size. c. An increase in the population standard
deviation.
d. A decrease in the population standard deviation.
60. D 11. To determine the number of items to be selected in a sample for a particular substantive test of details, the auditor should
consider all of the following except
a. Tolerable error. b. Expected error. c. Allowable risk of incorrect acceptance. d. Characteristics of the population.
61. A 12. Sample size
a. Increases with the use of higher confidence levels.
b. Decreases with the use of higher confidence levels.
c. Remains unchanged with changes in confidence levels.
d. Increases with the use of lower confidence levels.
62. C 13. In sampling for variables, which of the following must be known in order to estimate the appropriate sample size required to
meet the auditor's needs in a given situation?
a. The total amount of the population. b. The desired standard deviation. c. The desired confidence level. d. The estimated rate of
error in the population.
63. C 14. In a variables sampling application, which of the following will result when the confidence level is changed from 90% to 95%?
a. Standard error of the mean will not be affected.
b. Non-sampling error will decrease. c. Sample size will increase. d. Point estimate of the arithmetic mean will increase.
64. C 15. An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items. From past experience, the auditor
knows that a few specific items are subject to unusually large amounts of shrinkage. In using statistical sampling, the auditor's best
course of action is to
a. Eliminate any of the items known to be subject to unusually large amounts of shrinkage.
b. Increase the sample size to lessen the effect of the items subject to unusually large amounts of shrinkage.
c. Stratify the inventory population so that items subject to unusually large amounts of shrinkage are reviewed separately. d.
Continue to draw new samples until a sample is drawn which includes none of the items known to be subject to large amounts of
shrinkage
65. C 16. In conducting a substantive test of an account balance, an auditor hypothesizes that no material error exists. The risk that
sample results will support the hypothesis when a material error actually does exist is the risk of
a. Incorrect rejection. b. Alpha error. c. Incorrect acceptance. d. Type I error.
66. A 17. 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 characteristic 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.
67. B 18. Using the following results from a variables sample, compute the achieved precision:

Population size = 10,000 Sample size = 144 Sample standard deviation = $24.00 Confidence level = 90% (Z = 1.65) Mean = $84.00

a. $5,702 b. $33,000 c. $20,000 d. $16,500

68. C 19. Which of the following sampling plans would be designed to estimate a numerical measurement of a population, such as a
dollar value?
a. Discovery sampling. b. Numerical sampling. c. Sampling for variables. d. Sampling for attributes.
69. B 20. An auditor is using the mean-per-unit method of variables sampling to estimate the correct total value of a group of inventory
items. Based on the sample, the auditor estimates with precision of +-4% and confidence of 90% that the correct total is $800,000.
This means that:
a. There is a 4% chance that the actual correct total is less than $720,000 or more than $880,000.
b. There is a 10% chance that the actual correct total is less than $768,000 or more than $832,000.
c. The probability that the inventory is not significantly overstated is between 6% and 14%.
d. The inventory is not likely to be overstated by more than 4.4% ($35,200) nor understated by more than 3.6%($28,800).
70. A 21. Which of the following statements is correct concerning the auditor's use of statistical sampling?
a. An auditor needs to estimate the dollar amount of the standard deviation of the population to use classical variables sampling.
b. An assumption of PPS sampling is that the underlying accounting population is normally distributed.
c. A classical variables sample needs to be designed with special considerations to include negative balances in the sample. d.
The selection of zero balances usually does not require special sample design considerations when using PPS sampling.
71. C 22. Which of the following statements concerning alpha and beta risk is true?
a. As alpha risk increases, beta risk decreases.
b. As inherent risk and/or control risk increase, beta risk should also increase.
c. As inherent risk and/or control risk increase, beta risk should decrease.
d. As a "rule of thumb," the auditor generally sets beta risk equal to or less than 10%, inasmuch as it is the basis for the audit
opinion.
72. A 23. Statistical samples as compared to non-statistical samples permit the auditor to
a. Quantify and control sampling risk. b. Eliminate non-sampling errors of every type.
c. Obtain smaller sample sizes in all cases. d. Use less complex formulas than those required to evaluate non-statistical samples.
73. C 24. Probability-proportional-to-size (PPS) sampling is less efficient if
a. Computerized account balances are being audited.
b. Statistical inferences are to be made.
c. The audit objective is oriented to understatements.
d. The account contains a large number of transactions.
74. D 25. A number of factors influences the sample size for a substantive test of details of an account balance. All other factors being
equal, which of the following would lead to a larger sample size?
a. Lowering of assessed level of control risk. b. Lowering of assessed inherent risk through use of analytical review procedures. c.
