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AT.114-Audit Sampling

L. R. CABARLES

1st Sem. SY 2013-14

LECTURE NOTES

Means of Selecting Items for Testing

When designing tests of controls and tests of details, the

auditors means of selecting items for testing are:

Audit sampling.

These approaches are described in further detail below.

Selecting All Items

100% examination is unlikely in the case of tests of

controls; however, it is more common for tests of details.

100% examination may be appropriate when, for example:

value items;

provide sufficient appropriate audit evidence; or

Selecting Specific Items

Specific items selected may include:

nature of the entity or the nature of transactions.

This does not constitute audit sampling. The results of

audit procedures applied to items selected in this way

cannot be projected to the entire population; accordingly,

selective examination of specific items does not provide

audit evidence concerning the remainder of the population.

Audit Sampling

Audit sampling is the application of audit procedures to

less than 100% of items within a population of audit

relevance such that all sampling units have a chance of

selection in order to provide the auditor with a reasonable

basis on which to draw conclusions about the entire

population. Audit sampling enables the auditor to obtain

and evaluate audit evidence about some characteristic of

the items selected in order to form or assist in forming a

conclusion concerning the population from which the

sample is drawn. This is the case when it is not efficient to

review 100% of the records or other circumstances make

reviewing all of the records difficult.

Representative Sample

A representative sample is one in which the characteristics

in the sample of audit interest are approximately the same

as those of the population. However, the two things that

cause a sample to be non-representative of the population

are sampling risk and non-sampling risk. These could also

be the two aspects of audit risk, i.e., [Audit risk = (f)

Sampling risk x Non-sampling risk].

Sampling Risks

Sampling risk is the risk that the auditors conclusion

based on a sample may be different from the conclusion if

the entire population were subjected to the same audit

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erroneous conclusions, such as:

Alpha Risk

(Type I

Misstatement)

Test of Controls

Sampling risks

Assessing control

risk too high

Controls are:

less effective

than they

actually are

Reliance on

Underreliance

internal control

Test of Details

Sampling risks

Incorrect

Rejection

Material

exists when in

misstatement:

fact it does not

Affects audit:

Efficiency

Beta Risk

(Type II

Misstatement)

Assessing control

risk too low

more effective than

they actually are

Overreliance

Incorrect Acceptance

does not exist when

in fact it does

Effectiveness

mathematical complements of these two risks are termed

confidence levels.

Dealing with sampling risks

The auditor can eliminate sampling risks by through

examining the entire population. However, examining the

entire population is normally not possible for the auditor.

Instead, the auditor usually manages or controls sampling

risk by making the sample more representative of the

population by:

Non-sampling Risks

Non-sampling risk is the risk that the auditor reaches an

erroneous conclusion for any reason not related to

sampling risk. Non-sampling risk is also an aspect of audit

risk not attributable to sampling such as human error due

to:

deviations) in the samples tested

Dealing with non-sampling risks

Non-sampling risks cannot be totally eliminated in audit.

There is always human error in audit as the auditors

judgment may not always be correct. However, the auditor

can manage non-sampling risks through:

Proper planning

and timely review of their work

The Two Sampling Approaches

Audit sampling can be applied using either non-statistical

or statistical sampling approaches. These two approaches

involve the use of auditors professional judgment in

planning and performing the sampling procedure and

evaluating the results of the sample.

AT.114

The table below summarizes the comparison between the two sampling

Statistical Sampling

Basic concepts

o Design efficient sample

o Measure sufficiency of sample

o

approaches:

Non-statistical Sampling

A sampling approach that does not have

characteristics of statistical sampling (i.e., no

random selection of sample items and does not

apply laws of probability)

Cannot measure sampling risk quantitatively,

only based on the auditors judgment.

Advantages

More defendable

Free from bias

Easy to apply

Less costly

Disadvantages

Reduces auditor skepticism

Increased cost

o Train auditors

o Design samples

o Determine sample size

o Evaluate sample results

When designing and performing audit sampling, the

auditor normally observes the following 10 steps:

Step 1: Define the purpose (objective) of the audit test.

Step 2: Define the deviation or misstatement.

Step 3: Identify and understand the relevant population.

Step 4: Determine the relevant sampling unit.

Step 5: Select an appropriate approach of sampling.

