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AT.3114 SOLIMAN/UY/RICAFRENTE
Determining the Extent of Testing OCTOBER 2021

References:
a. PSA 530, Audit Sampling

LECTURE NOTES
Means of Selecting Items for Testing
When designing tests of controls and tests of details, the
auditor’s means of selecting items for testing are:
• Selecting all items (100% examination),
• Selecting specific items, and
• Audit sampling.
Sampling Risks
Sampling risk is the risk that the auditor’s conclusion based
on a sample may be different from the conclusion if the
entire population were subjected to the same audit
procedure. Sampling risk can lead to two types of
erroneous conclusions, such as:

These approaches are described in further details below. Alpha Risk Beta Risk
(Type I (Type II
Selecting All Items Misstatement) Misstatement)
Test of Controls
100% examination is unlikely in the case of tests of
Assessing control Assessing control
controls; however, it is more common for tests of details. Sampling risks
100% examination may be appropriate when, for example: risk too high risk too low
• The population constitutes a small number of large less effective
more effective than
Controls are: than they
value items; they actually are
actually are
• There is a significant risk and other means do not
Reliance on
provide sufficient appropriate audit evidence; or Under-reliance Overreliance
internal control
• Cost effective by using CAATs.
Test of Details
Selecting Specific Items Incorrect
Sampling risks Incorrect Acceptance
Rejection
Specific items selected may include:
Material exists when in does not exist when
• High value or key items. misstatement: fact it does not in fact it does
• All items over a certain amount.
Affects audit: Efficiency Effectiveness
• Items to obtain information about matters such as
the nature of the entity or the nature of The auditor is more concerned with beta risk. The
transactions. mathematical complements of these two risks are
This does not constitute audit sampling. The results of audit termed confidence levels.
procedures applied to items selected in this way cannot be
projected to the entire population; accordingly, selective Dealing with sampling risks
examination of specific items does not provide audit The auditor can eliminate sampling risks by examining the
evidence concerning the remainder of the population. entire population. However, examining the entire population
is normally not possible for the auditor. Instead, the auditor
Audit Sampling usually manages or controls sampling risk by making the
Audit sampling is the application of audit procedures to less sample more representative of the population by:
than 100% of items within a population of audit relevance • Increasing the sample size
such that all sampling units have a chance of selection in • Using appropriate method of selecting sample
order to provide the auditor with a reasonable basis on items
which to draw conclusions about the entire
population. Audit sampling enables the auditor to obtain Non-sampling Risks
and evaluate audit evidence about some characteristic of
Non-sampling risk is the risk that the auditor reaches an
the items selected in order to form or assist in forming a
erroneous conclusion for any reason not related to sampling
conclusion concerning the population from which the sample
risk. Non-sampling risk is also an aspect of audit risk not
is drawn. This is the case when it is not efficient to review
attributable to sampling such as human error due to:
100% of the records or other circumstances make reviewing
all of the records difficult. • Use or application of inappropriate audit
procedures
Representative Sample of the Population • Failure to recognize errors (misstatements or
deviations) in the samples tested
A representative sample is one in which the characteristics • Misinterpretation of evidence obtained
in the sample of audit interest are approximately the same
as those of the population. However, the two things that Dealing with non-sampling risks
cause a sample to be non-representative of the population
are sampling risk and non-sampling risk. These could also Non-sampling risks cannot be totally eliminated in audit.
be the two aspects of audit risk, i.e., [Audit risk = (f) There is always a chance of human error in audit as the
Sampling risk x Non-sampling risk]. auditor’s judgment may not always be correct. However,
the auditor can manage non-sampling risks through:
• Proper planning

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• Adequate direction and supervision of the audit The steps above are the same regardless of, the sampling
team and timely review of their work approach selected whether statistical or non-statistical, the
type of audit sampling technique utilized and whether the
The Two Sampling Approaches test is the performance of test of controls or test of details.