Smaller expected frequency of errors. d. Smaller measure of tolerable error.
75. A 26. For variables sampling purposes, changes in certain parameters affect sample size positively while changes in others have a
negative effect. In this regard, which of the following statements is true?
a. An increase in beta risk reduces sample size.
b. Population size affects sample size inversely, i.e., as population size increases, sample size decreases.
c. An increase in alpha risk increases sample size.
d. As materiality (M) increases, sample size increases.
76. D 27. A population that is physically separated into two or more groups based on the sample variation being less than that for the
entire population is called a
a. Systematic sample. b. Judgment sample. c. Simple random sample. d. Stratified sample.
77. B 28. The standard deviation of a sample will usually decrease with
a. A decrease in sample size. b. The use of stratification. c. An increase in desired precision. d. An increase in confidence level.
78. B 29. An auditor is primarily concerned with substantial overstatements of accounts receivable balances and expects few, if any,
errors. In an effort to concentrate on the large dollar values, the auditor would logically employ
a. Ratio estimation. b. Probability proportional to size sampling
c. Discovery sampling. d. Mean per unit sampling.
79. D 30. Consider the following sampling plan: An auditor took a sample of 30 receiving reports completed in the last 12 months. The
receiving reports were filed along with their corresponding requisitions and purchase orders by the date on which the goods
were moved from the receiving department to their storage area in the warehouse. Sampling from a five-place random digit
table, the first two digits were used to determine the month (from 1 to 12) and the next two digits to determine the day of the
month (from 1 to 31). The auditor discarded random numbers for which corresponding dates did not exist or on which the
warehouse was closed. For each selected date the auditor then took as the sample item the second report in the file for that day.
Can the auditor rely on the statistical inference of this test?
a. Yes, because the plan eliminated any possible deliberate or unconscious bias in the auditor's selection of the sample items. b.
Yes, because a random number table was used to make the selection. c. No, because the auditor sampled without replacement.
d. No, because all items do not have an equal chance of being selected.
80. D 31. In testing accounts receivable, an auditor sends out positive confirmation requests to 100 randomly selected customers. A
customer returns the confirmation indicating that the balance is correct when, in fact, the balance is overstated. This is an example
of
a. Tainting. b. Sampling error. c. Standard error. d. Non-sampling error.
81. A 32. An auditor wishes to use stratified sampling to estimate the book value of a large accounts receivable file. The auditor has a
complete listing of the file in account number order. The listing is several pages long and includes the account balance of each
customer. Several customers have very large account balances while most balances are small. Which of the following would be
the most appropriate means of classifying members of this population into strata?
a. Account balance. b. Account number. c. Alphabetically by name. d. Numerically by pages of the listing.
82. B 33. Auditors who prefer statistical to non-statistical sampling believe that the principal advantage of statistical sampling flows
from its unique ability to
a. Define the precision required to provide adequate satisfaction. b. Provide a mathematical measurement of risk.
c. Establish conclusive audit evidence with decreased audit effort. d. Promote a more legally defensible procedural approach.
83. C 34. In a probability-proportional-to-size sample with a sampling interval of $10,000, an auditor discovered that a selected account
receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected error of this sample was
a. $3,000 b. $4,000 c. $6,000 d. $8,000
84. C 35. An auditor selects a preliminary sample of 100 items out of a population of 1,000 items. The sample statistics generate an
arithmetic mean of $60, a standard deviation of $6, and a standard error of the mean of $.60. If the sample was adequate for the
auditor's purposes and the auditor's desired precision was plus or minus $1,000, the minimum acceptable dollar value of the
population would be
a. $61,000. b. $60,000. c. $59,000. d. $58,800.
85. C 36. During the audit of inventories an external auditor specified a precision of five percent instead of the four percent contained
in the preliminary audit program. What would be the impact of the change in precision?
a. A decrease in population standard deviation. b. An increase in population standard deviation. c. A decrease in required sample
size. d. An increase in required sample size.
86. B 37. The inventory of a subsidiary consists of 12,980 items valued at $19,625,000. The inventory data are not available in computer
readable form, but are contained in 217 pages of printout with 60 lines per page. Each page has a page total. Based on the last
audit, the auditor expects there to be a few errors of overstatement. The most efficient
sampling technique to test the reasonableness of the stated value is
a. Stratified mean-per-unit estimation. b. Probability proportional to size sampling (PPS) c. Difference estimation. d. Ratio
estimation.
