Auditing, 12e (Arens)
Chapter 11 Audit Sampling Concepts
11.1 Define sampling. Decide when an auditor would use statistical rather than nonstatistical
sampling
1) CAS 530 has a very specific definition of sampling. Assuming that each item (described as a
sampling unit) in the populations below could be selected as part of the sample, which of the
following illustrates the other part of the CAS 530 definition of sampling?
A) looking at 50 sales invoices from the current population of 100,000
B) recalculating interest calculations for notes payable
C) estimating the gross profit by product for all company products
D) inspecting all legal invoices for potential contingent liabilities
2) A sample in which the characteristics of the sample are the same as those of the population is
a(n)
A) random sample.
B) variables sample.
C) attribute sample.
D) representative sample.
3) Assume that the client’s internal controls require a clerk to attach a shipping document to
every duplicate sales invoice. But this procedure is not followed exactly 3 percent of the time. If
the auditor selects a sample of 200 duplicate sales invoices, which of the following sample
results is most representative of the population?
A) three shipping documents are missing
B) six shipping documents are missing
C) five shipping document are missing
D) there were no shipping documents missing
4) Nonsampling errors occur when audit tests do not uncover existing exceptions in the
A) population.
B) sample.
C) planning stage.
D) financial statements.
5) One of the causes of nonsampling error is
A) the use of inappropriate or ineffective audit procedures.
B) failure to draw a random sample.
C) failure to draw a representative sample.
D) the use of attribute sampling instead of variables sampling.
6) One of the ways to eliminate nonsampling risk is through
A) proper supervision and instruction of the client’s employees.
B) proper supervision and instruction of the audit team.
C) the use of attribute sampling rather than variables sampling.
D) controls which ensure that the sample drawn is random and representative.
7) Sampling risk (sampling error) is an inherent part of sampling that results from
A) inappropriate audit procedures.
B) failure to recognize exceptions.
C) testing less than the entire population.
D) weaknesses in the client’s internal control system.
8) One of the ways to reduce sampling risk is to
A) use an appropriate method of selecting sample items from the population.
B) carefully design the audit procedures to be used.
C) provide proper supervision and instruction of the audit team.
D) use variables sampling rather than attribute sampling.
9) One of the purposes of using statistical sampling is to quantify sampling risk. For which of the
following audit tests would sampling risk be zero? The auditor
A) used monetary unit sampling to select a sample of payroll payments.
B) used attribute sampling to select a sample of shipping documents.
C) sent empty (zero balance) external confirmations to suppliers with large dollar balances.
D) sent external confirmations to all financial institutions used by the client.
10) Carrie found an error in the sample she tested from the population of accounts receivable that
was over 90 days old. The error found by Carrie should be extrapolated to the population of
A) all past due accounts receivable.
B) accounts receivable over 90 days.
C) all accounts receivable.
D) current accounts receivable.
11) An advantage of using statistical over nonstatistical sampling methods in tests of controls is
that the statistical methods
A) afford greater assurance and clarity than a nonstatistical sample of equal size.
B) provide an objective basis for quantitatively evaluating sample risks.
C) can more easily convert the sample into a dual-purpose test useful for substantive testing.
D) eliminate the need to use judgment in determining appropriate sample sizes.
12) The auditing standards indicate that
A) it is preferable to use statistical sampling instead of non-statistical sampling.
B) it is preferable to use non-statistical sampling instead of statistical sampling.
C) it is equally acceptable to use either statistical or non-statistical sampling.
D) non-statistical sampling should only be used if statistical sampling is too costly to use.
13) An example of judgmental sampling is
A) block sampling.
B) simple random sample selection.
C) systematic sample selection.
D) proportionate-to-size sample selection.
14) The auditor has decided to audit all accounts receivable amounts that are over 120 days old
and over $5,000. What type of sample selection method is the auditor using?
A) haphazard
B) systematic
C) directed
D) block
15) The auditor has selected a sequence of 200 payroll cheques to verify the numerical continuity
of the cheque numbers. What type of sampling is the auditor doing?
A) haphazard
B) systematic
C) directed
D) block
16) A common use of block testing is testing
A) cut-off.
B) existense.
C) authorization.
D) valuation.
17) When the auditor goes through a population and selects items for the sample without regard
to their size, source, or other distinguishing characteristics, it is called
A) block selection.
B) haphazard selection.
C) systematic selection.
D) statistical selection.
18) Which of the following statements is a valid criticism of the use of non-statistical sampling
methods?
A) Many audit tests, such as footing of journals, must be performed outside a statistical sampling
context.
B) The cost of performing random selection or testing often exceeds the benefits.
C) Nonstatistical sampling does not differ substantially from statistical sampling methods.
D) The difficulty of remaining unbiased in the selection of items.
19) The auditor wants to trace credits from the accounts receivable transaction history files to the
duplicate bank deposit slips and other authorized sources as a test for fictitious credits in the data
files. Which of the following sampling methods would be the least costly to use in this situation?
A) simple random
B) block
C) systematic
D) probability proportionate-to-size
20) An underlying feature of the random-based selection of items is that each
A) stratum of the population be given equal representation in the sample.
B) each item in the population must be randomly ordered.
C) each item in the population should have an equal opportunity to be selected.
D) each item must be systematically selected using replacement.
21) A) Discuss what is meant by “sampling risk.”
B) Discuss what is meant by “nonsampling risk.”
