53) An increased sample size will always cause the population to be accepted.
54) When using audit sampling for tests of details of balances, the acceptable risk of overreliance
must be determined.
17.3 Learning Objective 17-3
1) In monetary unit sampling, a sampling interval of 900 means that
A) every 900th item will be selected.
B) every 900th dollar in the account will be sampled.
C) expected misstatement is 900.
D) tolerable misstatement is 900.
2) Monetary unit sampling is not particularly effective at detecting
A) overstatements.
B) understatements.
C) errors in current assets.
D) errors in noncurrent assets.
3) The auditor must consider the possibility that the true population misstatement is greater than
the amount of misstatement that is tolerable when the auditor is performing
A)
Nonstatistical sampling
Monetary unit sampling
Yes
Yes
B)
Nonstatistical sampling
Monetary unit sampling
No
No
C)
Nonstatistical sampling
Monetary unit sampling
Yes
No
D)
Nonstatistical sampling
Monetary unit sampling
No
Yes
4) The most commonly used method of statistical sampling for tests of details of balances is
A) attributes sampling.
B) systematic sampling.
C) discovery sampling.
D) monetary unit sampling.
5) When using monetary unit sampling, the recorded dollar population is a definition of all the
items in the
A) population.
B) population which the auditor has included in the sample.
C) population which contain errors.
D) sample which contain errors.
6) When the sample selection is done using probability proportional to size sample selection
(PPS),
A) the actual number of units selected for testing may be more than the computed sample size.
B) the auditor must use systematic selection, rather than random selection of dollars.
C) population items with a zero recorded balance have no chance of being selected.
D) negative balances must be treated as positive balances.
7) An accounts receivable population contains a total of four customers. The accounts, the
amounts, and the cumulative total are shown below. Monetary unit sampling is to be used.
Account
Name
Recorded
Amount
Cumulative
Total
Blue
$357
$357
Brown
281
638
Gray
60
698
Green
574
1,272
Based on the information above, the population size is
A) 4.
B) 574.
C) 1,272.
D) $2,684.
8) An auditor uses monetary unit sampling with a sampling interval of $20,000 and detects an
item with a recorded amount of $10,000 with an audited value of $4,000. The projected
misstatement of the sample is
A) $12,000.
B) $6,000.
C) $10,000.
D) $3,000.
9) An auditor is confirming a population of accounts receivable for monetary correctness. The
population totals $2,000,000 and a sample of 200 confirmations is obtained. Upon audit, no
misstatements are uncovered in the sample. Assuming an ARIA of 10%, the confidence factor
would be 2.31. Applied to a sampling interval of $10,000, the upper misstatement bound is
calculated as
A) $462.
B) $4,329.
C) $23,100.
D) $865,801.
10) Which balance-related audit objective cannot be assessed using monetary unit sampling?
A) accuracy
B) completeness
C) existence
D) All of the above can be assessed using monetary unit sampling.
11) PPS samples can be obtained in an efficient manner using all but which of the following?
A) hand selection by the auditor
B) computer software
C) random number tables
D) systematic sampling techniques
12) Which of the following item(s) are needed to determine the sample size using MUS?
A)
A point estimate for misstatements
Recorded population
value
A confidence factor
No
Yes
No
B)
A point estimate for misstatements
Recorded population
value
A confidence factor
Yes
No
Yes
C)
A point estimate for misstatements
Recorded population
value
A confidence factor
No
Yes
Yes
D)
A point estimate for misstatements
Recorded population
value
A confidence factor
Yes
No
No
13) An estimate of the largest likely overstatement in a population at a given ARIA, using
monetary unit sampling is the
A) point estimates.
B) precision intervals.
C) confidence intervals.
D) misstatement bound.
14) When using monetary unit sampling, evaluating the likelihood of unrecorded items in the
population is
A) unnecessary.
B) impossible.
C) possible but difficult.
D) an automatic outcome of the process.
15) The statistical methods used to evaluate monetary unit samples
A) neither exclude nor include units twice.
B) may permit the inclusion of a unit in the sample more than once.
C) do not permit a unit to be included in the sample more than once.
D) ignore the possibility that a unit may be included in a sample more than once.
