You are on page 1of 41

# Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

## True / False Questions

1. The purpose of audit sampling is to dra inferences about the entire population from the results of a sample. True !alse

". The si#e of the upper limit on misstatement is largel\$ dependent on the sample si#e% hich is inversel\$ related to the desired confidence level. True !alse

9-1

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

-. The ob.ective of monetar\$-unit sampling is to test the assertion that no material misstatements e+ist in an account balance or class of transactions. True !alse

/. 0apha#ard selection allo s the auditor to select items .udgmentall\$. True !alse

9. After a sample is dra n randoml\$% the allo ance for sampling ris1 must be statisticall\$ 2uantified ithin a specified level of confidence. True !alse

10. Classical variables sampling uses normal distribution theor\$ to evaluate the characteristics of a population based on sample data. True !alse

## ultiple Choice Questions

11. The ris1 of incorrect acceptance and the ris1 of overreliance relate to the A. 3reliminar\$ estimates of materialit\$ levels. B. Allo able ris1 of tolerable error. C. *fficienc\$ of the audit. 4. *ffectiveness of the audit.

1". 5hile performing a substantive test of details during an audit% the auditor determined that the sample results supported the conclusion that the recorded account balance as materiall\$ misstated. 6t as% in fact% not materiall\$ misstated. Such a situation illustrates the ris1 of A. 6ncorrect re.ection. B. 6ncorrect acceptance. C. Assessing control ris1 too high. 4. Assessing control ris1 too lo .

9-"

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

1&. A number of factors influence the sample si#e for a substantive test of details of an account balance. All other factors being e2ual% hich of the follo ing ould lead to a larger sample si#e7 A. 8reater reliance on internal controls. B. 8reater reliance on anal\$tical procedures. C. Smaller e+pected fre2uenc\$ of misstatements. 4. Smaller measure of tolerable misstatements.

1(. 5hich of the follo ing sample planning factors ould influence the sample si#e for a substantive test of details for a specific account7 A. *+pected amount of misstatement but not the measure of tolerable misstatement. B. *+pected amount of misstatement and the measure of tolerable misstatement. C. 'easure of tolerable misstatement but not the e+pected amount of misstatement. 4. 9either the e+pected amount of misstatement nor the measure of tolerable misstatement.

1). 6n statistical or nonstatistical sampling methods used in substantive testing% an auditor most li1el\$ ould stratif\$ a population into meaningful groups if A. 'onetar\$-unit sampling :';S< is used. B. The population contains both ver\$ high and ver\$ lo recorded amounts. C. The auditor=s estimated tolerable misstatement is e+tremel\$ small. 4. The standard deviation of recorded amounts is relativel\$ small.

1,. An auditor is preparing to sample a client=s customer receivables for overstatement. A statistical sampling method that automaticall\$ provides stratification hen using s\$stematic selection is A. Attribute sampling. B. >atio-estimation sampling. C. 'onetar\$-unit sampling. 4. 'ean-per-unit sampling.

9-&

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

1-. 5hich of the follo ing statements best describes an inherent limitation of the monetar\$unit sampling method7 A. 6t can onl\$ be used for substantive testing of asset accounts. B. 6t re2uires the use of a computer s\$stem to perform the re2uired calculations. C. 'isstatement rates must be large and the misstatements must be overstatements. 4. 'isstatement rates must be small and the misstatements must be overstatements.

1/. !or monetar\$-unit sampling% the number of items tested is A. Al a\$s e2ual to sample si#e. B. Al a\$s greater than sample si#e. C. Al a\$s greater than or e2ual to sample si#e. 4. Al a\$s less than or e2ual to sample si#e.

19. 'onetar\$-unit sampling should not be used if A. The population includes several large items. B. The auditor e+pects overstatement errors. C. 'an\$ items in the account are e+pected to have errors. 4. 9o items in the account are e+pected to have errors.

"0. 6n monetar\$-unit sampling% population si#e is A. The dollar balance in an account. B. The number of items in an account. C. ;nrelated to sample si#e. 4. 6ncluded in the denominator of the formula to determine sample si#e.

"1. 'onetar\$-unit sampling is said to eliminate the need to stratif\$ the sample because A. Sample items are selected in proportion to their dollar amount. B. The ris1 of incorrect acceptance is inversel\$ related to sample si#e. C. Tolerable misstatement is considered hen determining sample si#e. 4. The upper limit on misstatements can be computed based on statistical principles.

9-(

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

"". An accounts receivable account balance is ?)00%000 and the auditor determines a sample si#e of &0 ould provide ade2uate assurance. The auditor plans to use a monetar\$-unit sampling plan ith s\$stematic sample selection. The auditor notices that there are si+ customer accounts of at least ?1)%000 and ould li1e the s\$stematic selection techni2ue to select all items that are at least ?1)%000% even if that means the sample si#e is slightl\$ larger than &0. To achieve the auditor=s ob.ectives% the sampling interval should be A. ,. B. "0. C. 1,%,,,. 4. 1)%000.

"&. !or monetar\$-unit sampling% a sampling interval of (00 means that A. *ver\$ (00th item in the account ill be selected in the sample. B. The average si#e of items in the account is (00. C. *ver\$ (00th dollar in the account ill be included in the sample. 4. The average misstatement in sample items is ?(00.

