Auditing and Assurance Services, 16e (Arens/Elder/Beasley)
Chapter 17 Audit Sampling for Tests of Details of Balances
17.1 Learning Objective 17-1
1) Both sampling and nonsampling risks are associated with
A)
Tests of controls.
Substantive tests of transactions.
Yes
Yes
B)
Tests of controls.
Substantive tests of transactions.
No
No
C)
Tests of controls.
Substantive tests of transactions.
Yes
No
D)
Tests of controls.
Substantive tests of transactions.
No
Yes
2) Tests for rates of occurrence are appropriately used in all but which of the following
situations?
A)
Testing of internal
controls
Substantive testing of
transactions
Substantive testing of
details of balances
Yes
Yes
Yes
B)
Testing of internal
controls
Substantive testing of
transactions
Substantive testing of
details of balances
No
Yes
Yes
C)
Testing of internal
controls
Substantive testing of
transactions
Substantive testing of
details of balances
Yes
Yes
No
D)
Testing of internal
controls
Substantive testing of
transactions
Substantive testing of
details of balances
No
No
Yes
3) The most important difference among tests of controls, substantive tests of transactions, and
tests of details of balances lies in what the auditor wants to measure. Explain what each type of
test attempts to measure.
4) In the test of details of balances, the auditor wants to make inferences about the entire
population based on a sample.
17.2 Learning Objective 17-2
1) When selecting a sample size for substantive tests of balances which factor, other factors
being equal, would result in a larger sample?
A) a decrease in the tolerable misstatement
B) small expected misstatements
C) an increase in the tolerable misstatement
D) an increase in the acceptable risk of incorrect acceptance
2) The auditor’s principal objective when using a sample of tests of details of balances is whether
the
A) account balance being audited is fairly stated.
B) transactions being audited are free of misstatements.
C) controls being tested are operating effectively.
D) transactions and account balances being audited are fairly stated.
3) What is the purpose of applying stratified sampling to a population?
A)
To avoid items that may
contain misstatements
To emphasize certain items
and deemphasize others
Yes
Yes
B)
To avoid items that may
contain misstatements
To emphasize certain items
and deemphasize others
No
No
C)
To avoid items that may
contain misstatements
To emphasize certain items
and deemphasize others
Yes
No
D)
To avoid items that may
contain misstatements
To emphasize certain items
and deemphasize others
No
Yes
4) If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of
incorrect acceptance
A) is reduced.
B) is increased.
C) is not changed.
D) may be reduced or increased depending upon other circumstances.
5) In estimating the population misstatement, the first step in projecting from the sample to the
population is to
A) make a point estimate.
B) revise the upper error bound.
C) calculate the precision interval.
D) determine the population mean.
6) Tolerable misstatement is used to
A)
Determine sample size
Select the sample
Evaluate results
Yes
Yes
No
B)
Determine sample size
Select the sample
Evaluate results
No
Yes
No
C)
Determine sample size
Select the sample
Evaluate results
No
No
Yes
D)
Determine sample size
Select the sample
Evaluate results
Yes
No
Yes
7) The word below that best explains the relationship between required sample size and the
acceptable risk of incorrect acceptance is
A) inverse.
B) direct.
C) proportional.
D) indeterminate.
8) The final step in the evaluation of the audit results is the decision to
A) accept the population as fairly stated or to require further action.
B) determine sampling error and calculate the estimated total population error.
C) project the point estimate.
D) determine the error in each sample.
9) Which of the following does not have to be considered in determining the initial sample size
of a test of details?
A) tolerable misstatement
B) acceptable risk of incorrect rejection
C) estimate of misstatements in the population
D) inherent risk
10) If an auditor concludes that internal controls are likely to be effective, the preliminary
assessment of control risk can be reduced, leading to which of the following impacts on the
acceptable risk of incorrect acceptance?
A) The acceptable risk of incorrect acceptance will be reduced.
B) The acceptable risk of incorrect acceptance will be increased.
C) The acceptable risk of incorrect acceptance will be eliminated.
D) The acceptable risk of incorrect acceptance will not be impacted.
