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Chapter 8. Specialized Audit Tools, Sampling and Generalized Audit Software

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Chapter 8. Specialized Audit Tools, Sampling and Generalized Audit Software/ Chapter 8. Specialized Audit Tools: Sampling and Generalized Audit Software 1. Audit sampling implies the gathering of evidence to use as a basis for making valid inferences about the characteristics of the population as a whole without examining every transaction. True False 2. Audit sampling is the application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic. True False 3. When performing substantive tests using sampling methods, the auditor's main concern is the risk of incorrect rejection. True False 4. The risk of incorrect acceptance of an account balance as correct, when in fact it is not correct, bears directly on the effectiveness of an audit. True False 5. The tolerable misstatement is the confidence level needed to infer population values. True False 6. Statistical sampling is used when an auditor chooses to examine all purchases of equipment exceeding $1,000.00 and to test the remaining items by analytical procedures. True False 7. The most efficient method of testing a large population is the use of non-statistical sampling. True False 8. Statistical sampling assists auditors in determining the sufficiency of evidence gathered. True False 9. When testing controls, the use of haphazard selection of a sample allows for random, statistical evaluation. True False 10. The tolerable failure rate is the level at which the control’s failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor’s planned assessment of control risk in performing tests of account balances.. True False 11. The expected population deviation rate is the auditor's best estimate of the percentage of transactions processed for which a control is not effectively applied. True False 12. An attribute is defined as a characteristic of the population of interest to the auditor. True False 13. The sample size decreases as the risk over over-reliance decreases. True False 14. For tests of controls, the most commonly used statistical method is attribute sampling. True False 15. Increasing the expected failure rate will cause the sample size to increase. True False 16. Sample size varies directly with sampling risk. True False 17. An auditor uses sampling to determine the reasonableness of an account balance by performing detailed analysis of the selected items making up the account balance. True False 18. The auditor must define the population to which sampling relates if the auditor is to use statistical sampling for substantive tests of account balances. True False 19. The individual auditable elements defined by the auditor are the sampling units. True False 20. The most common statistical approaches for substantive testing are classical variables sampling and MUS. True False 21. Non-statistical samples should be based on the same audit considerations as those used for statistical sampling. True False 22. Random sampling can be used to determine sample size or evaluate sampling results even if the auditor does not plan on using statistical sampling. True False 23. Either nonstatistical or statistical sampling is appropriate for substantive tests of details. True False 24. Monetary unit sampling (MUS) sampling is designed to test whether there is an acceptable risk of account balance understatement. True False 25. Monetary unit sampling (MUS) results in an efficient sample size and concentrates on the dollar value of the account balances. True False 26. Sample size in a MUS sample is a function of risk of incorrect acceptance, tolerable misstatement, and expected misstatement. True False 27. The population for MUS is defined as the number of dollars in the population being tested. True False 28. Sampling risk is defined as the risk that an inference drawn from a sample will be incorrect. True False 29. Projected misstatements are developed by extrapolation from the misstatements in sample items to the population. True False 30. When evaluating an MUS sample, if the auditor finds no misstatements in the sample, the misstatement projection is zero dollars, and the total estimated misstatement will equal the projected misstatement for items in lower-stratum. True False 31. Population items with zero balances have no chance of being selected using PPS sampling. True False 32. Population items with a zero balance have the same chance of being chosen as those with dollar balances when using MUS sampling. True False 33. Evaluating statistical sample results is one of the tasks that can be performed by GAS. True False 34. The population is a group of items in an account balance that the auditor wants