"(. 5hich of the follo ing sampling methods ould be used to estimate a numerical measurement of population% such as the dollar value of an account7 A. Attributes sampling. B. Stop-or-go sampling. C. Classical variables sampling. 4. >andom-number sampling.

"). 6n appl\$ing classical variables sampling% an auditor attempts to A. *stimate a 2ualitative characteristic of interest. B. 4etermine various rates of occurrence for specified attributes. C. 4iscover at least one instance of a critical deviation. 4. 3redict a monetar\$ population value ithin a range of precision.

9-)

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

",. 6n a monetar\$-unit sample ith a sampling interval of ?)%000% an auditor discovers that a selected account receivable ith a recorded amount of ?10%000 has an audit amount of ?/%000. 6f this ere the onl\$ error discovered b\$ the auditor% the pro.ected misstatement for this sample ould be A. ?)%000. B. ?(%000. C. ?"%000. 4. ?1%000.

"-. 3recision is a statistical measure of the ma+imum li1el\$ difference bet een the sample estimate and the true but un1no n population total and is directl\$ related to A. >eliabilit\$ of evidence. B. >elative ris1. C. Confidence level. 4. Cost benefit anal\$sis.

"/. 6n e+amining cash disbursements% an auditor plans to choose a sample using s\$stematic selection ith a random start. The primar\$ advantage of such a s\$stematic selection is that population items A. That include fraud ill not be overloo1ed hen the auditor e+ercises compatible reciprocal options. B. 'a\$ occur in a s\$stematic pattern% thus ma1ing the sample more representative. C. 'a\$ occur more than once in a sample. 4. 4o not have to be prenumbered in order for the auditor to use the techni2ue.

"9. 5hich of the follo ing courses of action ould an auditor most li1el\$ follo in planning a sample of cash disbursements if the auditor is a are of several unusuall\$ large cash disbursements7 A. Set the tolerable deviation rate at a lo er level than originall\$ planned. B. 6dentif\$ the large and unusual disbursements as individuall\$ significant and test 100 percent. C. 6ncrease the sample si#e to reduce the effect of the unusuall\$ large disbursements. 4. Continue to dra ne samples until all the unusuall\$ large disbursements appear in the sample.

9-,

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&0. 5hat is the primar\$ ob.ective of testing all individuall\$ significant items rather than sample testing7 A. To increase the audit ris1 at hich a decision ill be reached from the results of the sample selected. B. To increase sample si#e. C. To accept no sampling ris1 for items greater than tolerable misstatement. 4. To increase the si#e of the confidence bound around the pro.ected misstatement.

&1. 6n statistical sampling% setting the appropriate confidence level and desired sample precision are decisions made b\$ the auditor that ill affect sample si#e for a substantive procedure. 5hich of the follo ing should not be a factor in the choice of desired precision7 A. The sampling ris1. B. The si#e of an account balance misstatement considered material. C. The audit resources available for e+ecution of the sampling plan. 4. The ob.ectives of the audit test being conducted.

&". 5hich of the follo ing ould be an improper techni2ue hen using monetar\$-unit statistical sampling in an audit of accounts receivable7 A. Combining negative and positive dollar misstatements in the appraisal of a sample. B. ;sing a sampling techni2ue in hich the same account balance could be selected more than once. C. Selecting a random starting point and then sampling ever\$ nth dollar. 4. 4efining the sampling unit in the population as an individual dollar and not as an individual account balance.

&&. 6n a monetar\$-unit sampling plan% the upper misstatement limit is ?11%"00 and the ris1 of incorrect acceptance is )@. This means that A. Tolerable misstatement is ?11%"00. B. There is a 9)@ chance that the actual misstatement in the account is ?11%"00 or more. C. There is a 9)@ chance that the actual misstatement in the account is ?11%"00. 4. There is a 9)@ chance that the actual misstatement in the account is ?11%"00 or less.

9--

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&(. 6f the upper limit on misstatements e+ceeds tolerable misstatement% the auditor is least li1el\$ to A. 6ncrease sample si#e. B. Conduct other substantive procedures. C. Ad.ust the account balance. 4. 6ncrease the ris1 of incorrect re.ection.

&). 5hich of the follo ing most li1el\$ ould be an advantage in using classical variables sampling rather than monetar\$-unit sampling7 A. An estimate of the standard deviation of the population=s recorded amounts is not re2uired. B. The auditor rarel\$ needs the assistance of a computer program to design an efficient sample. C. 6nclusion of #ero and negative balances generall\$ does not re2uire special design considerations. 4. An\$ amount that is individuall\$ significant is automaticall\$ identified and selected.

&,. The assurance factor for nonstatistical sampling is based on A. The number of items in the account. B. Auditor .udgment. C. The ris1 of misstatement in the account and the level of desired assurance. 4. Aariabilit\$ in the population and the ris1 of misstatement in the account.

&-. The formula for nonstatistical sampling for tests of account balances provided b\$ the A6C3A A. 'ust be used for nonstatistical sampling. B. 6ncludes a provision for the ris1 of incorrect acceptance. C. 6s affected b\$ the nature of other substantive procedures used to test the account balance. 4. 6s largel\$ based on the variation of items in the account.