Step 6: Determine the sample size.

Step 7: Select the sample items.

Step 8: Examine and evaluate the evidence for the sample.

Step 9: Evaluate the tests results.

Step 10: Document the audit sampling performed.

The steps above are the same regardless of, the sampling

approach selected whether statistical or non-statistical, the

type of audit sampling technique utilized and whether the

test is the performance of test of controls or test of details.

Step 1: Define the purpose (objective) of the audit

test

When designing an audit sample, the auditor shall consider

the purpose (objective) of the audit procedure. The

auditors consideration includes the specific purpose (test

of controls or test of details) to be achieved and the

combination of audit procedures that is likely to best

achieve that purpose.

Step 2: Define a deviation or misstatement

The auditor considers what conditions constitute a

deviation or misstatement by reference to the objectives of

the test.

Deviations for Tests of Controls

For example, suppose that a control requires support for

every disbursement to include an invoice, a voucher, a

receiving report, and a purchase order; all stamped Paid.

The auditor believes that the existence of an invoice and a

receiving report, both stamped Paid, is necessary to

indicate adequate performance of the control. Therefore, in

this case, a deviation may be defined as a disbursement

not supported by an invoice and a receiving report that has

been stamped Paid.

Misstatement for Tests of Details

For example, in a test of details relating to the existence of

accounts receivable, such as confirmation, payments made

by the customer before the confirmation date but received

shortly after that date by the client, are not considered a

misstatement.

Step 3: Identify and understand the relevant

population

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sample is selected and about which the auditor wishes to

draw conclusions. For example, all of the items in an

account balance or a class of transactions constitute a

population. The auditor needs to identify the relevant

population and consider its characteristics from which the

sample will be drawn. Considering the characteristics of

the population would include:

or misstatement and the auditors tolerable rate of

deviation or misstatement.

selection is appropriate.

In addition, it is important that the population is

appropriate to satisfy the established objective of the audit

procedures by considering the direction of the test.

Assessment of Expected Rate of Deviation or Misstatement

and Tolerable Rate of Deviation or Misstatement

For test of controls, the auditor makes a preliminary

assessment of the expected rate of deviation based on the

auditors understanding of the relevant controls or on the

examination of a small number of items from the

population (pilot testing). This assessment is made in

order to design an audit sample and to determine sample

size. For example, if the expected rate of deviation is

unacceptably high than the auditors tolerable rate of

deviation, the auditor will normally decide not to perform

tests of controls. Similarly, for test of details, the auditor

makes an assessment of the expected misstatement in the

population. If the expected misstatement is high, 100%

examination or use of a large sample size may be

appropriate when performing tests of details. This is

normally the case when the auditors expected

misstatement is approximately or higher than tolerable

misstatement. Tolerable deviation rate or misstatement is

the rate of deviation or monetary amount the auditor is

willing to accept on the population.

Stratification and Value-Weighted Selection

Stratification

Audit efficiency may be improved if the auditor stratifies a

population by dividing it into discrete sub-populations

which have an identifying characteristic. Stratification

reduces the variability of items within each stratum and

allow sample size to be reduced without increasing

sampling risk. For example, 20% of the items in a

population may make up 90% of the value of an account

balance. The results of audit procedures applied to a

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sample of items within a stratum can only be projected to

the items that make up that stratum.

Value-Weighted Selection

When performing tests of details it may be efficient to

identify the sampling unit as the individual monetary units

that make up the population. This is discussed further

below under Monetary Unit Sampling.

Completeness of the population

The population used to make a sample selection needs to

contain all sampling units that are to be subjected to

sampling procedures. The totality of the population may

be verified by:

obtained to that of the population

documents or records.

Direction of the Test, Appropriate to Test Objective

For test of controls

If the auditor wishes to test the operating effectiveness of

a prescribed control designed to ensure that all shipments

are billed, the auditor would not detect deviations by

sampling billed items because that population would not be

expected to contain items that were shipped but not billed.

An appropriate population for detecting such deviations is

usually the population of all shipped items.

For test of details

When understanding the risks of material misstatement

the direction in which the population may be misstated

may need to be considered.

When testing for overstatement, items to be examined are

selected directly from the population of audit interest.

When testing for understatement, items to be examined

are selected from a reciprocal or independent population.