11) If acceptable audit risk is increased, acceptable risk of incorrect acceptance should be
A) increased.
B) reduced.
C) unaffected.
D) modified.
12) You are auditing Raji and Company. You discover an item of inventory with an audited
value of $5,000 with a recorded amount of $3,000. If this is the only error you discover, the
projected misstatement for the sample would be
A) $5,000.
B) $2,000.
C) $3,000.
D) $4,000.
13) One of the steps involved in planning the sample for the tests of details of balances is to
A) select the sample.
B) perform the audit procedures.
C) define a misstatement.
D) analyze the misstatements.
14) The risk the auditor is willing to take of accepting a balance as correct when the true
misstatement in the balance under audit is greater than the tolerable misstatement is
A) the upper bound.
B) the tolerable risk.
C) the acceptable risk of incorrect acceptance.
D) the lower bound.
15) As the amount of misstatements expected in the population approaches tolerable
misstatement, the planned sample size will
A) decrease.
B) increase.
C) vary based on characteristics of the population.
D) be unaffected.
16) An auditor using nonstatistical sampling cannot formally measure sampling error and
therefore must subjectively consider the possibility that the true population misstatement exceeds
a tolerable amount. Which of the following factors should be considered by the auditor in
making this assessment?
A)
The dollar difference between the
point estimate and tolerable
misstatement
Yes
B)
The dollar difference between the
point estimate and tolerable
misstatement
No
C)
The dollar difference between the
point estimate and tolerable
misstatement
Yes
D)
The dollar difference between the
point estimate and tolerable
misstatement
No
17) Which of the following is an accurate statement regarding how the acceptable risk of
overreliance (ARO) and the acceptable risk of incorrect acceptance (ARIA) interact to affect
evidence accumulation?
A) If internal controls are likely to be effective, preliminary control risk can be increased.
B) A lower control risk requires a lower ARO in testing the controls, which requires a smaller
sample size.
C) If controls are found to be effective, control risk can remain low, which permits the auditor to
increase ARIA, thereby requiring a smaller sample size in the substantive tests of details of
balances.
D) If misstatements are considered unlikely, ARIA will decrease, and the sample size will also
decrease.
18) When errors are found in a sample, auditors in practice generally make the assumption
A) that the population errors cannot be determined.
B) that the population errors are larger than the sample errors.
C) that the population errors are smaller than the sample errors.
D) that the actual sample errors are representative of the population errors.
19) Which of the following needs to be considered when the auditor generalizes from the sample
to the population?
A)
Acceptable risk of incorrect
acceptance
Sampling error
Yes
Yes
B)
Acceptable risk of incorrect
acceptance
Sampling error
No
No
C)
Acceptable risk of incorrect
acceptance
Sampling error
Yes
No
D)
Acceptable risk of incorrect
acceptance
Sampling error
No
Yes
20) Which of the following would lead to a larger sample size?
A) low inherent risk
B) low control risk
C) larger tolerable misstatement
D) unsatisfactory results in other related substantive procedures
21) While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was not materially
misstated. It was, in fact, materially misstated. This situation illustrates the risk of
A) incorrect rejection.
B) incorrect acceptance.
C) assessing control risk too low.
D) assessing control risk too high.
22) While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was materially
misstated. Which of the following is the least likely auditor reaction to this discovery?
A) perform expanded audit tests in the relevant areas
B) increase detection risk in the relevant areas
C) increase the sample size
D) take no action until tests of other audit areas are completed
23) ________ is a method of projecting from the sample to the population to estimate the
population misstatement. It assumes that misstatements in the unaudited population are
proportional to the misstatements found in the sample.
A) Mean-per-unit estimation
B) Point estimate
C) Monetary unit
D) Basic precision
24) Factors considered by an auditor to determine the possibility that the true population
misstatement exceeds a tolerable amount in a nonstatistical sample include all of the following
except for
A) the extent to which items in the population have been audited 100%.
B) the difference between the point estimate and acceptable control risk.
C) whether misstatements tend to be offsetting or in only one direction.
D) the amounts of individual misstatements.