Audit sampling can be applied using either non-statistical or Step 1: Define the purpose (objective) of the audit
statistical sampling approaches. These two approaches test
involve the use of auditor’s professional judgment in When designing an audit sample, the auditor shall consider
planning and performing the sampling procedure and the purpose (objective) of the audit procedure based on the
evaluating the results of the sample. assessment of ROMM at the assertion level. The auditor’s
consideration includes the specific purpose (test of controls
or test of details) to be achieved and the combination of
The table below presents the comparison between the two audit procedures that is likely to best achieve that purpose.
sampling approaches:
Statistical Non-statistical Step 2: Define a deviation or misstatement
Sampling Sampling The auditor considers what conditions constitute a deviation
• A sampling or misstatement by reference to the objectives of the test.
• Random approach
Deviations for Tests of Controls
selection of the that does not
sample items have For example, suppose that a control requires support for
• Apply the laws characteristic every disbursement to include an invoice, a voucher, a
or theory of s of receiving report, and a purchase order; all stamped “Paid.”
probability to: statistical The auditor believes that the existence of an invoice and a
o Design sampling receiving report, both stamped “Paid,” is necessary to
efficient (i.e., no indicate adequate performance of the control. Therefore, in
sample random this case, a deviation may be defined as “a disbursement
o Measure selection of not supported by an invoice and a receiving report that has
Basic
sufficiency sample items been stamped ‘Paid.’”
concepts
of sample and does not
apply laws of Misstatement for Tests of Details
o Evaluate
sample probability) For example, in a test of details relating to the existence of
results • Cannot accounts receivable, such as confirmation, payments made
o Measure measure by the customer before the confirmation date but received
sampling sampling risk shortly after that date by the client, are not considered a
risk quantitativel misstatement.
quantitative y, only based
ly on the Step 3: Identify and understand the relevant
auditor’s population
judgment.
• Easy to Population means the entire set of data from which a sample
• More defendable is selected and about which the auditor wishes to draw
Advantages • Free from bias apply
• Less costly conclusions. For example, all of the items in an account
balance or a class of transactions constitute a
• Overvalue the • Relies
population. The auditor needs to identify the relevant
evidence it exclusively
population and consider its characteristics from which the
provides on
sample will be drawn. Considering the characteristics of the
• Reduces auditor professional
population would include:
skepticism judgment to
Disadvantage • o Determine • Preliminary assessment of expected rate of
Increased cost, deviation or misstatement and the auditor’s
s due to: sample
tolerable rate of deviation or misstatement.
o training size
o Evaluate • Determining whether stratification or value-
auditors weighted selection is appropriate.
o designing sample
results • Ascertaining the completion of population.
samples
In addition, it is important that the population is appropriate
to satisfy the established objective of the audit procedures
Audit Sampling Process by considering the direction of the test.

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.
Assessment of Expected Rate of Deviation or Misstatement
and Tolerable Rate of Deviation or Misstatement
Tolerable deviation rate or misstatement is the rate of
deviation or monetary amount the auditor is willing to
accept on the population.
For test of controls, the auditor makes a preliminary
assessment of the expected rate of deviation based on the
auditor’s 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

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EXCEL PROFESSIONAL SERVICES, INC.
the auditor’s 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 auditor’s
expected misstatement is approximately or higher than
tolerable misstatement.
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 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:
• Footing the population items and comparing the
total obtained to that of the population
• Accounting for numerical sequence of
prenumbered 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. While, 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 Example of a potential
interest reciprocal population o Sample large enough to detect at least one
Accounts payable Subsequent disbursements o Any errors in sample results in rejection
Sales Shipping documents
Step 4: Determine the relevant sampling unit
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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.
Step 5: Select an appropriate approach of sampling
The decision whether to use a statistical or non-statistical
sampling approach is a matter for the auditor’s judgment;
in making that judgment the auditor consider the following:
• The choice is based on relative costs and benefits
• Effectiveness
• Need for quantitative estimate of sampling risk
However, sample size is not a valid criterion to distinguish
between statistical and non-statistical approaches and the
choice between the two approaches is independent of audit
procedures to be performed.