Populations on which we may perform audit sampling to

test for understatement and examples of appropriate

reciprocal populations may include:

Population of audit

interest

Accounts payable

Sales

Example of a potential

reciprocal population

Subsequent disbursements

Shipping documents

reduce sampling risk to an acceptably low level. The

sample size can be determined by the application of a

statistically-based formula or through the exercise of

professional judgment (non-statistical).

The tables below list the factors affecting sample size for

test of controls and test of details.

Test of Controls (Attribute Sampling)

Factor

Tolerable deviation rate

Allowable risk of assessing control risk

too low/Sampling risk (beta risk)

Expected population deviation rate

Population size

Factor

Tolerable misstatement

Allowable risk of incorrect

acceptance/Sampling risk (beta risk)

Expected amount of misstatement

Assessed level of control risk

Population size

between statistical and non-statistical approaches and the

choice between the two approaches is independent of audit

procedures to be performed.

Step 6: Determine the sample size

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Relationship

Inverse

Inverse

Direct

Direct

Negligible effect

The auditor shall select items for the sample in such a way

that each sampling unit in the population has a chance of

selection. It is important that the auditor selects a

representative sample, so that bias is avoided.

Sample Selection Methods

The principal methods of selecting samples are the use of

random selection, systematic selection and haphazard

selection. Sample selection methods are classified into

probabilistic (statistical) and non-probabilistic (nonstatistical).

Probabilistic Sample Selections

a. Random-number Selection

Every sampling unit has the same probability of

being selected as every other sampling unit in the

population.

Uses computer-generated numbers to select

sampling units.

Match number to prenumbered documents.

b.

The decision whether to use a statistical or non-statistical

sampling approach is a matter for the auditors judgment;

in making that judgment the auditor consider the

following:

Effectiveness

Direct

Negligible effect

Sampling unit is the individual items constituting a

population. The sampling units might be physical items

(for example, checks listed on deposit slips, credit entries

on bank statements, sales invoices or debtors balances) or

monetary units. The total population of the sampling units

could be manually prepared documents or lists, documents

generated from computer systems, or an electronic file

provided by the entity.

Relationship

Inverse

Inverse

c.

sampling.

Systematic Selection

divided by the sample size to give a sampling

interval, for example 50, and having determined a

starting point within the first 50, each 50th

sampling unit thereafter is selected. Starting point

may be determined haphazardly or randomly.

population are not structured in such a way that

the sampling interval corresponds with a particular

pattern in the population.

sampling

Stratified Selection

into sub-populations, each of which is a group of

sampling units which have similar characteristics

(often monetary value).

prior methods

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Non-probabilistic Sample Selections

a. Block Selection

Involves selection of a block(s) of contiguous items

from within the population.

sampling without care in controlling sampling risk

b. Haphazard Selection

structured technique.

conscious bias

c. Direct sample selection

such as likelihood of misstatement, characteristics

such as different time periods, or large amounts.

Step 8: Examine and evaluate the evidence for the

sample

The auditor shall perform audit procedures, appropriate to

the purpose, on each item selected.

Voided Sample

The auditor shall perform the procedure on a replacement

item. If the auditor is satisfied that the sample has been

properly voided such that it does not constitute a

deviation, and the chosen replacement is examined.

Missing or Lost Sample

If the auditor is unable to apply the designed audit

procedures, or suitable alternative procedures, to a

selected item, the auditor shall treat that item as a

deviation from the prescribed control, in the case of tests

of controls, or a misstatement, in the case of tests of

details.

For tests of controls, no explicit projection of deviations is

necessary since the sample deviation rate (SDR) is also the

projected deviation rate (PDR) for the population as a

whole. SDR is the rate of deviation in the operation of

controls detected in the sample by performing tests of

controls. SDR = # of sample deviations / sample size.

PDR, a.k.a., upper deviation or precision limit, is the rate

of deviation that the auditor estimates to be in the

population. PDR = SDR + allowance for sampling risk

(Beta risk). An allowance for sampling risk can only be

calculated where the auditor has used statistical sampling.

Projecting Misstatements for Tests of Details

For tests of details, the auditor shall project misstatements

found in the sample to the population. Sample

misstatement is the monetary misstatement detected in

the sample by performing tests of details.

