Far Eastern University

ACCOUNTING 1.1

Chapter 8: SPECIALIZED AUDIT TOOLS: SAMPLING AND GAS

Related PSA: PSA 530

1)The entire set of data about which the auditor wishes to draw conclusions is called

1. Population.
2. Sample.
3. Sampling frame.
4. Sampling unit.

2. Which of the following constitutes audit sampling?

1. Selecting and examining specific items to determine whether or not a particular procedure is being performed.
2. Examining items to obtain information about matters such as the client’s business, the nature of transactions, accounting and internal control systems.
3. Examining items whose values exceed a certain amount so as to verify a large proportion of the total amount of an account balance or class of transactions.
4. Applying audit procedures to less than 100% of items within an account balance or class of transactions such that all sampling units have a chance of selection.

3. Audit sampling is not involved in the following, except

1. Performing a walkthrough test.
2. Performing analytical procedures
3. Selecting the sample without following a structured technique.
4. Testing controls that leave no audit trail.

4. The following situations will likely lead the auditor to use 100% testing, except

1. When the population constitutes a small number of large value items.
2. When both inherent and control risks are high and other means do not provide sufficient appropriate audit evidence
3. When the repetitive nature of a calculation or other process performed by a computer information system makes a 100% examination cost effective.
4. When testing controls that leave audit trail.

5. Which of the following is true about sampling and non-sampling risks?
   1. 1. Sampling risk can be reduced by increasing sample size.
      2. Sampling risk cannot be eliminated.
      3. Non-sampling risk can be eliminated by proper engagement planning, supervision, and review.
      4. Non-sampling risk arises from the possibility that the auditor’s conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure.

6. Which statement is incorrect about sampling risk?
   1. 1. Sampling risk arises from the possibility that the auditor’s conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure.
      2. Risk of assessing control risk too low and risk of incorrect acceptance affects audit effectiveness as it would usually lead to additional work to establish that initial conclusions were incorrect.
      3. The mathematical complements of sampling risks are termed confidence levels.
      4. Risk of assessing control risk too high is the risk that the auditor will conclude, in the case of a test of control, that control risk is higher than it actually is.

7. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to
   1. 1. Minimize the failure to detect errors and frauds.
      2. Eliminate nonsampling risk.
      3. Reduce the level of audit risk and materiality to a relatively low amount.
      4. Measure the sufficiency of the evidential matter obtained.

8. Each time an auditor draws a conclusion based on evidence from a sample, an additional risk, sampling risk, is introduced. An example of sampling risk is
   1. 1. Projecting the results of sampling beyond the population tested.
      2. Properly applying an improper audit procedure to sample data.
      3. Improperly applying a proper audit procedure to sample data.
      4. Drawing an erroneous conclusion from sample data.

9. Which of the following best illustrates the concept of sampling risk?
   1. 1. A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.
      2. An auditor may select audit procedures that are not appropriate to achieve the specific objective.
      3. An auditor may fail to recognize errors in the documents examined for the chosen sample.
      4. The documents related to the chosen sample may not be available for inspection.

10. Which of the following statements is not correct?

1. It is acceptable for auditor to use statistical sampling methods.
2. It is acceptable for auditor to use non-statistical sampling methods. Page 9 of 14 AT-5912
3. The primary benefit of statistical sampling methods is the quantification of sampling risk.
4. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.

11. A sample in which every possible combination of items in the population has an equal chance of constituting the sample is a
    1. 1. Representative sample
       2. Statistical sample
       3. Random sample
       4. Judgment sample

12. The process which requires the calculation of an interval and then selects the items based on the size of the interval is
    1. 1. Statistical sampling
       2. Random selection
       3. Systematic selection
       4. Computerized selection

13. 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

1. Block selection
2. Random selection
3. Systematic selection
4. Haphazard selection

14. Which of the following statistical selection techniques is least desirable for use by an auditor?

1. Systematic selection
2. Stratified selection
3. Block selection
4. Sequential selection

15. For which of the following audit tests would an auditor most likely use attribute sampling?
    1. 1. Making an independent estimate of the amount of a FIFO inventory.
       2. Examining invoices in support of the valuation of fixed asset additions.
       3. Selecting accounts receivable for confirmation of account balances.
       4. Inspecting employee time cards for proper approval by supervisors.