to test. True False 35. Tolerable misstatement is the maximum amount of misstatement the auditor can accept in the population without requiring an audit adjustment or a qualified audit opinion. True False 36. Extracting data from the client’s computer system is one of the tasks that can be performed by GAS. True False 37. Statistical sampling combines the theory of probability and statistical inference with audit judgment and experience. True False 38. An example of attribute testing involves obtaining evidence that the client has matched the vendor invoice details with a purchase order and receiving report before payment approval. True False 39. The auditor's tolerable failure rate for attribute sampling is the point in which control failures support the planned assessment of audit risk. True False 40. Attribute sampling for testing controls should only be done by the auditor at the end of the fiscal period under audit. True False 41. In analysis of the results of an attribute sampling plan, an auditor may determine that the sample size must be increased. True False 42. Random number, systematic sampling and material value sampling are acceptable sample selection methods for statistical sampling. True False 43. Random number, haphazard selection and block sampling are acceptable sample selection methods for non-statistical sampling. True False 44. By using Generalized Audit Software (GAS), the auditor can potentially audit the whole population rather than taking a sample. True False 45. Using attribute sampling the auditor can test for multiple attributes using the same source documents. True False 46. The audit objective of attribute sampling is to test the correctness of an account balance. True False 47. Stratification of the population into several homogeneous subpopulations generally creates audit efficiency. True False 48. In attribute sampling if the upper limit of the possible deviation rate exceeds the tolerable rate the auditor can rely upon the control as being effective. True False 49. In MUS sampling basic precision is the upper misstatement limit when no misstatements are detected in a MUS sample. It is computed by multiplying the sampling interval by the error expansion factor. True False 50. In attribute sampling if the selected item cannot be located, the auditor should assume that the control procedure was not followed and assess that item as a failure. True False 51. Which of the following is not considered when obtaining audit evidence through sampling? A. The effectiveness of control procedures. B. The efficiency of control procedures. C. The dollar accuracy of account balances. D. The dollar accuracy of classes of transactions. 52. Which one of the following accounting constraints supports the concept of audit sampling? A. Conservatism. B. Materiality. C. Cost-benefit. D. Industry practice. 53. Which one of the following is not a decision the auditor makes when using attribute sampling? A. Sample size. B. Selection of items included in the sample. C. Evaluation of sample information. D. Whether to document all phases. 54. Which one of the following is a decision the auditor makes when using attribute sampling? A. The sampling unit. B. Period covered by testing. C. Completeness of the population. D. All of the above are auditor decisions. 55. Which of the following is not considered to be non-sampling risk? A. Misinterpretation of information. B. Use of improper audit procedure. C. Improper projection of results to the population. D. Carelessness of the auditor. 56. Which of the following describes sampling risk? A. The sample will not contain characteristics representative of the population such that inferences made about that population will be incorrect. B. The population will not contain characteristics representative of the sample such that inferences made about that sample will be incorrect. C. Neither A nor B is correct. D. Both A and B are correct. 57. Which of the following occurs when, based on sample results, control risk is assessed excessively high? A. Audit inefficiency. B. A less expensive audit. C. Reduction of substantive testing. D. Errors that are more likely to occur than anticipated. 58. Concluding that the book value of inventory is correct when it is materially misstated is an example of which of the following risks? A. Incorrect rejection. B. Incorrect acceptance. C. Insufficient sample size. D. None of the above. 59. Incorrect acceptance is directly related to which of the following? A. The efficiency of the audit. B. The ineffectiveness of the audit. C. The cost of the audit. D. All of the above. 60. When performing sampling, the auditor is most concerned with which of the following? A. Risk of incorrect rejection. B. Risk of incorrect acceptance. C. Risk of excess sample size. D. Risk of errors in the population. 