25) When defining the population and the sampling unit for tests of details of balances,
A) the population is defined as all of the transactions in the journal for the period.
B) the sampling unit must be the same for all balance sheet accounts.
C) if sampling for completeness, the sampling unit will be customers with zero balances.
D) if sampling for completeness, the sampling unit will be the items making up the recorded
population.
26) Which of the following is a correct statement?
A) When internal controls are effective, control risk can be reduced, and therefore the auditor
will decrease the ARIA.
B) There is a direct relationship between ARIA and the required sample size.
C) A lower control risk requires a lower ARO in testing the controls.
D) ARO measures the auditor’s desired assurance for an account balance.
27) If no exceptions were found in the substantive tests of transactions,
A) ARIA would stay the same.
B) the sample size would stay the same.
C) ARIA would increase.
D) the sample size would increase.
28) If analytical procedures are performed with no indications of likely misstatements, ARIA
will ________ and the sample size will ________.
A) remain the same; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
29) Which of the following conditions would lead to a larger sample size?
A) larger tolerable misstatement
B) low inherent risk
C) high control risk
D) smaller account balance
30) When analyzing misstatements, the auditor will determine
A) the implications of the misstatements on other audit areas.
B) the potential impact on the financial statements.
C) the effect on company operations.
D) all of the above.
31) If the population is not considered acceptable, one step the auditor is likely to take is to
A) retest all internal controls.
B) ask the client to adjust the account balance.
C) test the entire population.
D) decrease inherent risk.
32) There are 14 steps to audit sampling for tests of details of balances, divided into three
sections: plan the sample, select the sample and perform the audit procedures, and evaluate the
results. Discuss each of the steps included in the “evaluate the results” section for nonstatistical
sampling.
33) Consider the steps in sampling for tests of details and for tests of controls. Explain the
differences in applying sampling to these two types of tests.
34) Identify each of the seven factors that influence sample size for nonstatistical tests of details
of balances, and state whether each factor is directly or inversely related to sample size.
35) There are 14 steps to audit sampling for tests of details of balances, divided into three
sections: plan the sample, select the sample and perform the audit procedures, and evaluate the
results. Discuss 5 of the 9 steps included in the “plan the sample” section for nonstatistical
sampling.
36) When using nonstatistical sampling, the auditor must subjectively consider whether the true
population misstatement exceeds a tolerable amount. This is done by considering five factors.
One factor is the difference between the point estimate and tolerable misstatement. State the
other four factors the auditor must consider.
37) Discuss each of the six possible courses of action the auditor can take when he or she has
concluded that the population is misstated by more than a tolerable amount.
38) The auditor must do misstatement analysis to decide whether any modification of the audit
risk model is needed.
39) The larger the sample size, the more confident the auditor can be that the point estimate is
close to the true population value.
40) Acceptable risk of incorrect acceptance is directly affected by acceptable audit risk.
41) Tolerable misstatement is inversely related to sample size.
42) Acceptable risk of incorrect acceptance (ARIA) and sample size are inversely related; that is,
as ARIA increases, sample size decreases.
43) Estimated misstatement in the population and sample size are inversely related; that is, as
estimated misstatement increases, sample size decreases.
44) The purpose of stratification is to permit auditors to emphasize certain aspects of a
population and deemphasize others.
45) An auditor using nonstatistical sampling cannot formally measure sampling error.
46) If the misstatement in a population is larger then tolerable misstatement without considering
sampling error, the population will be considered unacceptable.
47) If a population is not considered acceptable, and the analysis indicates an individual error is
unique or most of the misstatements are of a specific type, it may be appropriate to restrict the
additional audit effort to the problem area.
48) Required sample size increases as the auditor’s tolerable misstatement for an account balance
or class of transactions decreases.
49) The primary factor affecting the auditor’s decision about acceptable risk of incorrect
acceptance (ARIA) is assessed inherent risk.
50) In stratified sampling, a maximum of four stratum can be used.
51) ARIA measures the auditor’s desired assurance for an account balance.
52) Acceptable audit risk and acceptable risk of incorrect acceptance are inversely related; that
is, as AAR increases, ARIA decreases.