87. A 38. Statistical sampling would be appropriate to estimate the value of an auto dealer's 3,000 line-item inventory because
statistical sampling is:
a. Reliable and objective. b. Thorough and complete. c. Thorough and accurate. d. Complete and precise.
88. D 39. In a variables estimation application involving a book value of $550,000, with a tolerable error of specified precision limits of
plus or minus $50,000, the auditor has calculated a point estimate of the population value to be $490,000. At the 95% reliability
level, sample results indicate an achieved precision of plus or minus $50,000. Based on these data, the auditor would
a. Conclude that the book value is acceptable at the 95% reliability level. b. Reject the book value and extend control testing. c.
Conclude that the book value is acceptable at a level of reliability higher than 95%. d. Extend substantive testing.
89. C 40. What effect does an increase in the standard deviation have on the required sample size of mean-per-unit estimation and
probability proportional to size sampling? Assume no change in any of the other characteristics of the population and no change
in desired precision and confidence.
Mean-per-unit Estimation PPS

a. Decrease in sample size No change in sample size

b. No change in sample size Decrease in sample size c. Increase in sample size No change in sample size
d. No change in sample size Increase in sample size
90. B 41. Use of the difference estimation sampling technique to estimate dollar amounts is inappropriate when
a. The total book value is known and corresponds to the sum of all the individual book values. b. A book value for each sample
item is unknown. c. There are some observed differences between audited values and book values. d. The audited values are
nearly proportional to the book value.
91. D 42. Select the description which illustrates sampling risk.
a. Applying audit procedures which are inappropriate for the audit objectives. b. Failing to recognize errors 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.
92. D 43. A bank auditor is interested in estimating the average account balance of its depositors based on a sample. This substantive
test is an example of
a. Attribute sampling. b. Discovery sampling. c. Acceptance sampling. d. Variables sampling.
93. B 42. What effect does obtaining a sample with a standard deviation larger than that estimated during planning have on the
adjusted allowance for sampling risk?
A. Increases.
B. Decreases.
C. No effect.
D. Indeterminate.
94. C 18. If the projected misstatement in a nonstatistical sampling is $8,000, while the tolerable misstatement is $9,000, what would an
auditor likely conclude?
A. Since the projected misstatement is less than the tolerable misstatement, the account is not misstated.
B. Since the projected misstatement is less than the tolerable misstatement, the account is misstated.
C. The risk is high that the account is materially misstated.
D. The analysis has been improperly performed since the projected misstatement is unequal to the tolerable misstatement.
95. B 49. Which of the following is a correct statement with respect to evaluating results when using nonstatistical sampling for
substantive tests?
A. When the projected misstatement exceeds the tolerable misstatement, the auditor should conclude that the population is not
misstated.
B. The closer the projected misstatement is to the tolerable misstatement, the higher the risk of material misstatement.
C. When the projected misstatement is equal to zero, the auditors may conclude with certainty that no misstatements exist in the
account.
D. When the projected misstatement percentage exceeds the risk of incorrect acceptance the auditors will generally conclude
that the population is materially misstated.
96. D 50. Assume a mean-per-unit estimation variables sampling application with a tolerable misstatement of $70,000 and a book value
of $700,000. After performing the sampling plan, the auditors calculated an adjusted allowance for sampling risk of $45,000 and
a point estimate of the population's total audited value to be $650,000. Based on these results, the auditor would:
A. Because the tolerable misstatement exceeds the adjusted allowance for sampling risk, conclude that the population does not
contain a material misstatement.
B. Because the total audited value ± tolerable misstatement includes the book value, conclude that the population does not
contain a material misstatement.
C. Because the tolerable misstatement exceeds the adjusted allowance for sampling risk, conclude that there is too great a risk
that the account balance is materially misstated.
D. Because the total audited value ± adjusted allowance for sampling risk does not include the book value, conclude that there is
too great a risk that the account balance is materially misstated.
97. C 51. Assume a mean-per-unit estimation variables sampling application with a tolerable misstatement of $70,000 and a book value
of $700,000. After performing the sampling plan, the auditors calculated an adjusted allowance for sampling risk of $45,000 and
a point estimate of the population's total audited value to be $640,000. The projected misstatement based on this sample is:
A. $ 5,000
B. $45,000
C. $60,000
D. $70,000
98. A 52. The auditors have audited a sample with a standard deviation of audited values larger than they had originally estimated. In
this situation, to maintain the risk of incorrect acceptance at its predetermined level without increasing the size of the sample,
which of the following statements is correct?