16) Which of the following is not a problem with monetary unit selection?
A) population items with a zero recorded balance
B) population items that should have a zero balance but do not
C) accounts with negative balances
D) accounts with small recorded balances that are significantly understated
17) The allowance for sampling risk when no misstatements are found in the sample is
A) tolerable risk of misstatement.
B) basic precision.
C) confidence factor.
D) population variance.
18) To calculate the sample size in monetary unit sampling,
A) the confidence factor is multiplied by the tolerable misstatement as a percentage of the
population value.
B) the confidence factor is divided by the tolerable misstatement as a percentage of the
population value.
C) the tolerable misstatement is divided by the population recorded value.
D) the tolerable misstatement is multiplied by the population recorded value.
19) Calculating the sample size using monetary unit sampling depends on which of the following
factors?
A)
Estimated population misstatement
Recorded population value
Yes
Yes
B)
Estimated population misstatement
Recorded population value
No
No
C)
Estimated population misstatement
Recorded population value
Yes
No
D)
Estimated population misstatement
Recorded population value
No
Yes
20) Using statistical sampling to assist in verifying the year-end accounts payable balance, an
auditor has accumulated the following data
Number of
accounts
Book
balance
Balance
determined by
the auditor
Population:
4,000
$5,000,000
?
Sample:
200
$250,000
$300,000
Projecting the misstatement to the population, the auditor’s estimate of year-end accounts
payable balance would be:
A) $5,050,000.
B) $5,125,000.
C) $6,000,000.
D) $6,150,000.
21) Why do auditors find MUS appealing?
A) MUS increases the likelihood of selecting a balance of high and low dollar items.
B) MUS is easy to use in the audit environment.
C) MUS provides a nonstatistical, rather than a statistical, conclusion.
D) When misstatements are found, MUS rarely produces bounds in excess of materiality.
22) In monetary unit sampling, the relationship between tolerable misstatement size and required
sample size is
A) direct.
B) inverse.
C) varied.
D) indeterminable.
23) Explain the decision rule used in monetary unit sampling to determine whether the
population is acceptable.
24) Explain why monetary unit sampling, or probability proportional to size sampling, is not
useful for detecting understatements.
25) Discuss the advantages and disadvantages of monetary unit sampling over other sampling
methods.
26) How might auditors include negative balances when using monetary unit sampling to
evaluate a population?
27) To determine the sampling interval, the population is divided by the confidence factor.
28) MUS has the statistical simplicity of attributes sampling, yet provides a statistical result
expressed as a percentage.
29) In monetary unit sampling, the likelihood of high dollar items from the population being
included in the sample is lower than the likelihood for small dollar items.
30) When auditors apply MUS to a sample, the sample is selected using random sampling
techniques.
31) The use of monetary unit sampling is most appropriate when the auditor expects to find
many errors and when a monetary result is desired.
32) When using MUS, the projected misstatement is the percentage misstatement times the
sampling interval.
33) Accounts with zero or negative year-end balances have no chance of being included in a
standard probability proportional to size (PPS) sample.
34) If the misstatement bound exceeds tolerable misstatement, the population is considered
acceptable.
17.4 Learning Objective 17-4
1) You are auditing Nelson and Company and determined that the sample results support a
conclusion that the account is materially misstated, when in fact it was not misstated. This
illustrates the risk of
A) incorrect acceptance.
B) incorrect rejection.
C) control risk too low.
D) control risk too high.
2) The method used to measure the estimated total misstatement amount in a population when
there is both a recorded value and an audited value for each item in the sample is
A) difference estimation.
B) mean-per-unit estimation.
C) ratio estimation.
D) monetary unit sampling.
3) The auditor is concerned with the audited value rather than the misstatement amount of each
item in the sample when using
A) difference estimation.
B) mean-per-unit estimation.
C) ratio estimation.
D) monetary unit sampling.
4) Acceptable risk of incorrect rejection affects auditors’ action only when they conclude that a
population is
A) fairly stated.
B) acceptable.
C) not fairly stated.
D) acceptable after certain adjustments.
5) If the auditor believes that there will be more than just a few exceptions discovered, and
desires an accurate estimate of the dollar value of the exceptions, he or she will use
A) attributes sampling.