Types of Statistical Sampling
The two commonly used statistical sampling used in
auditing are:
• Attributes sampling–generally used for tests of
controls
o Tests rate of deviation from a prescribed
control procedure
o Estimate frequency of errors in population
based on frequency in sample
o Determine whether or not estimated error
rate indicates control is working effectively
o Attribute – a characteristic of control
o Deviation – absence of the attribute
• Variables Sampling–generally used for tests of
details
o Tests whether recorded account balances
are fairly stated
o Estimate value of population based on
value of items in sample
Attributes Sampling
• Traditional (Classical) attributes sampling
o Under traditional attribute sampling,
sample size is determined and sample
tested to estimate error rate in population
• Stop-or-go (Sequential) sampling
o Performed in stages
o Auditor decides to stop or continue
sampling after each stage
o Appropriate when expected deviation rate
is low
o Sample selected in steps
o Each step is based on results of previous
step
o No fixed sample size and may result in
lower sample if few or no errors detected
• Discovery sampling
o Sample size is very small
o Appropriate when expected deviation rate
is extremely low or zero
error if it exists
Variables Sampling
• Traditional (Classical) variables sampling – There
are three approaches to classical variables
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sampling for auditing applications that differ in the
way the misstatement is projected to the
population are:
• population, sample size and evaluation of the test results.
o Mean-per-unit approach – The auditor
estimates a total population amount by
calculating an average audited amount for
all items in the sample and multiplying
that average amount by the number of
items constituting the population.
o 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.
o 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.
Using normal distribution theory based on the variability
of the audited amounts in the sample, the auditor also
calculates an allowance for sampling risk.
• Monetary unit sampling (a.k.a., Probability
Proportional to Size (PPS) or Value-weighted
selection)
o Uses attributes sampling theory to express
a conclusion in amounts rather than as a
rate of occurrence.
o Probability of selecting an item is
proportional to its recorded amount.
o Automatically stratifies an audit population
o Appropriate for testing for overstatement
and few or no errors are expected
Useful for testing assets and revenues
• The auditor shall select items for the sample in such a way
o Advantages over classical variables
sampling
§ Items with larger amounts have a
greater probability of being
selected
§ An item that is individually
material will automatically be
selected
§ Sample size may be reduced as
the same item may be selected
more than once
§ The sample distribution does not
have to be close to the distribution
in the population for the sample to
be valid
§ Sampling can be initiated prior to
year-end more easily
o Disadvantages of PPS
§ Understated items have a lower
probability of being selected
§ Items with zero or negative
balances are not generally included
in the sample
§ A high frequency of misstatements
results in an increase in sample
size
NOTE: The discussions below present traditional (classical)
attributes sampling and traditional (classical) variables
sampling for test of controls and test of details, respectively.
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Though the different types of sampling, as presented above,
follow the same steps to be discussed, they generally differ
in considering factors in determining these areas:
Step 6: Determine the sample size
The auditor shall determine a sample size sufficient to
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 Relationship
Tolerable deviation rate Inverse
Allowable risk of assessing control risk
Inverse
too low/Sampling risk (beta risk)
Expected population deviation rate Direct
Population size Negligible effect
Test of Details (Variables Sampling)
Factor Relationship
Assessment of the ROMM/level of
Direct
control risk
Other substantive tests Inverse
Tolerable misstatement Inverse
Allowable risk of incorrect
Inverse
acceptance/Sampling risk (beta risk)
Expected amount of misstatement Direct
Effect of stratification Inverse
Population size Negligible effect
Step 7: Select the sample items
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 (non-
statistical).
Probabilistic Sample Selections
• Random-number Selection
o Every sampling unit has the same
probability of being selected as every other
sampling unit in the population.
o Uses computer-generated numbers to
select sampling units.
o Match number to prenumbered documents.
o Appropriate for both statistical and
nonstatistical sampling.
• Systematic Selection
o The number of sampling units in the
population is 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.