&/. The use of the ratio pro.ection is most effective hen A. The dollar amount of the misstatement is e+pected to relate to the dollar amount of items tested. B. A small number of differences e+ist in the population. C. *stimating populations hose records consist of 2uantities but not boo1 values. 4. Barge understatement differences e+ist in the population.

9-/

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&9. 5hich one of the follo ing statements is true regarding t o random samples% dra n in the same a\$% from the same population% one of si#e &0 and one of si#e &007 A. The t o samples are e+pected to have the same sample mean. B. The larger sample is more li1el\$ to produce a large sample mean. C. The smaller sample ill have a smaller 9)@ confidence interval for the mean. 4. The smaller sample ill% on average% produce a lo er estimate of the variance of the population.

(0. The accounting department reports that the balance of accounts receivable is ?"10%000. Cou are illing to accept that balance if audit sampling suggests it is ithin ?1)%000 of the actual balance. ;sing a classical variables sampling plan% \$ou compute a 9)@ confidence interval of ?"0/%000 to ?"")%000. Cou ould therefore A. 9ot be able to determine the acceptabilit\$ of the receivable balance. B. Accept the balance but ith a lo er level of confidence. C. Ta1e a larger sample before totall\$ re.ecting the balance and re2uiring ad.ustments. 4. Accept the ?"10%000 balance because the confidence interval is ithin the materialit\$ limits.

(1. 6n a monetar\$-unit sample ith a sampling interval of ?10%000% an auditor discovered that a selected account receivable ith a recorded amount of ?)%000 had an audit amount of ?"%000. The pro.ected misstatement of this sample as A. ?&%000. B. ?(%000. C. ?,%000. 4. ?/%000.

9-9

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(". An auditor established a ?,0%000 tolerable misstatement for an account balance of ?1%000%000. The auditor selected a sample of ever\$ t entieth item from the population of 1%000 items that represented the asset account balance and discovered overstatements of ?&%-00 and understatements of ?"00. ;nder these circumstances% the auditor most li1el\$ ould conclude that A. There is an unacceptabl\$ high ris1 that the actual misstatements in the population e+ceed the tolerable misstatement because the total pro.ected misstatement is more than the tolerable misstatement. B. There is an unacceptabl\$ high ris1 that the tolerable misstatement e+ceeds the sum of actual overstatements and understatements. C. The asset account is fairl\$ stated because the total pro.ected misstatement is less than the tolerable misstatement. 4. The asset account is fairl\$ stated because the tolerable misstatement e+ceeds the net of pro.ected actual overstatements and understatements.

(&. An auditor is performing substantive procedures of pricing and e+tension of perpetual inventor\$ balances consisting of a large number of items. 3ast e+perience indicates numerous pricing and e+tension errors. 5hich of the follo ing statistical sampling approaches is most appropriate7 A. ;nstratified mean-per-unit. B. 'onetar\$-unit sampling. C. Stop or go. 4. 4ifference pro.ection.

((. An auditor has ta1en a large sample from an audit population that is s1e ed in the sense that it contains a large number of small dollar balances. The auditor can conclude A. The sampling distribution is not normalD therefore ';S sampling ill more accuratel\$ define the nature of the population. B. The sampling distribution is normalD therefore the confidence coefficient value can be used to evaluate the sample results. C. The sampling distribution is not normalD thus attribute sampling is the onl\$ alternative statistical tool that can be appropriatel\$ used. 4. 9one of the above ans ers is correct.

9-10

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

Short Ans!er Questions

(). Summari#e the concept behind monetar\$-unit sampling :';S<. 0o does ';S use attribute-sampling theor\$7

## (,. 4escribe t o advantages and t o disadvantages of monetar\$-use sampling :';S<.

(-. Cou have been placed in charge of determining the sample si#e for an audit of accounts receivable. Cour superior ould li1e a confidence level of 99@. 0o does this affect \$our determination of sample si#e7 5hat can \$ou infer about the level of ris1 of incorrect acceptance that \$our superior is illing to accept7

9-11

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(/. 'atch each factor of sample si#e to :1< its relationship to sample si#e :A-4irect or B6nverse< and :"< the appropriate effect on the sample si#e if the factor increases :C-6ncrease or 4-4ecrease<. 1. Tolerable misstatement ". 3opulation si#e &. 4esired confidence level (. *+pected misstatement

(9. 5henever a statistical method is used% a decision rule determines hether the population is acceptable. The decision rule for monetar\$-unit sampling is EAccept the conclusion that the boo1 value is not misstated b\$ a material amount if FFFFFFFFFFFFFFFFFFFFFFFFF.E

)0. 6n nonstatistical sampling% describe the t o methods auditors use to pro.ect sample results to the population. 0o does an auditor determine hich method to use7

9-1"

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

)1. Cou are auditing accounts receivable for a small compan\$ and have found the follo ing results:

## ;se ratio pro.ection to pro.ect \$our results.

)". 5hat is one advantage and one disadvantage of classical variables sampling7

)&. 5hen auditing accounts pa\$able using classical variables sampling% Sue finds evidence indicating that the account ma\$ be materiall\$ misstated. 5hat are Sue=s options7