61. While auditors may use either statistical or non-statistical sampling, some auditors restrict the use of non-statistical sampling for what reason? A. It is less effective. B. It is less objective. C. It is less efficient. D. It is less risky. 62. Which of the following applications are incorporated into statistical sampling? A. Binomial and confidence intervals. B. Random and haphazard selection. C. Hypergeometric distribution with audit risk. D. Probability and statistical inference with audit judgment. 63. Which one of the following issues need not be addressed when planning an audit sample to test control procedures? A. Audit objective of the test. B. Minimum failure rate. C. Expected population deviation rate. D. Auditor's allowable risk of assessing control risk too low. 64. Which of the following is the level at which the control’s failure to operate would cause the auditor to conclude that the control is not effective and would likely change the auditor’s planned assessment of control risk in performing tests of account balances? A. Tolerable failure rate. B. Allowable risk of assessing control risk too low. C. Expected failure rate. D. Allowance for sampling error. 65. Which of the following statistical sampling methods is most commonly used to test control procedures? A. Variable sampling. B. Ratio estimation sampling. C. Attribute sampling. D. Dollar unit sampling. 66. Which one of the following is not a typical step used to implement an attribute sampling plan? A. Define the attributes of interest and what constitutes failure(s). B. Select and test the sample items. C. Evaluate the sample results. D. Define the non-statistical sampling method that is most effective and efficient. 67. When performing attribute sampling, which of the following varies directly with the sample size? A. The expected failure rate. B. The tolerable failure rate. C. The risk of overreliance. D. The nonsampling risk. 68. In analyzing misstatements using sampling techniques, the auditor should analyze the misstatements in what manners? A. Qualitatively and quantitatively. B. Absolutely and proportionately. C. Haphazardly and randomly. D. Methodically and systematically. 69. In testing account balances, haphazard sampling is an acceptable method of sampling provided the auditor believes the sample to be which of the following? A. Statistically sound. B. Representative of the population. C. Representative of the sample. D. In the upper stratum. 70. When determining sampling size in attribute sampling, which of the following is usually true? A. Sampling risk will be too high. B. Tolerable failure rate is predetermined. C. A failure rate is not to be expected. D. Population size is not a major factor. 71. Which of the following is not a step the auditor needs to determine in designing sampling for substantive testing? A. The audit objective. B. The method of selecting a sample. C. Expected misstatement conditions. D. Control failure risk. 72. Which of the following is a method of eliminating non-sampling risk? A. Proper supervision and instruction of the client’s employees. B. Proper supervision and instruction of the audit team. C. The use of attributes sampling rather than variables sampling. D. Controls to ensure that the sample drawn is random and representative. 73. Which of the following is a factor that the auditor should consider when choosing between non-statistical and statistical sampling? A. Whether the audit staff is adequately trained to use statistical sampling. B. Whether the population lends itself to a random-based selection method. C. Whether the auditor wants a statistical measure of the risk of drawing a wrong conclusion. D. All of the above. 74. When confirming receivables in testing for overstatements, assume that there are few or no misstatements expected and the selection will be based on the dollar value of individual items. Which of the following is the auditor most likely to use? A. MUS sampling. B. Stratified mean-per-unit sampling. C. Ratio estimation sampling. D. Attribute sampling. 75. The results of MUS sampling will be unacceptable when the total estimated misstatement exceeds which of the following? A. Greater than tolerable misstatement. B. Less than tolerable misstatement. C. Equal to tolerable misstatement. D. Either A or C. 76. MUS is based on which of following? A. Attributes sampling theory. B. Classical variables sampling. C. Both a. and b... D. Neither a. or b. 77. MUS is designed to test for which of the following? A. Overstatements. B. Understatements. C. Neither understatements nor overstatements. D. Either understatements or overstatements. 