B) monetary unit sampling.
C) block sampling.
D) variables sampling.
6) The acceptable risk of incorrect rejection is important only when there is a ________ cost to
increasing the sample size.
A) high
B) low
C) moderate
D) marginal
7) Stratified sampling is applicable to difference, mean-per-unit, and ratio estimation, but it is
most commonly used with
A) ratio estimation.
B) discovery sampling.
C) difference estimation.
D) mean-per-unit estimation.
8) 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) attributes sampling
D) variables sampling
9) When dealing with variables sampling and sampling risk, it is important to understand that
A) for variables sampling, auditors uses ARIA but not ARIR.
B) ARIR is of serious concern to the auditor because of potential legal implications.
C) ARIA is a one-tailed statistical test.
D) the confidence coefficients for ARIA are the same as the confidence level.
10) When working with the different variables methods,
A) difference estimation frequently results in larger sample sizes than any other method.
B) ratio estimation is the method preferred by most auditors since it is simpler to calculate
confidence intervals.
C) the difference between the mean-per-unit estimate and the difference estimate is the definition
of what is being measured.
D) stratification can only be used with difference estimation.
11) Which of the following is not a type of statistical method that provides results in dollar
terms?
A) variables sampling
B) attributes sampling
C) monetary unit sampling
D) sampling with probability proportional to size
12) When drawing statistical inferences about the population when using variables sampling,
A) a confidence interval cannot be calculated.
B) there is always a possibility that the sample is not sufficiently representative of the population
to provide a sample mean or standard deviation reasonably close to those of the population.
C) the auditor does not know the reliability fo the statistical inference process that is used to
draw the conclusions.
D) all of the above are correct.
13) When making statistical inferences, the auditor must remember that
A) the true population value must always be known.
B) auditors can state the conclusions drawn from a confidence interval in different ways.
C) there can be no possibility that the sample is not sufficiently representative of the population.
D) the knowledge of sampling distributions does not help the auditors to draw statistical
conclusions.
14) Explain acceptable risk of incorrect acceptance and acceptable risk of incorrect rejection
within the context of variables sampling.
15) Match six of the terms (a-l) with the definitions provided below (1-6):
a. acceptable risk of incorrect acceptance
b. acceptable risk of incorrect rejection
c. difference estimation
d. misstatement bounds
e. monetary unit sampling
f. mean-per-unit estimation
g. point estimate
h. probability proportional to size sample selection
i. ratio estimation
j. statistical inferences
k. stratified sampling
l. variable sampling
________ 1. conclusions drawn from sample results based on knowledge of sampling
distributions
________ 2. sampling techniques for tests of details of balances that use the statistical inference
processes
________ 3. the risk that the auditor is willing to take of rejecting a balance as incorrect when it
is not misstated by a material amount
________ 4. a statistical sampling method that provides misstatement bounds expressed in
monetary amounts
________ 5. a method of variables sampling in which the auditor estimates the population
misstatement by multiplying the average misstatement in the sample by the total number of
population items and also calculates sampling risk
________ 6. the risk that the auditor is willing to take of accepting a balance as correct when the
true misstatement in the balance exceeds the tolerable misstatement
16) Acceptable risk of incorrect rejection is the statistical risk that the auditor has concluded that
a population is materially misstated when it is not.
17) Difference estimation frequently results in smaller sample sizes than any other variables
sampling method.
18) Auditors can state the conclusions drawn from a confidence interval using statistical
inference in different ways.
19) The confidence coefficients for ARIA are different from the confidence level.
20) Auditors should attempt to minimize ARIA and maximize ARIR.
17.5 Learning Objective 17-5
1) 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.
2) There are four steps to generalize from the sample to the population using difference
estimation sampling. Identify each of these four steps.
3) When using difference estimation, the precision interval is calculated by a statistical formula.
4) To calculate the sample size using difference estimation sampling, it is not necessary for the
auditors to have an advance population standard deviation estimate.
5) In difference estimation sampling, the confidence limits are calculated by combining the point
estimate of the total misstatements and the computed precision interval at the desired confidence
level.
6) The population standard deviation has a significant effect on the computed precision interval.