AUDITING THEORY

Sampling Methods

1. The internal auditor suspects that the invoices from a small number of vendors contain serious errors and therefore
limits the sample to those vendors only. A major disadvantage of selecting such a directed sample of items to examine is
the
a. Difficulty in obtaining sample items
b. Inability to quantify the sampling error related to the total population of vendor invoices
c. Absence of a normal distribution
d. Tendency to sample a greater number of units

2. When sampling is used, sufficiency of audit evidence is achieved when

a. Each item in the population has a chance of being selected
b. The standard deviation in the sample is less than or equal to the corresponding statistic for the population
c. The evidence gathered is directly related to the assertion the auditor is attempting to verify
d. There is reasonable assurance that the items selected are representative of the sampled population

3. In order to quantify the risk that sample evidence leads to erroneous conclusions about the sampled population,
a. Each item in the sampled population must have an equal chance of being selected
b. Each item in the sampled population must have a chance of being selected that is proportional to its book value
c. Each item in the sampled population must have an equal or known probability of being selected
d. The precise number of items in the population must be known

4. Each time an internal auditor draws a conclusion based on evidence from a sample, an additional risk, sampling risk,
is introduced. An example of sampling risk is
a. Projecting the results of sampling beyond the population tested
b. Using an improper audit procedure with a sample
c. Incorrectly applying an audit procedure to sample data
d. Drawing an erroneous conclusion from sample data

5. Several risks are inherent in the evaluation of audit evidence that has been obtained through the use of statistical
sampling. an example of a beta or Type II error related to sampling risk is the failure to
a. Properly define the population to be sampled
b. Draw a random sample from the population
c. Reject the statistical hypothesis that a book value is not materially misstated when the true book value is materially
misstated
d. Accept the statistical hypothesis that a book value is not materially misstated when the true book value is not
materially misstated

6. A confidence level of 90% means that

a. The expected error rate is equal to 10%
b. The point estimate obtained is within 10% of the true population value
c. There are 90 chances out of 100 that the sample results will not vary from the true characteristics of the population by
more than a specified amount
d. A larger sample size is required than if the desired confidence level were equal to 95%

7. In statistical sampling, setting the appropriate confidence level and desired sample precision are decisions made by
the auditor that will affect sample size for a substantive test. Which of the following should not be a factor in the choice
of desired precision?
a. The sampling risk
b. The size of an account balance misstatement considered material
c. The audit resources available for execution of the sampling plan
d. The objectives of the audit test being conducted

8. The accounting department reports the accounts payable balance as $175,000. You are willing to accept that balance
if it is within P15,000 of the actual balance. Using a variables sampling plan, you compute a 95% confidence interval of
P173,000 to P190,000. You would therefore
a. Find it impossible to determine the acceptability of the balance
b. Accept the balance but with a lower level of confidence
c. Take a larger sample before totally rejecting the balance and requiring adjustments
d. Accept the P175,000 balance because the confidence interval is within the materiality limits
9. In conducting a substantive test of an account balance, an auditor hypothesizes that no material misstatement exists.
The risk that sample results will support the hypothesis when a material misstatement actually does exist is the risk of
a. Incorrect rejection b. Alpha error c. Incorrect acceptance d. Type I error

10. In the audit of a health insurance claims processing department, a sample is taken to test for the presence of fictitious
payees, though none are suspected. The most appropriate sampling plan is
a. Attribute sampling b. Discovery sampling c. Variables sampling d. Stop or go sampling

11. An internal auditor plans to test the accuracy of recorded quantities on hand in an inventory file against the actual
quantities on hand. Under which of the following conditions would the auditor be least likely to use a stop or go
sampling plan?
a. The population to be sampled is very large
b. The auditor expects the population to contain a high rate of deviations
c. The auditor plans to draw a relatively small sample size
d. The auditor plans to determine an upper precision limit for the estimated percentage of deviations contained in the
population

12. A statistical sampling technique that will minimize sample size whenever a low rate of noncompliance is expected is
a. Ratio estimation sampling c. Stratified mean per unit sampling
b. Difference estimation sampling d. Stop or go sampling

13. When planning an attribute sampling application, the difference between the expected deviation rate and the
maximum tolerable rate is the planned
a. Precision b. Reliability c. Dispersion d. Skewness

14. In applying variables sampling, an auditor attempts to

a. Estimate a qualitative characteristic of interest
b. Determine various rates of occurrence for specified attributes
c. Discover at least one instance of a critical deviation
d. Predict a monetary population value within a range of precision

15. The use of probability proportional to size sampling is inefficient if

a. Bank accounts are being audited c. Each account is of equal importance
b. Statistical inferences are to be made d. The number of sampling units is large