9-1&

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

atching Questions

)(. 'atching 1. 'us logical unit ". ';S Sampling unit &. ';S ;pper misstatement limit (. ';S misstatement an individual dollar the total of the pro.ected misstatement plus the allo ance for sampling ris1 the account or transaction that contains the selected dollar the difference bet een monetar\$ amounts in the client=s records and amounts supported b\$ audit evidence FFFF FFFF FFFF FFFF

9-1(

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

Chapter 09 Audit Sampling: An Application to Substantive Tests of Account Balances Ans er Ge\$

## True / False Questions

1. The purpose of audit sampling is to dra inferences about the entire population from the results of a sample. T"#\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alancesTo,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

". The si#e of the upper limit on misstatement is largel\$ dependent on the sample si#e% hich is inversel\$ related to the desired confidence level. FA%S\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Analy.e Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alancesTo,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

9-1)

## &. 'onetar\$-unit sampling is based on attribute sampling concepts. T"#\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alancesTo,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

## (. Confidence level is inversel\$ related to sample si#e. FA%S\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Analy.e Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alancesTo,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

## ). *+pected misstatement is directl\$ related to sample si#e. T"#\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Analy.e Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alancesTo,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

9-1,

## ,. 'onetar\$-unit sampling is commonl\$ used b\$ auditors to test controls. FA%S\$

AACSB: Analytic AICPA BB: Ind stry AICPA FN: Risk Analysis Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

-. The ob.ective of monetar\$-unit sampling is to test the assertion that no material misstatements e+ist in an account balance or class of transactions. T"#\$

AACSB: Analytic AICPA BB: Ind stry AICPA FN: Risk Analysis Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

## /. 0apha#ard selection allo s the auditor to select items .udgmentall\$. FA%S\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(1 #earn to a,,ly nonstatistical sam,ling techni2 esTo,ic: Nonstatistical Sam,ling for Tests of Acco nt Balances

9-1-

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

9. After a sample is dra n randoml\$% the allo ance for sampling ris1 must be statisticall\$ 2uantified ithin a specified level of confidence. FA%S\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(1 #earn to a,,ly nonstatistical sam,ling techni2 esTo,ic: Nonstatistical Sam,ling for Tests of Acco nt Balances

10. Classical variables sampling uses normal distribution theor\$ to evaluate the characteristics of a population based on sample data. T"#\$

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling

## ultiple Choice Questions

11. The ris1 of incorrect acceptance and the ris1 of overreliance relate to the A. 3reliminar\$ estimates of materialit\$ levels. B. Allo able ris1 of tolerable error. C. *fficienc\$ of the audit. &' *ffectiveness of the audit.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alances#earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling To,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

9-1/

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

1". 5hile performing a substantive test of details during an audit% the auditor determined that the sample results supported the conclusion that the recorded account balance as materiall\$ misstated. 6t as% in fact% not materiall\$ misstated. Such a situation illustrates the ris1 of A' 6ncorrect re.ection. B. 6ncorrect acceptance. C. Assessing control ris1 too high. 4. Assessing control ris1 too lo .

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alances#earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling To,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

1&. A number of factors influence the sample si#e for a substantive test of details of an account balance. All other factors being e2ual% hich of the follo ing ould lead to a larger sample si#e7 A. 8reater reliance on internal controls. B. 8reater reliance on anal\$tical procedures. C. Smaller e+pected fre2uenc\$ of misstatements. &' Smaller measure of tolerable misstatements.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Analy.e Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alances#earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling To,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

9-19

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

1(. 5hich of the follo ing sample planning factors ould influence the sample si#e for a substantive test of details for a specific account7 A. *+pected amount of misstatement but not the measure of tolerable misstatement. B' *+pected amount of misstatement and the measure of tolerable misstatement. C. 'easure of tolerable misstatement but not the e+pected amount of misstatement. 4. 9either the e+pected amount of misstatement nor the measure of tolerable misstatement.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alances#earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling To,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

1). 6n statistical or nonstatistical sampling methods used in substantive testing% an auditor most li1el\$ ould stratif\$ a population into meaningful groups if A. 'onetar\$-unit sampling :';S< is used. B' The population contains both ver\$ high and ver\$ lo recorded amounts. C. The auditor=s estimated tolerable misstatement is e+tremel\$ small. 4. The standard deviation of recorded amounts is relativel\$ small.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: A,,ly Diffic lty: ! "asy #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alances#earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling To,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

9-"0

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

1,. An auditor is preparing to sample a client=s customer receivables for overstatement. A statistical sampling method that automaticall\$ provides stratification hen using s\$stematic selection is A. Attribute sampling. B. >atio-estimation sampling. C' 'onetar\$-unit sampling. 4. 'ean-per-unit sampling.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

1-. 5hich of the follo ing statements best describes an inherent limitation of the monetar\$unit sampling method7 A. 6t can onl\$ be used for substantive testing of asset accounts. B. 6t re2uires the use of a computer s\$stem to perform the re2uired calculations. C. 'isstatement rates must be large and the misstatements must be overstatements. &' 'isstatement rates must be small and the misstatements must be overstatements.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

