Audit Sampling

Quiz 2
MULTIPLE CHOICE

1. Auditors who prefer statistical sampling to non-statistical

sampling may do so because statistical sampling helps the
auditor
a. Measure the sufficiency of the evidential matter
obtained.
b. Eliminate subjectivity in the evaluation of sampling
results.
c. Reduce the level of tolerable error to a relatively
low amount.
d. Minimize the failure to detect a material misstatement
due to non-sampling risk.

2. If all other factors in a sampling plan are held constant,

changing the measure of tolerable error to a smaller value
would cause the sample size to be:
a. Smaller.
b. Larger.
c. Unchanged.
d. Indeterminate.

3. Which of the following sampling plans would be designed to

estimate a numerical measurement of a population, such as a
dollar value?
a. Numerical sampling.
b. Discovery sampling.
c. Sampling for attributes.
d. Sampling for variables.

4. Based on a random sample, it is estimated that four percent,

plus or minus two percent, of a firm's invoices contain
errors. The plus or minus two percent is known as the
estimate's:
a. Precision.
b. Accuracy.
c. Confidence level.
d. Standard error.

5. In order to quantify the risk that sample evidence leads to

erroneous conclusions about the sampled population
 a. Each item in the sampled population must have an equal
chance of being selected.
b. Each item in the sampled population must have a chance
of being selected proportional to its book value.
c. Each item in the sampled population must have an equal
or known probability of being selected.
d. The precise number of items in the population must be
known.

6. Which of the following statements is not true regarding

audit risk assessment?
a. The auditor studies the business and industry and
applies analytical procedures as a basis for assessing
inherent risk.
b. When control risk and inherent risk are high, the
auditor increases detection risk to maintain overall
audit risk at the desired level.
c. The auditor studies and evaluates internal control
policies and procedures for assessing control risk.
d. The auditor designs substantive audit procedures to
reduce detection risk to an acceptable level.

7. Which of the following factors does an auditor generally

need to consider in planning a particular audit sample
for a control test?
a. Number of items in the population.
b. Total dollar amount of the items to be sampled.
c. Estimated standard deviation of the population.
d. Tolerable error.

8. Random numbers can be used to select a sample only when

each item in the population:
a. Can be assigned to a specific stratum.
b. Is independent of outside influence.
c. Can be identified with a unique number.
d. Is expected to be within plus or minus three standard
deviations of the population mean.

9. The tolerable occurrence rate for a control test is

generally
 a. Lower than the expected occurrence rate in the related
accounting records.
b. Higher than the expected occurrence rate in the
related accounting records.
c. Identical to the expected occurrence rate in the
related accounting records.
d. Unrelated to the expected occurrence rate in the
related accounting records.

10. An advantage of statistical over non-statistical sampling is

that statistical sampling:
a. Enables auditors to objectively measure the
reliability of their sample results.
b. Permits use of a smaller sample size than would be
necessary with non-statistical sampling.
c. Is compatible with a wider variety of sample selection
methods than is non-statistical sampling.
d. Allows auditors to inject their subjective judgment in
determining sample size and selection process in order
to audit items of greatest value and highest risk.

11. An auditor samples cash disbursement records for

significant errors of $5 or more. Upon finding one such
error, these records are scheduled for a complete
review. This conclusion is most likely based on a
a. Cluster sample.
b. Discovery sample.
c. Systematic sample.
d. Stratified sample.

12. Of the following statements, which one best differentiates

statistical sampling from nonstatistical sampling?
a. Statistical sampling is a mathematical approach to
inference, whereas nonstatistical sampling is a more
subjective approach.
b. Nonstatistical sampling has greater applicability to
large populations than does statistical sampling.
c. Nonstatistical sampling is more subjective, but
produces greater consistency in the application of
audit judgment.
d. Nonstatistical sampling has greater applicability to
populations that lend themselves to random selection.
13. In examining cash disbursements, an auditor plans to choose
a sample using systematic selection with a random start.
The primary advantage of such a systematic selection is that
population items
a. Which include errors will not be overlooked when the
auditor exercises compatible reciprocal
options.
b. May occur in a systematic pattern, thus making the
sample more representative.
c. May occur more than once in a sample.
d. Do not have to be prenumbered in order for the auditor
to use the technique.

14. When planning an attribute sampling application, the

difference between the expected occurrence rate and the
tolerable occurrence rate is the planned
a. Precision.
b. Reliability.
c. Dispersion.
d. Skewness.

15. If certain forms are not consecutively numbered

a. Selection of a random sample probably is not possible.
b. Systematic sampling may be appropriate.
c. Stratified sampling should be used.
d. Random number tables cannot be used.

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.

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.

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

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.

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).
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.

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.

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.

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.

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.

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.

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.

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.

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.
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.

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