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o Determine that sampling units within the
population are not structured in such a
way that the sampling interval corresponds
with a particular pattern in the population.
o Useful when identification numbers lacking
o Appropriate for both statistical and
nonstatistical sampling
• Stratified Selection
o Stratification is the process of dividing a
population into sub-populations, each of
which is a group of sampling units which
have similar characteristics (often
monetary value).
o Subdivide population into homogeneous
strata
o Select separate sample for each strata by
on of prior methods
Non-probabilistic Sample Selections
• Block Selection
o Involves selection of a block(s) of
contiguous items from within the
population.
o Inefficient & not generalizable
o Should not be used for statistical or
nonstatistical sampling without care in
controlling sampling risk
• Haphazard Selection
o The auditor selects the sample without
following a structured technique.
o Sampling units selected without special
reason or conscious bias
o Inappropriate for statistical sampling
o Useful for nonstatistical sampling
• Direct sample selection
o Auditor selects items based on judgmental
criteria 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, and evaluate the audit
evidence obtained.
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.
Stopping the Test Before Completion
Occasionally the auditor might find a large number of
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.
Step 9: Evaluate the tests results
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The auditor uses judgment in evaluating the results and
reaching an overall conclusion. In evaluating the sample
results, the auditor:
• Considers the nature and causes of deviations and
misstatements,
• Calculates and projects the sample deviations and
misstatements, and
• Reaches an overall conclusion.
Nature and Cause of Deviations and Misstatements
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.
Projecting Sample Deviations and Misstatements
Projecting Deviations for Tests of Controls
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
There are two generally accepted approaches for evaluating
the sample results for tests of controls:
• Compare PDR to tolerable deviation rate. If the
PDR < tolerable deviation rate = the control is
operating effectively. If the PDR = or > tolerable
deviation rate = the control is not operating
effectively as designed.
• Compare SDR to expected deviation rate. If the
SDR < expected deviation rate = control is
operating effectively. If the SDR = or > expected
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deviation rate = control is not operating effectively
as designed.
Overall Conclusion for Tests of Details
When the projected misstatement plus anomalous
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.
If the auditor concludes that audit sampling has not
provided a reasonable basis for conclusions about the
population that has been tested, the auditor may:
• Request management to investigate
misstatements 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.

DISCUSSION QUESTIONS
Introduction b. representative sample.
c. attributes sample.
1. In performing tests of controls and tests of details, the d. random sample.
extent and selection of items to test include
a. All items. 7. Which of the following would cause a sampling error (or
b. Specific non-representative items. sampling risk) in an audit of financial statements?
c. Audit sampling. a. Selecting a non-representative sample
d. All of the above. b. Selecting inappropriate audit procedures
c. Applying audit procedures improperly
2. Evaluate whether each of the following statements d. Interpreting results inappropriately
qualifies as sampling:
1.1 – Test performed on 100% of the items within a 8. The risk that the auditor’s conclusion based on a sample
population may be different from the conclusion if the entire
1.2 – Selecting items over a certain amount population were subjected to the same audit procedure
1.3 – Selecting items for the total population on the a. Sampling risk
basis that was expected to be representative b. Confidence levels
a. 1.1, 1.2, 1.3 qualify c. Statistical sampling
b. 1.1 and 1.2 qualify; 1.3 does not qualify d. Tolerable rate and the expected rate of deviation
c. 1.1 and 1.2 do not qualify; 1.3 qualifies
d. 1.1, 1.2, 1.3 do not qualify 9. At times a sample may indicate in the case of a test of
controls, that controls are more effective than they
Testing All Items (100%) actually are. This situation illustrates the risk of
a. Over-reliance.
3. Performing 100% testing is least likely possible in which b. Under-reliance.
of the following? c. Incorrect precision.
a. Large value but small in number accounts. d. Incorrect rejection.
b. Assertions with assessed significant risks.
c. Testing customer credit approvals. 10. At times a sample may indicate in the case of a test of
d. Use of CAATs. details that a material misstatement does not exist
when in fact it does. This situation illustrates the risk of
Testing Specific Non-representative Items a. Incorrect rejection
b. Incorrect acceptance
4. Testing specific items does not include selecting c. Over reliance
a. High value or key items. d. Under reliance
b. Items to obtain certain information.
