ACC 406 Audit Midterm 2 Exam Questions with Verified Solutions Graded A+
Allowance for sampling risk - Answers The uncertainty that results from sampling; the
difference between the expected mean of the population and the tolerable deviation or
misstatement
Attribute sampling - Answers Sampling used to estimate the proportion of a population that
possesses a specified characteristic
Audit sampling - Answers The selection and evaluation of less than 100 percent of the
population of audit relevance such that the auditor expects the items selected to be
representative of the population and, thus, likely to provide a reasonable basis for conclusions
about the population
Classical variables sampling - Answers The use of normal distribution theory to estimate the
dollar amount of misstatement for a class of transactions or an account balance
Desired confidence level - Answers The probability that the true but unknown measure of the
characteristic of interest is within specified limits
Expected population deviation rate - Answers The deviation rate that the auditor expects to exist
in the population
Monetary-unit sampling - Answers Attribute-sampling techniques used to estimate the dollar
amount of misstatement for a class of transactions or an account balance
Nonsampling risk - Answers The risk that the auditor reaches an erroneous conclusion
Nonstatical sampling - Answers Audit sampling that relies on the auditor's judgment to
determine sample size, select the sample, and/or evaluate the results for the purpose of
reaching a conclusion about the population
Representative sample - Answers The evaluation of the sample will result in conclusions that
are similar to those that would be drawn if the same procedures were applied to the entire
population
Risk of incorrect acceptance - Answers The risk that the sample supports the conclusion that
the control is operating effectively when it is not or that the recorded account balance is not
materially misstated when it is materially misstated
Risk of incorrect rejection - Answers The risk that the sample supports the conclusion that the
control is not operating effectively when it actually is or that the recorded account balance is
materially misstated when it is not materially misstated
Sampling risk - Answers The possibility that the sample drawn is not representative of the
population and that, as a result, the auditor reaches an incorrect conclusion about the reliability
, of the control, the account balance, or class of transactions based on the sample.
Sampling unit - Answers The individual items constituting a population being sampled
Statistical sampling - Answers Sampling that uses the laws of probability to select and evaluate
the results of an audit sample, thereby permitting the auditor to quantify the sampling risk for
the purpose of reaching a conclusion about the population
Tolerable deviation rate - Answers The maximum deviation rate from a prescribed control that
the auditor is willing to accept without altering the planned assessed level of control risk
Confidence bound - Answers Measure of sampling risk added and subtracted to the projected
misstatement to form a confidence interval
Expected misstatement - Answers The amount of misstatement that the auditor believes exists
in the population
Factual misstatement - Answers Detected misstatements about which there is no doubt. In a
sampling context, these are the differences observed in the sample that are used to compute
the projected misstatement
Projected misstatement - Answers The extrapolation of sample results to the population. The
projected misstatement represents the auditor's "best estimate" of the likely misstatement in
the sampling population
Upper misstatement limit - Answers The total of the projected misstatement plus the allowance
for sampling risk
Customer sales order - Answers contains details of the type and quantity of products or
services ordered by the customer
Credit approval form - Answers When customer purchases for the first time, the client should
have a formal procedure to check credit, usually with this form
Open-order report - Answers Report of all customers for which processing has not been
completed, perhaps because items ordered are out of stock
Shipping document - Answers Generally serves as bill of lading, contains information on type of
product shipped, quantity, etc. 2 copies, one to customer, one to initiate billing
Sales invoice - Answers Used to bill customer, contains type of product, quantity, price, terms of
trade. Original sent to customer, copies distributed to other departments
Sales journal - Answers Updated after the sales invoice has been issued
Customer statement - Answers Mailed to customer, usually monthly. Contains customer's
account infor for the period
Allowance for sampling risk - Answers The uncertainty that results from sampling; the
difference between the expected mean of the population and the tolerable deviation or
misstatement
Attribute sampling - Answers Sampling used to estimate the proportion of a population that
possesses a specified characteristic
Audit sampling - Answers The selection and evaluation of less than 100 percent of the
population of audit relevance such that the auditor expects the items selected to be
representative of the population and, thus, likely to provide a reasonable basis for conclusions
about the population
Classical variables sampling - Answers The use of normal distribution theory to estimate the
dollar amount of misstatement for a class of transactions or an account balance
Desired confidence level - Answers The probability that the true but unknown measure of the
characteristic of interest is within specified limits
Expected population deviation rate - Answers The deviation rate that the auditor expects to exist
in the population
Monetary-unit sampling - Answers Attribute-sampling techniques used to estimate the dollar
amount of misstatement for a class of transactions or an account balance
Nonsampling risk - Answers The risk that the auditor reaches an erroneous conclusion
Nonstatical sampling - Answers Audit sampling that relies on the auditor's judgment to
determine sample size, select the sample, and/or evaluate the results for the purpose of
reaching a conclusion about the population
Representative sample - Answers The evaluation of the sample will result in conclusions that
are similar to those that would be drawn if the same procedures were applied to the entire
population
Risk of incorrect acceptance - Answers The risk that the sample supports the conclusion that
the control is operating effectively when it is not or that the recorded account balance is not
materially misstated when it is materially misstated
Risk of incorrect rejection - Answers The risk that the sample supports the conclusion that the
control is not operating effectively when it actually is or that the recorded account balance is
materially misstated when it is not materially misstated
Sampling risk - Answers The possibility that the sample drawn is not representative of the
population and that, as a result, the auditor reaches an incorrect conclusion about the reliability
, of the control, the account balance, or class of transactions based on the sample.
Sampling unit - Answers The individual items constituting a population being sampled
Statistical sampling - Answers Sampling that uses the laws of probability to select and evaluate
the results of an audit sample, thereby permitting the auditor to quantify the sampling risk for
the purpose of reaching a conclusion about the population
Tolerable deviation rate - Answers The maximum deviation rate from a prescribed control that
the auditor is willing to accept without altering the planned assessed level of control risk
Confidence bound - Answers Measure of sampling risk added and subtracted to the projected
misstatement to form a confidence interval
Expected misstatement - Answers The amount of misstatement that the auditor believes exists
in the population
Factual misstatement - Answers Detected misstatements about which there is no doubt. In a
sampling context, these are the differences observed in the sample that are used to compute
the projected misstatement
Projected misstatement - Answers The extrapolation of sample results to the population. The
projected misstatement represents the auditor's "best estimate" of the likely misstatement in
the sampling population
Upper misstatement limit - Answers The total of the projected misstatement plus the allowance
for sampling risk
Customer sales order - Answers contains details of the type and quantity of products or
services ordered by the customer
Credit approval form - Answers When customer purchases for the first time, the client should
have a formal procedure to check credit, usually with this form
Open-order report - Answers Report of all customers for which processing has not been
completed, perhaps because items ordered are out of stock
Shipping document - Answers Generally serves as bill of lading, contains information on type of
product shipped, quantity, etc. 2 copies, one to customer, one to initiate billing
Sales invoice - Answers Used to bill customer, contains type of product, quantity, price, terms of
trade. Original sent to customer, copies distributed to other departments
Sales journal - Answers Updated after the sales invoice has been issued
Customer statement - Answers Mailed to customer, usually monthly. Contains customer's
account infor for the period