1/. !or monetar\$-unit sampling% the number of items tested is A. Al a\$s e2ual to sample si#e. B. Al a\$s greater than sample si#e. C. Al a\$s greater than or e2ual to sample si#e. &' Al a\$s less than or e2ual to sample si#e.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-"1

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

19. 'onetar\$-unit sampling should not be used if A. The population includes several large items. B. The auditor e+pects overstatement errors. C' 'an\$ items in the account are e+pected to have errors. 4. 9o items in the account are e+pected to have errors.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

"0. 6n monetar\$-unit sampling% population si#e is A' The dollar balance in an account. B. The number of items in an account. C. ;nrelated to sample si#e. 4. 6ncluded in the denominator of the formula to determine sample si#e.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

"1. 'onetar\$-unit sampling is said to eliminate the need to stratif\$ the sample because A' Sample items are selected in proportion to their dollar amount. B. The ris1 of incorrect acceptance is inversel\$ related to sample si#e. C. Tolerable misstatement is considered hen determining sample si#e. 4. The upper limit on misstatements can be computed based on statistical principles.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-""

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

"". An accounts receivable account balance is ?)00%000 and the auditor determines a sample si#e of &0 ould provide ade2uate assurance. The auditor plans to use a monetar\$-unit sampling plan ith s\$stematic sample selection. The auditor notices that there are si+ customer accounts of at least ?1)%000 and ould li1e the s\$stematic selection techni2ue to select all items that are at least ?1)%000% even if that means the sample si#e is slightl\$ larger than &0. To achieve the auditor=s ob.ectives% the sampling interval should be A. ,. B. "0. C. 1,%,,,. &' 1)%000. T\$picall\$ the threshold ould be ?1,%,,, :?)00%000H&0<% but in order to guarantee the selection of all items greater than ?1)%000% the sampling interval needs to be no greater than ?1)%000. 5hile a sampling interval of ?, or ?"0 ould also guarantee that all items greater than ?1)%000 are selected% such small intervals ould be inefficient and result in a sample si#e much greater than &0.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: A,,ly Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(5 6ork thro gh an e7tended e7am,le of monetary* nit sam,lingTo,ic: An "7tended "7am,le: 0US To,ic: 0onetary*Unit Sam,ling

"&. !or monetar\$-unit sampling% a sampling interval of (00 means that A. *ver\$ (00th item in the account ill be selected in the sample. B. The average si#e of items in the account is (00. C' *ver\$ (00th dollar in the account ill be included in the sample. 4. The average misstatement in sample items is ?(00.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(5 6ork thro gh an e7tended e7am,le of monetary* nit sam,lingTo,ic: An "7tended "7am,le: 0US To,ic: 0onetary*Unit Sam,ling

9-"&

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

"(. 5hich of the follo ing sampling methods ould be used to estimate a numerical measurement of population% such as the dollar value of an account7 A. Attributes sampling. B. Stop-or-go sampling. C' Classical variables sampling. 4. >andom-number sampling.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling

"). 6n appl\$ing classical variables sampling% an auditor attempts to A. *stimate a 2ualitative characteristic of interest. B. 4etermine various rates of occurrence for specified attributes. C. 4iscover at least one instance of a critical deviation. &' 3redict a monetar\$ population value ithin a range of precision.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling

9-"(

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

",. 6n a monetar\$-unit sample ith a sampling interval of ?)%000% an auditor discovers that a selected account receivable ith a recorded amount of ?10%000 has an audit amount of ?/%000. 6f this ere the onl\$ error discovered b\$ the auditor% the pro.ected misstatement for this sample ould be A. ?)%000. B. ?(%000. C' ?"%000. 4. ?1%000. Since the item sampled is greater than the sampling interval% the 1no n error of ?"%000 is e2ual to the pro.ected error.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alances#earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling To,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

"-. 3recision is a statistical measure of the ma+imum li1el\$ difference bet een the sample estimate and the true but un1no n population total and is directl\$ related to A. >eliabilit\$ of evidence. B. >elative ris1. C' Confidence level. 4. Cost benefit anal\$sis.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Analy.e Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(! Understand the similarities and differences %et+een a dit sam,ling for tests of controls and s %stanti'e tests of details of acco nt %alances#earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling To,ic: Sam,ling for S %stanti'e Tests of Details of Acco nt Balances

9-")

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

"/. 6n e+amining cash disbursements% an auditor plans to choose a sample using s\$stematic selection ith a random start. The primar\$ advantage of such a s\$stematic selection is that population items A. That include fraud ill not be overloo1ed hen the auditor e+ercises compatible reciprocal options. B. 'a\$ occur in a s\$stematic pattern% thus ma1ing the sample more representative. C. 'a\$ occur more than once in a sample. &' 4o not have to be prenumbered in order for the auditor to use the techni2ue.