78. Which of the following does the design of a MUS sample not require the auditor to determine? A. Risk of incorrect acceptance. B. Inherent risk. C. Ratio of expected misstatement to tolerable misstatement. D. Ratio of tolerable misstatement to the total population value. 79. When using MUS, an auditor found that the sampling interval should be $15,755. If selecting the sample manually, the auditor should round the sample interval to which of the following amounts? A. $16,000. B. $15,000. C. $14,000. D. $10,000. 80. When planning a test of details using MUS sampling, tolerable misstatement is usually set at what level? A. Higher than planning materiality. B. Lower than planning materiality. C. Either higher or lower than planning materiality. D. 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ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff00fffefffffcfefffefffffffffffffffcfffdfdfffefdfffeffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff fffffffffffefffffffffefdfffdfffffffffe2f7fefffdfffdff763fefffbfffffefbfefffffffe2e3331a6a1a0fffff efffefffffefffffffffffffcfafffdfffdfdffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff 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ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff fffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffcfcfcfafffefdfffffdfcfffffdff0000 76565fbffcbfffdfffbfffcfdfdfd6a0201c9cb97fffffbfffffffbfdfdfffeff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff00fffffffefefefefefefffffffefefef efefeffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff fffffffffffffffffffffffffffffffffffffffffffffffffffffefffffffefafffdfdfffe567fffffffffefafdffff2eafffdfdfffe fdfffeff33322ea8a0a0fdffffaa9ca0fdfcfffefcfbfffefffffffeffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffff00fefefefefefefffffffefefefefefefcfcfcffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff fffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff9fbfffffdfef cfffefffdfffe698fffefffdfefffffeffb67fffefffbfffffdfffe2e7fdfffcfffefffdfffffffefbfd fffffbfffffefefeffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff00fffffffffffffffffff In MUS, what is meant by a sampling interval of 900? A. Every 900 th item will be selected. B. Every 900 th dollar will be selected. C. Expected misstatement is 900. D. Tolerable misstatement is 900. 82. bb0c022 900ad002bb2000cca6 02900a0a00000 000ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff0000ffffffffffffffffffffffffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff fffffffffffffffffffffffffffffffffffffffefffffffdfffffdfffefffffffffefffffffcfdfefffffbfffbfefcfcfffdfffdfffbfffefdfefcfffffefcfffdfffcfff cfefefffffffdfffefffdfdfffffefffffffcfffdfffffffffdfffdfffffffffefbfefffbfffffffefffdfffefffefffafffdfffefffffffcfffffbfffffffffcfffdff fffffefffdfdfdfffffefffefffffffcfafefffafffefffffffffdfffffffefefffdfdfffffffffbfffffefffffefffffefffefffffefefefdfffdfffefffffffffef efffffffdfffefffefffefefefafffdfefffdfffefffffffefcfefefffffefffffffefffdfffffefcfffdfbfdfdfffffffdfffffffefdfffffefffefffdffffffff fffffdfffffffffbfefcfbfefffffffffffdfffdfffefdfcfefffffefffffefbfffffdfffffffdfffdfffcfffefefbfffefffefffffffffffffefbfdfeffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff0000ffffffffffffffffffffffffffff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff fffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffefffffffefffffefffefffefffbfffffcfdfefcfdfffffffff9fdfffffcfdfffdfffefff cfffcfefffffffffffefffefefefefffbfffefffefcfcfffffefffefffffffffdfffffffffbfffffffcfefefefefefffffcfefefefffffcfffdfffffefffffffbfef dfffffffefdfffefefdfffbfffffffefffdfffffcfffbfefdfffbfffefffffefdfffffefefefffefffffffffffffefdfffffffffefffefffffffefdfffffbfffffffe fffefefefefffdfffefffffbfffffffffffffffffffffdfffefffffefefdfffefbfdfbfffffefefefdfffffdfffffffdfffdfffffffefffffcfefcfefefffefffff efffffefffdfefcfefffbfffffefefefefffffefdfffefffffffffefff8fffafdfffffbfffffffefffffdfffdfdfdfdfdfdfffefffdfffffffefdfffffffffefff efefefdfffeffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff0000ff ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff fffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffcfefffffffefffefffffefefffffefdfffffefefefffdfffbfffff9fefcf cfffdfefffbfffffffffefffffffefdfffcfffffefefefefffffffffffcfcfbfffffefffffffffffcfefefdfffffffffffefffdfffffffffffffcfffffffcfffefffffdf efffdfffffefafffffffbfffefffdfffcfffdfdfffcfffefffcfbfdfdfffcfdfffefcfefefffdfffffffefefefefdfffefffefffffefffffefffefdfffffffffd fffefefdfffffdfefffffefffffffffffcfbfffffefffdfffffffdfffffffffffffdfffefdfffffffffdfffefbfdfff6fffcfffefffffffefffffcfffefffdfcfffdfe fcfffefffbfffefefffdfdfffefefffdfffefefffefffbfdfdfdfffffffffffffffffffffffffefdfffefffffefdfffffffcfdf9fffffefffffefffffcfffefffffff 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Chapter 8. Specialized Audit Tools: Sampling
and Generalized Audit Software