A. The adjusted allowance for sampling risk will be smaller than had been planned.
B. The adjusted allowance for sampling risk will be larger than had been planned.
C. The risk of incorrect rejection will necessarily decrease.
D. The size of the population must be decreased.
99. B 53. In the past, the auditors have found that the book value of a receivable account has been related to the amount the account
is misstated (i.e., large accounts have large misstatements and small accounts have small misstatements). Which of the following
techniques is most likely to be efficient?
A. Mean-per-unit estimation.
B. Ratio estimation.
C. Difference estimation.
D. Sequential sampling estimation.
100. D 54. Which of the following statements is correct concerning the use of nonstatistical sampling for substantive tests?
A. Its use is generally acceptable only for populations with an immaterial book value.
B. It requires the use of structured sample size selection techniques to be acceptable.
C. It may be especially useful in circumstances in which the combination of inherent and control risk is at the maximum level.
D. Results will be projected to the population.
101. A 55. Which of the following situations will result in the auditors concluding that the risk of material misstatement is too high when
using nonstatistical sampling for substantive tests?
A. The projected misstatement exceeds the tolerable misstatement.
B. The allowance for sampling risk exceeds the projected misstatement.
C. The risk of incorrect acceptance exceeds the risk of incorrect rejection.
D. The tolerable misstatement exceeds the sample net misstatement.
102. D 56. During the final planning of the accounts receivable program a CPA specified a tolerable misstatement of $30,000, instead of
the $20,000 contained in the preliminary audit program. What would be the impact of this change?
A. A decrease in population standard deviation.
B. An increase in sample standard deviation.
C. An increase in required sample size.
D. A decrease in the required sample size.
103. D 57. Which of the following is an advantage of systematic selection over random number selection?
A. It provides a stronger basis for statistical conclusions.
B. It enables the auditor to use the more efficient "sampling with replacement" tables.
C. There may be correlation between the location of items in the population, the feature of sampling interest, and the sampling
interval.
D. It does not require establishment of correspondence between random numbers and items in the population.
104. C 63. An auditor wishes to estimate inventory shrinkage by weighing a sample of inventory items. From experience, the auditor
knows that a few specific items are subject to unusually large amounts of shrinkage. In using statistical sampling, the auditor's best
course of action is to:
A. Eliminate any of the items known to be subject to unusually large amounts of shrinkage.
B. Increase the sample size to lessen the effect of the items subject to unusually large amounts of shrinkage.
C. Stratify the inventory population so that items subject to unusually large amounts of shrinkage are reviewed separately.
D. Continue to draw new samples until a sample is drawn which includes none of the items known to be subject to large amounts
of shrinkage.
105. C 66. When using a statistical sampling plan, the auditors would probably require a smaller sample if the:
A. Population increases.
B. Desired allowance for sampling risk decreases.
C. Desired risk of incorrect acceptance increases.
D. Expected deviation rate increases.
106. A 69. In assessing sampling risk, the risk of incorrect rejection and the risk of assessing control risk too high relate to the:
A. Efficiency of the audit.
B. Effectiveness of the audit.
C. Selection of the sample.
D. Audit quality controls.
107. B 71. While performing a substantive test of details during an audit, the auditor determined that the sample results supported the
conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. This situation
illustrates the risk of:
A. Incorrect acceptance.
B. Incorrect rejection.
C. Assessing control risk too high.
D. Assessing control risk too low.
108. B 73. There are many kinds of statistical estimates that an auditor may find useful, but basically every statistical estimate in auditing
is of either a quantity or of an error rate. The statistical terms that roughly correspond to "quantities" and "occurrence rate",
respectively, are:
A. Attributes and variable.
B. Variables and attributes.
C. Constants and attributes.
D. Constants and variables.
109. D 76. Various factors influence the sample size for a substantive test of details of an account balance. All other factors being equal,
which of the following would lead to a larger sample size?
A. Lower assessment of control risk.
B. Greater reliance on analytical procedures.
C. Smaller expected frequency of misstatements.
D. Smaller measure of tolerable misstatement.
110. B 77. An important statistic to consider when using a statistical sampling audit plan is the population variability. The population
variability is measured by the:
A. Sample mean.
B. Standard deviation.
C. Standard error of the sample mean.
D. Estimated population total minus the actual population total.
111. D 78. In variables estimation sampling, the sample standard deviation is used to calculate the
A. Point estimate of central tendency.
B. Tainting of the sample interval.
C. Risk of incorrect acceptance.
D. Adjusted allowance for sampling risk.
112. B 79. Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate when:
A. The total book value is known and corresponds to the sum of all the individual book values.
B. A book value for each sample item is unknown.
C. There are some observed differences between audited values and book values.
D. The audited values are nearly proportional to the book value.