Projected misstatement is the monetary misstatement that

the auditor estimates to be in the population, and is

calculated by adjusting the sample misstatement by an

allowance for sampling risk. An allowance for sampling risk

can only be calculated where the auditor has used

statistical sampling. The methods for calculating an

allowance for sampling risk and projecting the sample

error differ between classical variables sampling and

Monetary Unit Sampling (MUS). This is discussed below.

When a misstatement has been established as an anomaly,

it may be excluded when projecting misstatements to the

population.

Evaluate Sample Results and Reach an Overall Conclusion

Overall Conclusion for Tests of Controls

deviations in auditing the first part of a sample. As a

result, the auditor might believe that even if no additional

errors were to be discovered in the remainder of the

sample, the results of the sample would not support the

planned assessed level of control risk.

evaluating the sample results for tests of controls:

tolerable deviation rate = the control is operating

effectively. If the PDR = or > tolerable deviation rate =

the control is not operating effectively as designed.

expected deviation rate = control is operating

effectively. If the SDR = or > expected deviation rate

= control is not operating effectively as designed.

reaching an overall conclusion. In evaluating the sample

results, the auditor:

misstatements,

misstatements, and

misstatement, if any, exceeds tolerable misstatement, the

sample does not provide a reasonable basis for conclusions

about the population that has been tested. The closer the

projected misstatement plus anomalous misstatement is to

tolerable misstatement, the more likely that actual

misstatement in the population may exceed tolerable

misstatement.

The auditor shall investigate the nature and cause of any

deviations or misstatements identified, and evaluate their

possible effect on the purpose of the audit procedure and

on other areas of the audit.

In the extremely rare circumstances the auditor considers

a misstatement or deviation discovered in a sample to be

an anomaly (not representative of population). The auditor

shall obtain a high degree of certainty that such

misstatement or deviation is not representative of the

population. For example is an error that is found to be

caused by use of an incorrect formula in calculating all

inventory values at one particular branch.

provided a reasonable basis for conclusions about the

population that has been tested, the auditor may:

identified and the potential for further misstatements

and to make any necessary adjustments; or

Tailor the nature, timing and extent of those further

audit procedures to best achieve the required

assurance.

Step 10: Document the Audit Sampling Performed

The auditor should document the sampling application and

related audit procedures.

Types of Statistical Sampling

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The two commonly used statistical sampling used in

auditing are:

1. Attributes samplinggenerally used for tests of controls

procedure

on frequency in sample

indicates control is working effectively

2. Variables Samplinggenerally used for tests of details

stated

items in sample

Attributes Sampling

a. Traditional (Classical) attributes sampling

steps of audit sampling.

determined and sample tested to estimate error

rate in population

b. Stop-or-go (Sequential) sampling

Performed in stages

each stage

sample if few or no errors detected

c. Discovery sampling

extremely low or zero

it exists

Variables Sampling

a. Traditional (Classical) variables sampling The

procedures the auditor follows to apply this sampling

have been discussed above under the steps of audit

sampling. There are three approaches to classical

variables sampling for auditing applications that differ

in the way the misstatement is projected to the

population are:

total population amount by calculating an average

multiplying that average amount by the number of

items constituting the population.

Difference approach The auditor calculates the

average difference between audited and recorded

amounts of the sample items and projects that

average difference to the population.

Ratio approach The auditor calculates the ratio

between the sum of the audited amounts and the

sum of the recorded amounts of the sample items

and projects this ratio to the population. The

auditor estimates the total population amount by

multiplying the total recorded amount for the

population by the same ratio.

variability of the audited amounts in the sample, the

auditor also calculates an allowance for sampling risk.

b.

to Size (PPS) or Value-weighted selection)

Uses attributes sampling theory to express a

conclusion in amounts rather than as a rate of

occurrence.

its recorded amount.

or no errors are expected

Useful for testing assets and revenues

o Items with larger amounts have a greater

probability of being selected

o An item that is individually material will

automatically be selected

o Sample size may be reduced as the same item

may be selected more than once

o The sample distribution does not have to be

close to the distribution in the population for

the sample to be valid

o Sampling can be initiated prior to year-end

more easily

Disadvantages of PPS

being selected

generally included in the sample

an increase in sample size

- done -

MULTIPLE CHOICE

Selecting Items for Testing

1. Evaluate whether each of the following statements

qualifies as sampling:

1.1 Test performed on 100% of the items within a

population

1.2 Selecting items over a certain amount

1.3 Selecting items for the total population on the

basis that was expected to be representative

a. 1.1, 1.2, 1.3 qualify

b. 1.1 and 1.2 qualify; 1.3 does not qualify

c. 1.1 and 1.2 do not qualify; 1.3 qualifies

d. 1.1, 1.2, 1.3 do not qualify

Basic Concepts of Audit Sampling

2. Audit sampling, which involves the application of audit

procedures to less than 100 percent of items within a

population of audit relevance such that all sampling

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approaches to audit sampling. They are

a. Random and nonrandom

b. Statistical and nonstatistical

c. Precision and reliability

d. Risk and nonrisk

3. An advantage of statistical sampling over nonstatistical

sampling is that statistical sampling helps an auditor to

a. Minimize the failure to detect errors and

irregularities.

b. Eliminate the risk of nonsampling errors.

c. Reduce the level of audit risk and materiality to a

relatively low amount.

d. Mathematically measures sampling risk.

4. A nonstatistical sampling plan can:

a. Overstate the estimate of sampling risk

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b.

c.

d.

Replicate the results of a statistical sampling plan

Understate the degree of audit assurance desired

sample may be different from the conclusion if the

entire population were subjected to the same audit

procedure

a. Sampling risk

b. Confidence levels

c. Statistical sampling

d. Tolerable rate and the expected rate of deviation

6. Which of the following best illustrates the concept of

sampling risk?

a. A randomly chosen sample may not be

representative of the population as a whole on the

characteristic of interest.

b. An auditor may select audit procedures that are

not appropriate to achieve the specific objective.

c. An auditor may fail to recognize errors in the

documents examined for the chosen sample.

d. The documents related to the chosen sample may

not be available for inspection.

7. At times a sample may indicate in the case of a test of

controls, that controls are more effective than they

actually are. This situation illustrates the risk of

a. Over-reliance.

c. Incorrect precision.

b. Under-reliance.

d. Incorrect rejection.

8. At times a sample may indicate in the case of a test of

details that a material misstatement does not exist

when in fact it does. This situation illustrates the risk

of

a. Incorrect rejection

c. Over reliance

b.

Incorrect acceptance

d.

Under reliance

(risk of over reliance) and risk of incorrect acceptance

relate to the

a. Efficiency of the audit

b.

c.

d.

Preliminary estimates of materiality levels

Allowable risk of tolerable misstatements

misstatements or deviations included in the sample for

what they are

a. Sampling risk

c. Statistical sampling

b. Confidence levels

d. Nonsampling risk

11. Which of the following is not an element of

nonsampling risk?

a. The auditor uses inappropriate procedures in

auditing accounts receivable

b. The use of unreasonable small sample size

c. Misinterpretations of audit evidence

d. Auditor fails to recognize the error in the sample

12. Which of the following would be an example of

sampling error?

a. The auditor chose a random sample, calculated a

sample error rate of 4%, and concluded that the

population error rate was 4%. The true population

error rate was 6%.

b. The auditor selected a non-random sample and

generalized the sample results to the population

using statistical methods.

c. The auditor chose a non-random sample to focus

on transactions for only 2 months of the year.

d. The auditor chose a random sample and divided

the number of errors in the sample by the number

of accounts in the sample to calculate the sample

error rate.

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13. Which of the following is not one of the basic phases in

audit sampling?

a. Planning the sample

b. Evaluating the results of the sample

c. Selecting the sample and performing the tests

d. Each of the above is a phase in audit sampling.

14. Sampling unit is

a. A process that divides population into subpopulations which have an identifying

characteristic and reduces the variability of items

within each stratum and allows sample size to be

reduced without increasing sampling risk

b. A selection that treats each sampling unit as the

individual monetary units that make up the

population.

c. The individual items constituting a population.

d. The entire set of data from which a sample is

selected and about which the auditor wishes to

draw conclusions.