1. Audit sampling implies the gathering of evidence to use as a basis for making valid
inferences about the characteristics of the population as a whole without examining
every transaction.
True False



2. Audit sampling is the application of an audit procedure to less than 100 percent of the
items within an account balance or class of transactions for the purpose of evaluating
some characteristic.
True False



3. When performing substantive tests using sampling methods, the auditor's main
concern is the risk of incorrect rejection.
True False



4. The risk of incorrect acceptance of an account balance as correct, when in fact it is not
correct, bears directly on the effectiveness of an audit.
True False



5. The tolerable misstatement is the confidence level needed to infer population values.
True False



6. Statistical sampling is used when an auditor chooses to examine all purchases of
equipment exceeding $1,000.00 and to test the remaining items by analytical
procedures.
True False

,7. The most efficient method of testing a large population is the use of non-statistical
sampling.
True False



8. Statistical sampling assists auditors in determining the sufficiency of evidence
gathered.
True False



9. When testing controls, the use of haphazard selection of a sample allows for random,
statistical evaluation.
True False



10. The tolerable failure rate is the level at which the control’s failure to operate would
cause the auditor to conclude that the control is not effective and would likely change
the auditor’s planned assessment of control risk in performing tests of account
balances..
True False



11. The expected population deviation rate is the auditor's best estimate of the
percentage of transactions processed for which a control is not effectively applied.
True False



12. An attribute is defined as a characteristic of the population of interest to the auditor.
True False



13. The sample size decreases as the risk over over-reliance decreases.
True False



14. For tests of controls, the most commonly used statistical method is attribute
sampling.
True False

,15. Increasing the expected failure rate will cause the sample size to increase.
True False



16. Sample size varies directly with sampling risk.
True False



17. An auditor uses sampling to determine the reasonableness of an account balance by
performing detailed analysis of the selected items making up the account balance.
True False



18. The auditor must define the population to which sampling relates if the auditor is to
use statistical sampling for substantive tests of account balances.
True False



19. The individual auditable elements defined by the auditor are the sampling units.
True False



20. The most common statistical approaches for substantive testing are classical
variables sampling and MUS.
True False



21. Non-statistical samples should be based on the same audit considerations as those
used for statistical sampling.
True False



22. Random sampling can be used to determine sample size or evaluate sampling results
even if the auditor does not plan on using statistical sampling.
True False



23. Either nonstatistical or statistical sampling is appropriate for substantive tests of
details.
True False

, 24. Monetary unit sampling (MUS) sampling is designed to test whether there is an
acceptable risk of account balance understatement.
True False



25. Monetary unit sampling (MUS) results in an efficient sample size and concentrates on
the dollar value of the account balances.
True False



26. Sample size in a MUS sample is a function of risk of incorrect acceptance, tolerable
misstatement, and expected misstatement.
True False



27. The population for MUS is defined as the number of dollars in the population being
tested.
True False



28. Sampling risk is defined as the risk that an inference drawn from a sample will be
incorrect.
True False



29. Projected misstatements are developed by extrapolation from the misstatements in
sample items to the population.
True False



30. When evaluating an MUS sample, if the auditor finds no misstatements in the
sample, the misstatement projection is zero dollars, and the total estimated
misstatement will equal the projected misstatement for items in lower-stratum.
True False



31. Population items with zero balances have no chance of being selected using PPS
sampling.
True False

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