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MULTIPLE CHOICE:

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. d

serves as an estimate of the population variability is

the

a. Basic precision.

b. Range.

c. Standard deviation.

d. Interval. c

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. b

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

161 Chapter 10 Statistical Sampling for Substantive Testing

d. Overall audit risk is the complement of reliability. b

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. b

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. c

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. c

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

Chapter 10 Statistical Sampling for Substantive Testing 162

d. Measure of the closeness of a sample estimate to a

corresponding population characteristic. a

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. c

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. a

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. d

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. a

known in order to estimate the appropriate sample size

required to meet the auditor's needs in a given

163 Chapter 10 Statistical Sampling for Substantive Testing

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. c

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. c

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. c

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. c

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

Chapter 10 Statistical Sampling for Substantive Testing 164

d. The documents related to the chosen sample may not be

available for inspection. a

the achieved precision:

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 b

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. c

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). b

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

165 Chapter 10 Statistical Sampling for Substantive Testing

in the sample.

d. The selection of zero balances usually does not require

special sample design considerations when using PPS

sampling. a

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. c

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. a

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. c

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. d

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.

Chapter 10 Statistical Sampling for Substantive Testing 166

d. As materiality (M) increases, sample size increases. a

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. d

with

a. A decrease in sample size.

b. The use of stratification.

c. An increase in desired precision.

d. An increase in confidence level. b

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. b

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.

167 Chapter 10 Statistical Sampling for Substantive Testing

d. No, because all items do not have an equal chance of

being selected. d

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. d

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. a

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. b

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 c

Chapter 10 Statistical Sampling for Substantive Testing 168

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. c

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. c

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. b

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. a

of $550,000, with a tolerable error of specified precision

limits of plus or minus $50,000, the auditor has

169 Chapter 10 Statistical Sampling for Substantive Testing

$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. d

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

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 c

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. b

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.d

account balance of its depositors based on a sample.

This substantive test is an example of

a. Attribute sampling.

b. Discovery sampling.

Chapter 10 Statistical Sampling for Substantive Testing 170

c. Acceptance sampling.

d. Variables sampling.d

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