Sample Size: Test of Controls

15. When sampling for attributes, which of the following

would decrease sample size?

a

b

c

d

Operating

Increase Decrease Increase Decrease

effectiveness

of controls

Tolerable rate Decrease Increase

Increase

Increase

of deviation

Expected

Increase Decrease Decrease Decrease

control

deviation

Risk of over Decrease Increase

Increase Decrease

reliance

16. To determine the sample size for a test of control, an

auditor should consider the tolerable rate of deviation,

the allowable risk of assessing control risk too low, and

the

a. Expected deviation rate

b.

c.

d.

Risk of incorrect acceptance

Risk of incorrect rejection

generally

a. Lower than the expected rate

related accounting population.

b. Higher than the expected rate

related accounting records.

c. Identical to the expected rate

related accounting records.

d. Unrelated to the expected rate

related accounting records.

test of controls is

of errors in the

of errors in the

of errors in the

of errors in the

statistical sampling in tests of controls?

a. The population size has little or no effect on

determining sample size except for very small

population.

b. The expected control deviation has little or no

effect on determining sample size except for very

small populations.

c. As the population size doubles, the sample size

also should double.

d. A large sample size should be selected as the

expected control deviation decreases.

19. Which of the following statements is correct concerning

statistical sampling in tests of controls?

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a.

b.

c.

d.

sample size and the expected control deviation

rate.

As the population size doubles, the sample size

should also double.

The qualitative aspects of deviations are not

considered by the auditor.

There is an inverse relationship between the

sample size and the tolerable rate of deviation.

20. In substantive testing, which of the following would

increase sample size?

Assessment

of control risk

Reliance

on

other

substantive

procedures

Tolerable

misstatement

Expected

amount

of

misstatement

Risk

of

incorrect

acceptance

a

Increase

b

Increase

c

Increase

Increase

Decrease

Decrease

Decrease

Increase

Decrease

Increase

Decrease

Increase

Decrease

Increase

Decrease

d

Decrease

are evidenced on an entitys vouchers by matching

Increase

random numbers with voucher numbers. If a random

number matches the number of a voided voucher, that

voucher ordinarily should be replaced by another

voucher in the random sample if the voucher

Increase

a. Constitutes a deviation.

b. Has been properly voided.

Decrease

c. Cannot be located.

d. Represents an immaterial peso amount.

Increase

sample size for substantive test of details of an

account balance. Assume all other factors being equal.

a. Smaller measure of tolerable misstatement

b. Greater reliance of analytical procedures

c. Greater reliance on internal controls

d. Smaller expected frequency of errors

Sample Selection Methods

22. Identify the sample selection method used, following

the same order:

I. Selecting items using a constant interval between

selections; the first interval having a random start.

II. Selecting items from the entire population with no

intention to include or exclude specific units

III. All items in the population or within each stratum

have a known chance of selection

a. Systematic, random, haphazard.

b. Systematic, haphazard, random.

c. Haphazard, systematic, random.

d. Random, systematic, haphazard.

23. An underlying feature of random-based selection of

items is that each

a. Stratum of the accounting population be given

equal representation in the sample.

b. Item in the accounting population be randomly

ordered.

c. Item in the accounting population should have an

opportunity to be selected.

d. Item must be systematically selected using

replacement.

24. If certain forms are not consecutively numbered

a. Selection of a random sample probably is not

possible.

b. Systematic sampling may be appropriate.

c. Stratified sampling should be used.

d. Random number tables cannot be used.

25. Which of the following statistical selection techniques is

least desirable for use by an auditor?

a. Systematic selection

c. Block selection

b. Stratified selection

d. Sequential selection

Nature and Cause of Error

26. An auditor plans to examine a sample of 20 purchase

orders for proper approvals as prescribed by the

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One of the

purchase orders in the chosen sample of 20 cannot be

found, and the auditor is unable to use alternative

procedures to test whether that purchase order was

properly approved. The auditor should

a. Chose another purchase order to replace the

missing purchase order in the sample.

b. Consider this test of control invalid and proceed

with substantive tests since internal control cannot

be relied upon.

c. Treat the missing purchase order as a deviation for

the purpose of evaluating the sample.

d. Select a completely new set of 20 purchase orders.

a. An error (deviation or misstatement) that arises

from an isolated event that has not recurred other

than on specifically identifiable occasions and is

therefore not representative of errors in the

population.

b. An deviation or misstatement (error) that the

auditor expects to be present in the population.

c. Rate of deviation from prescribed internal control

procedures set by the auditor in respect of which

the auditor seeks to obtain an appropriate level of

assurance that the rate of deviation set by the

auditor is not exceeded by the actual rate of

deviation in the population.

d. Monetary amount set by the auditor in respect of

which the auditor seeks to obtain an appropriate

level of assurance that the monetary amount set

by the auditor is not exceeded by the actual

misstatement in the population.