AACSB: Analytic AICPA BB: Ind stry AICPA FN: Decision 0aking Blooms: Understand Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

"9. 5hich of the follo ing courses of action ould an auditor most li1el\$ follo in planning a sample of cash disbursements if the auditor is a are of several unusuall\$ large cash disbursements7 A. Set the tolerable deviation rate at a lo er level than originall\$ planned. B' 6dentif\$ the large and unusual disbursements as individuall\$ significant and test 100 percent. C. 6ncrease the sample si#e to reduce the effect of the unusuall\$ large disbursements. 4. Continue to dra ne samples until all the unusuall\$ large disbursements appear in the sample.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-",

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&0. 5hat is the primar\$ ob.ective of testing all individuall\$ significant items rather than sample testing7 A. To increase the audit ris1 at hich a decision ill be reached from the results of the sample selected. B. To increase sample si#e. C' To accept no sampling ris1 for items greater than tolerable misstatement. 4. To increase the si#e of the confidence bound around the pro.ected misstatement.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Analy.e Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

&1. 6n statistical sampling% setting the appropriate confidence level and desired sample precision are decisions made b\$ the auditor that ill affect sample si#e for a substantive procedure. 5hich of the follo ing should not be a factor in the choice of desired precision7 A. The sampling ris1. B. The si#e of an account balance misstatement considered material. C' The audit resources available for e+ecution of the sampling plan. 4. The ob.ectives of the audit test being conducted.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-"-

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&". 5hich of the follo ing ould be an improper techni2ue hen using monetar\$-unit statistical sampling in an audit of accounts receivable7 A' Combining negative and positive dollar misstatements in the appraisal of a sample. B. ;sing a sampling techni2ue in hich the same account balance could be selected more than once. C. Selecting a random starting point and then sampling ever\$ nth dollar. 4. 4efining the sampling unit in the population as an individual dollar and not as an individual account balance.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

&&. 6n a monetar\$-unit sampling plan% the upper misstatement limit is ?11%"00 and the ris1 of incorrect acceptance is )@. This means that A. Tolerable misstatement is ?11%"00. B. There is a 9)@ chance that the actual misstatement in the account is ?11%"00 or more. C. There is a 9)@ chance that the actual misstatement in the account is ?11%"00. &' There is a 9)@ chance that the actual misstatement in the account is ?11%"00 or less.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(5 6ork thro gh an e7tended e7am,le of monetary* nit sam,lingTo,ic: An "7tended "7am,le: 0US To,ic: 0onetary*Unit Sam,ling

9-"/

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&(. 6f the upper limit on misstatements e+ceeds tolerable misstatement% the auditor is least li1el\$ to A. 6ncrease sample si#e. B. Conduct other substantive procedures. C. Ad.ust the account balance. &' 6ncrease the ris1 of incorrect re.ection.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Remem%er Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(5 6ork thro gh an e7tended e7am,le of monetary* nit sam,lingTo,ic: An "7tended "7am,le: 0US To,ic: 0onetary*Unit Sam,ling

&). 5hich of the follo ing most li1el\$ ould be an advantage in using classical variables sampling rather than monetar\$-unit sampling7 A. An estimate of the standard deviation of the population=s recorded amounts is not re2uired. B. The auditor rarel\$ needs the assistance of a computer program to design an efficient sample. C' 6nclusion of #ero and negative balances generall\$ does not re2uire special design considerations. 4. An\$ amount that is individuall\$ significant is automaticall\$ identified and selected.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Remem%er Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling To,ic: 0onetary*Unit Sam,ling

9-"9

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&,. The assurance factor for nonstatistical sampling is based on A. The number of items in the account. B. Auditor .udgment. C' The ris1 of misstatement in the account and the level of desired assurance. 4. Aariabilit\$ in the population and the ris1 of misstatement in the account.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Remem%er Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(1 #earn to a,,ly nonstatistical sam,ling techni2 esTo,ic: Nonstatistical Sam,ling for Tests of Acco nt Balances

&-. The formula for nonstatistical sampling for tests of account balances provided b\$ the A6C3A A. 'ust be used for nonstatistical sampling. B. 6ncludes a provision for the ris1 of incorrect acceptance. C' 6s affected b\$ the nature of other substantive procedures used to test the account balance. 4. 6s largel\$ based on the variation of items in the account.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: 0eas rement Blooms: Understand Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(1 #earn to a,,ly nonstatistical sam,ling techni2 esTo,ic: Nonstatistical Sam,ling for Tests of Acco nt Balances

&/. The use of the ratio pro.ection is most effective hen A' The dollar amount of the misstatement is e+pected to relate to the dollar amount of items tested. B. A small number of differences e+ist in the population. C. *stimating populations hose records consist of 2uantities but not boo1 values. 4. Barge understatement differences e+ist in the population.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(1 #earn to a,,ly nonstatistical sam,ling techni2 es#earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling To,ic: Nonstatistical Sam,ling for Tests of Acco nt Balances

9-&0

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

&9. 5hich one of the follo ing statements is true regarding t o random samples% dra n in the same a\$% from the same population% one of si#e &0 and one of si#e &007 A' The t o samples are e+pected to have the same sample mean. B. The larger sample is more li1el\$ to produce a large sample mean. C. The smaller sample ill have a smaller 9)@ confidence interval for the mean. 4. The smaller sample ill% on average% produce a lo er estimate of the variance of the population.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: "'al ate Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling

(0. The accounting department reports that the balance of accounts receivable is ?"10%000. Cou are illing to accept that balance if audit sampling suggests it is ithin ?1)%000 of the actual balance. ;sing a classical variables sampling plan% \$ou compute a 9)@ confidence interval of ?"0/%000 to ?"")%000. Cou ould therefore A. 9ot be able to determine the acceptabilit\$ of the receivable balance. B. Accept the balance but ith a lo er level of confidence. C. Ta1e a larger sample before totall\$ re.ecting the balance and re2uiring ad.ustments. &' Accept the ?"10%000 balance because the confidence interval is ithin the materialit\$ limits. The upper bound of the confidence interval is not greater than ?1)%000 above the recorded value of the account receivable balance.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Analy.e Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling

9-&1

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(1. 6n a monetar\$-unit sample ith a sampling interval of ?10%000% an auditor discovered that a selected account receivable ith a recorded amount of ?)%000 had an audit amount of ?"%000. The pro.ected misstatement of this sample as A. ?&%000. B. ?(%000. C' ?,%000. 4. ?/%000. The misstatement amount is ,0@ ith a taint of .,0 of the boo1 value of the selected item. The taint is applied to the sampling interval to determine the pro.ected misstatement for the account. The pro.ected misstatement ould be ?,%000 :?10%000 + .,0<.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: A,,ly Diffic lty: 5 8ard #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(5 6ork thro gh an e7tended e7am,le of monetary* nit sam,lingTo,ic: An "7tended "7am,le: 0US To,ic: 0onetary*Unit Sam,ling

9-&"

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(". An auditor established a ?,0%000 tolerable misstatement for an account balance of ?1%000%000. The auditor selected a sample of ever\$ t entieth item from the population of 1%000 items that represented the asset account balance and discovered overstatements of ?&%-00 and understatements of ?"00. ;nder these circumstances% the auditor most li1el\$ ould conclude that A' There is an unacceptabl\$ high ris1 that the actual misstatements in the population e+ceed the tolerable misstatement because the total pro.ected misstatement is more than the tolerable misstatement. B. There is an unacceptabl\$ high ris1 that the tolerable misstatement e+ceeds the sum of actual overstatements and understatements. C. The asset account is fairl\$ stated because the total pro.ected misstatement is less than the tolerable misstatement. 4. The asset account is fairl\$ stated because the tolerable misstatement e+ceeds the net of pro.ected actual overstatements and understatements. 9et overstatement is ?&%)00. ;sing difference pro.ection% the mean misstatement per sampling unit is ?-0 :?&%)00H)0< and the pro.ected misstatement is ?-0%000 :?-0 + 1%000<. The pro.ected misstatement is larger than the tolerable :even before considering sampling ris1<.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Analy.e Diffic lty: 5 8ard #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(5 6ork thro gh an e7tended e7am,le of monetary* nit sam,lingTo,ic: An "7tended "7am,le: 0US To,ic: 0onetary*Unit Sam,ling

9-&&

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(&. An auditor is performing substantive procedures of pricing and e+tension of perpetual inventor\$ balances consisting of a large number of items. 3ast e+perience indicates numerous pricing and e+tension errors. 5hich of the follo ing statistical sampling approaches is most appropriate7 A. ;nstratified mean-per-unit. B. 'onetar\$-unit sampling. C. Stop or go. &' 4ifference pro.ection.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: A,,ly Diffic lty: 5 8ard #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling To,ic: 0onetary*Unit Sam,ling

((. An auditor has ta1en a large sample from an audit population that is s1e ed in the sense that it contains a large number of small dollar balances. The auditor can conclude A. The sampling distribution is not normalD therefore ';S sampling ill more accuratel\$ define the nature of the population. B' The sampling distribution is normalD therefore the confidence coefficient value can be used to evaluate the sample results. C. The sampling distribution is not normalD thus attribute sampling is the onl\$ alternative statistical tool that can be appropriatel\$ used. 4. 9one of the above ans ers is correct.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: A,,ly Diffic lty: 5 8ard #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,ling#earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling To,ic: 0onetary*Unit Sam,ling

9-&(

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

Short Ans!er Questions

(). Summari#e the concept behind monetar\$-unit sampling :';S<. 0o does ';S use attribute-sampling theor\$7 ';S uses attribute-sampling theor\$ to estimate the percentage of monetar\$ units in a population that might be misstated and then multiplies this percentage b\$ an estimate of the degree to hich the dollars are misstated.

AACSB: Comm nication AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Understand Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-&)

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(,. 4escribe t o advantages and t o disadvantages of monetar\$-use sampling :';S<. Should include t!o advantages and disadvantages from the follo!ing: Advantages: 1. 5hen the auditor e+pects no misstatements% ';S sample si#e can be computed and usuall\$ results in a smaller sample si#e than classical variables sampling. ". The calculation of the sample si#e and the evaluation of the sample results are not based on the variation bet een items in the population. &. 5hen applied using a probabilit\$-proportional-to-si#e sample selection procedure% ';S automaticall\$ results in a stratified sample because sampled items are selected in proportion to their dollar amounts. 6n effect% larger dollar items have a higher probabilit\$ of being selected. 4isadvantages: 1. The selection of #ero or negative balances generall\$ re2uires special design consideration. ". 6f the auditor detects items that are in error b\$ more than 100 percent% special ad.ustments ill be necessar\$ hen calculating sample results. &. 5hen more than one or t o misstatements are detected using a ';S approach% the sample results calculations ma\$ overstate the allo ance for sampling ris1.