C) Discuss two causes of nonsampling risk. Also discuss ways the auditor can control
nonsampling risk.
D) Discuss two ways the auditor can control sampling risk.
22) A) Describe the differences between statistical and nonstatistical sampling in terms of (1) the
sample selection methods used, and (2) measurement (quantification) of sampling risk.
B) Describe each of the three types of sample selection methods commonly associated with
nonstatistical audit sampling.
C) Directed sample selection is the selection of each item in the sample based on some judgment
criteria established by the auditor. Describe three commonly used criteria.
23) Kyle is performing a test of detail using a non-statistical sample.
A) Can Kyle formally measure sampling error?
B) What should Kyle consider in determining the sampling error?
11.2 Explain the three different ways that an auditor can select a statistical sample
1) When statistical sampling is used, the sample selected must be a probabilistic one. In addition,
the auditor should
A) use the haphazard selection method to make sure that the sample is properly selected.
B) use appropriate statistical evaluation methods of non-sampling risk computations.
C) request the client to review the sample and approve all items that are selected.
D) use appropriate statistical evaluation methods of sampling risk computations.
2) When the auditor intends to evaluate a sample statistically, the only acceptable selection
method is
A) probabilistic selection.
B) judgmental selection.
C) haphazard selection.
D) block selection.
3) When does the auditor use simple random sampling?
A) when the auditor has a particular judgmental criteria that is used to select the sample
B) where the auditor wants numbers in sequence and would like to select the sample rapidly
C) for testing of cut-off after the year end with respect to accounts payable
D) for populations where each item is considered to have the same characteristics for audit
purposes
4) The process which requires the calculation of an interval and then selects the items based on
the size of the interval is
A) statistical sampling.
B) random selection.
C) systematic selection.
D) computerized selection.
5) In systematic selection, population size is divided by the number of sample items desired in
order to determine the
A) interval.
B) tolerable exception rate.
C) computed upper exception rate.
D) mean.
6) When systematic sample selection is used, the first item is selected randomly and all other
items are selected automatically. If the characteristic of interest is not distributed randomly in
the population, the systematic selection creates the possibility of
A) bias.
B) abnormal frequency distribution.
C) judgmental intervention in the process.
D) selecting mostly larger dollar items.
7) In performing a review of his client’s cash disbursements, a public accountant uses systematic
sampling with a random start. The primary disadvantage of systematic sampling is that
population items
A) must be reordered in a systematic pattern before the sample can be drawn.
B) may occur in a systematic pattern, thus negating the randomness of the sample.
C) may occur twice in the sample.
D) must be replaced in the population after sampling to permit valid statistical inference.
8) A method of sampling in which all the items in the population are divided into two or more
subpopulations is
A) variables sampling.
B) attribute sampling.
C) stratified sampling.
D) divisible sampling.
9) When the auditor would like to improve the efficiency of the audit by focusing work on
transactions that may be more subject to material error in a particular area of the population, the
auditor will use
A) block testing.
B) haphazard sample selection.
C) random sample selection.
D) stratified sample selection.
10) Which of the following best describes what the auditor means by the exception rate in the
attribute sampling plan? The
A) number of errors that can reasonably be expected to be found in a population.
B) frequency with which a certain characteristic occurs within a population.
C) degree of confidence that the sample is representative of the population.
D) dollar range within which the true population total can be expected to fall.
11) A statistical method used to estimate the proportion of items in a population containing a
characteristic of interest is
A) population-proportional-to-size sampling.
B) attribute sampling.
C) variables sampling.
D) estimation sampling.
12) A public accountant examining inventory may appropriately apply sampling for attributes in
order to estimate the
A) average price of inventory items.
B) percentage of slow-moving inventory items.
C) dollar value of inventory.
D) physical quantity of inventory items.
13) The occurrence rate or exception rate for attribute sampling is defined as the
A) exception rate that the auditor will permit in the population and still be willing to use the
assessed control risk.
B) risk that the auditor is willing to take of accepting a balance as correct when the true
misstatement in the balance is greater than materiality.
C) exception rate that the auditor expects to find in the population before testing begins.
D) ratio of the items containing a specific attribute to the total number of population items.
14) If an auditor would like to estimate how many sales invoices have errors (such as no required
order number showing or authorization for customers exceeding their credit limit) , the auditor
would likely use
A) random sampling with replacement.
B) sampling for attributes.
C) sampling for variables.
D) stratified random sampling.
15) The auditor is going to select a sample to find out whether any potentially fraudulent
transactions have been processed. The auditor should use what type of sampling?
A) attribute sampling
B) discovery sampling
C) monetary unit sampling
D) variable estimation sampling
16) The auditor is going to select a sample of accounts receivable to circulate external
confirmations, and then estimate the total dollar value of the accounts receivable balance. The
auditor should use what type of sampling?
A) attribute sampling
B) discovery sampling
C) monetary unit sampling
D) variable estimation sampling
17) The most common method used for performing statistical tests of controls is
A) variables sampling.
B) attribute sampling.
C) judgment sampling.
D) random selection of samples.
18) Attribute sampling would be an appropriate method to use on which one of the following
procedures in an audit program?
A) Review sales transactions for large and unreasonable amounts.
B) Observe whether the duties of the accounts receivable clerk are separate from handling cash.
C) Examine a sample of duplicate sales invoices for credit approval by the credit manager.
D) Review the aged schedule of accounts receivable to determine if amounts receivable from
officers are included.