Attributes Sampling

29. Which of the following sampling methods is most

useful to auditors when performing tests of controls?

a. Discovery sampling.

b. Attribute estimation/sampling.

c. Variable sampling.

d. Unrestricted random sampling with replacement.

30. Which of the following statistical sampling plans does

not use a fixed sample size for tests of controls?

a. Ratio estimation sampling c. MUS sampling

b. Sequential sampling

d. Variables sampling

31. If the auditor is concerned that a population may

contain exceptions, the determination of a sample size

sufficient to include at least one such exception is a

characteristic of

a. Discovery sampling.

c. Random sampling.

b.

Variables sampling.

d.

PPS sampling.

sales invoices processed during the year. The auditor

designed a statistical sample that would provide 1%

risk of assessing control risk too low (99% confidence)

that not more than 7% of the sales invoices lacked

approval. The auditor estimated from previous

experience that about 2 % of the sales invoices

lacked approval. A sample of 200 invoices was

examined and 7 of them were lacking approval. The

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P1-203

auditor then determined the achieved upper precision

limit to be 8%. The allowance for sampling risk was

a. 5 %

c. 3 %

b. 4 %

d. 1%

33. In the evaluation of this sample, the auditor decided to

increase the level of preliminary assessment of control

risk (CR is high) because the

a. Tolerable rate (7%) was less than the achieved

upper precision limit (8%).

b. Expected deviation rate (7%) was more than the

percentage of errors in the sample (3 %).

c. Achieved upper precision limit (8%) was more than

the percentage of error in the sample 3-1/2%).

d. Expected deviation rate (2 - %) was less than

the tolerable rate (7%).

34. An auditor who uses statistical sampling for attributes

in testing internal controls should increase the

assessed level of control risk (CR is high) when the

a. Sample rate of deviation is less than the expected

rate of deviation used in planning the sample.

b. Tolerable rate less the allowance for sampling risk

exceeds the sample rate of deviation.

c. Sample rate of deviation plus the allowance for

sampling risk exceeds the tolerable rate.

d. Sample rate of deviation plus the allowance for

sampling risk equals the tolerable rate.

Variables Sampling

35. Which of the following sampling methods would be

used to estimate a numerical measurement of a

population, such as a peso value?

a. Attributes sampling

c. Variables sampling

b. Stop-or-go sampling

d. Random sampling

36. The following are the classical variables techniques,

except:

a. Ratio estimation

c. Value weighted selection

b. MPU estimation

d. Difference estimation

37. Which of the following is not a problem with monetaryunit selection?

a. Population items with a zero recorded balance.

b. Population items that should have a zero balance

but do not.

Page 8 of 8

d. Accounts with small recorded balances that are

significantly understated.

38. In statistical sampling methods used in substantive

testing, an auditor most likely would stratify a

population into meaningful groups if

a. Probability proportional to size (PPS) sampling is

used

b. The population has highly variable recorded

amounts

c. The auditors estimated tolerable misstatement is

extremely small.

d. The standard deviation of recorded amount is

relatively small.

39. An auditor is evaluating the results of a variables

sampling plan. Which of the following is not relevant to

the auditor's judgment about the sample?

a. Management's explanations for why errors in the

sample occurred.

b. Projecting the sample error to the population.

c. Considering the effects of sampling risk.

d. Qualitative information that lends insight into

errors found.

40. Using statistical sampling to assist in verifying the

year-end accounts payable balance, an auditor has

accumulated the following data:

Number

Book

Balance

of

balance

determined

accounts

by the

auditor

Population

4,100

P5,000,000

?

Sample

200

P 250,000

P300,000

Using the ratio estimation technique, the auditor's

estimate of year-end accounts payable balance would

be

a. P6,150,000

c. P5,125,000

b.

P6,000,000

d.

P6,025,000

- end of AT.114 -

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P1-203

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