AACSB: Comm nication AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-&,

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(-. Cou have been placed in charge of determining the sample si#e for an audit of accounts receivable. Cour superior ould li1e a confidence level of 99@. 0o does this affect \$our determination of sample si#e7 5hat can \$ou infer about the level of ris1 of incorrect acceptance that \$our superior is illing to accept7 A lot of or1 ill be re2uired to achieve a 99@ confidence level. This or1 is reflected in a relativel\$ large sample si#e. Because confidence levels and the ris1 of incorrect acceptance are complements% the superior is illing to accept a 1@ ris1 of incorrect acceptance.

AACSB: Comm nication AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Analy.e Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

(/. 'atch each factor of sample si#e to :1< its relationship to sample si#e :A-4irect or B6nverse< and :"< the appropriate effect on the sample si#e if the factor increases :C-6ncrease or 4-4ecrease<. 1. Tolerable misstatement ". 3opulation si#e &. 4esired confidence level (. *+pected misstatement 1. B% 4 ". A% C &. A% C (. A% C

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Analy.e Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-&-

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

(9. 5henever a statistical method is used% a decision rule determines hether the population is acceptable. The decision rule for monetar\$-unit sampling is EAccept the conclusion that the boo1 value is not misstated b\$ a material amount if FFFFFFFFFFFFFFFFFFFFFFFFF.E EAccept the conclusion that the boo1 value is not misstated b\$ a material amount if the ,,er misstatement limit is less than or e2 al to the tolera%le misstatement.E

AACSB: Comm nication AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: Remem%er Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

)0. 6n nonstatistical sampling% describe the t o methods auditors use to pro.ect sample results to the population. 0o does an auditor determine hich method to use7 5ith ratio pro.ection% the auditor applies the misstatement ratio observed in the sample to the population. >atio pro.ection should be used if the auditor e+pects the amount of misstatement to relate closel\$ to the si#e of the item. 4ifference pro.ection pro.ects the average misstatement of each item in the sample to all items in the population. 4ifference pro.ection should be used if the auditor e+pects the misstatements to be relativel\$ constant for all items in the population.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: A,,ly Diffic lty: / 0edi m #earning \$%&ecti'e: ()*(1 #earn to a,,ly nonstatistical sam,ling techni2 esTo,ic: Nonstatistical Sam,ling for Tests of Acco nt Balances

9-&/

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

)1. Cou are auditing accounts receivable for a small compan\$ and have found the follo ing results:

## ;se ratio pro.ection to pro.ect \$our results.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Blooms: A,,ly Diffic lty: 5 8ard #earning \$%&ecti'e: ()*(1 #earn to a,,ly nonstatistical sam,ling techni2 esTo,ic: Nonstatistical Sam,ling for Tests of Acco nt Balances

9-&9

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

)". 5hat is one advantage and one disadvantage of classical variables sampling7 Should include one advantage and disadvantage from the follo!ing: Advantages: 1. 5hen the auditor e+pects a large number of differences bet een boo1 and audited values% classical variables sampling ill normall\$ result in a smaller sample si#e than monetar\$-unit sampling. ". Classical variables sampling techni2ues are effective for both overstatements and understatements. 9o special evaluation considerations are necessar\$ if the sample data include both t\$pes of misstatements. &. The selection of #ero balances generall\$ does not re2uire special sample design considerations because the sampling unit ill be not an individual dollar but rather an account% a transaction% or a line item. 4isadvantages: 1. 4ifference estimation does not or1 ell ith EcleanE populations or populations ith little to no error% hich is common in auditing. The reason is that difference estimation re2uires information on differences to determine sample si#e and evaluate results. ". 6n order to determine the sample si#e% the auditor must estimate the standard deviation of the audited value or differences. &. 6f fe misstatements are detected in the sample data% the true variance tends to be underestimated and the resulting pro.ection of the misstatements to the population is li1el\$ to not be reliable.

AACSB: Comm nication AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling

9-(0

## Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances

)&. 5hen auditing accounts pa\$able using classical variables sampling% Sue finds evidence indicating that the account ma\$ be materiall\$ misstated. 5hat are Sue=s options7 Sue can :1< increase the sample si#e% :"< perform additional substantive procedures% :&< ad.ust the account% or :(< issue a 2ualified or adverse opinion if management refuses to ad.ust the account.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: A,,ly Diffic lty: ! "asy #earning \$%&ecti'e: ()*(3 #earn to a,,ly classical 'aria%les sam,lingTo,ic: Classical 4aria%les Sam,ling

atching Questions

)(. 'atching 1. 'us logical unit ". ';S Sampling unit &. ';S ;pper misstatement limit (. ';S misstatement an individual dollar the total of the pro.ected misstatement plus the allo ance for sampling ris1 the account or transaction that contains the selected dollar the difference bet een monetar\$ amounts in the client=s records and amounts supported b\$ audit evidence ( ) * +

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision 0aking Blooms: Remem%er Diffic lty: ! "asy #earning \$%&ecti'e: ()*(/ #earn to a,,ly monetary* nit sam,lingTo,ic: 0onetary*Unit Sam,ling

9-(1