c. Items to test the operation of certain control 11. The risk likelihood of assessing control risk too low (risk
activities. of over reliance) and risk of incorrect acceptance relate
d. Representative sample to conclude for an entire to the
population. a. Efficiency of the audit
b. Effectiveness of the audit
Audit Sampling c. Preliminary estimates of materiality levels
d. Allowable risk of tolerable misstatements
5. Which of the following causes an inappropriate
conclusion or audit risk? 12. Sampling risk may be controlled by:
a. Sampling risk. Increasing the sample Using an appropriate
b. Non-sampling risk. size sample selection
c. Both a and b. method
d. Neither a nor b. a. Yes Yes
b. Yes No
6. A sample in which the characteristics of the sample are c. No Yes
the same as those of the population is a(n): d. No No
a. variables sample.

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13. To determine if a sample is truly representative, an
auditor must:
a. conduct multiple samples of the same population.
b. never use sampling because of the expense
involved.
c. audit the entire population.
d. use systematic sample selection.
14. The risk that the auditor does not recognize
misstatements or deviations included in the sample for
what they are
a. Sampling risk
b. Confidence levels
c. Statistical sampling
d. Nonsampling risk
15. 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
The 10-Step Audit Sampling Process
16. Which of the following is not one of the basic phases in
audit sampling?
a. Planning the sample.
b. Selecting the sample and performing the tests.
c. Evaluating the results of the sample.
d. Each of the above is a phase in audit sampling.
Step 1—Define the objective (purpose) of test
17. In defining the objective of tests of controls or tests of
details, an auditor should consider which of the
following to perform the appropriate audit procedures
and obtain relevant audit evidence?
a. Financial statements assertions.
b. Materiality.
c. Population.
d. Sampling risk.
Step 2—Define the deviation or misstatement
18. In performing tests of controls, a deviation refers to
a. A departure from adequate control performance.
b. A difference between the recorded amount and the
amount the auditor determines to be appropriate.
c. A voided sample.
d. The presence of characteristics of control.
Step 3—Identify the relevant population
Step 4—Determine the relevant sampling unit
19. Population is
a. A process that divides population into sub-
populations 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.
20. The sampling units might be
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a. Physical items (for example, checks listed on
deposit slips, credit entries on bank statements,
sales invoices or debtors’ balances).
b. Monetary units.
c. Either a or b.
d. Neither a nor b.
21. In identifying the relevant population, an auditor should
consider
a. Direction of testing.
b. Completeness.
c. For tests of details, stratification or value-weighted
selection.
d. All of the above.
22. In performing vouching, an auditor should obtain a
sample from a population of
a. Records.
b. Supporting documents.
c. Actual items.
d. Any of the above.
23. To ensure completeness of a population in audit
sampling, an auditor may test boundaries and totality
of population by
a. The first and last numbers of prenumbered
documents, or the beginning and ending days of an
audit period.
b. Accounting for numerical sequence of prenumbered
documents.
c. Footing population items and comparing to control
total.
d. All of the above.
24. In statistical sampling methods used in substantive
testing, an auditor most likely would stratify a
population into meaningful groups which have similar
characteristics (often monetary value) if
a. Probability proportional to size (PPS) sampling is
used
b. The population has highly variable recorded
amounts
c. The auditor’s estimated tolerable misstatement is
extremely small.
d. The standard deviation of recorded amount is
relatively small.
25. When selecting a stratified sample, the sample size is:
a. determined for the unstratified population and then
apportioned to each stratum.
b. determined for each stratum and selected from that
stratum.
c. determined for each stratum and selected randomly
from the entire unstratified population.
d. always larger than if unstratified sampling had been
used.
26. When using monetary-unit sampling, the recorded
amount population is a definition of all the items in the:
a. population.
b. population which the auditor has included in the
sample.
c. population which contain errors.
d. sample which contain errors.
27. An auditor is applying probability-proportional-to-size
(PPS) sampling (a.k.a., combined attributes-variables
(CAV) sampling, cumulative monetary amount (CMA)
sampling, dollar-unit sampling (DUS), monetary unit
sampling (MUS), and value-weighted selection). If the
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population consists of 200 items and is represented by
P1,000,000 what is the probability the auditor will select
for testing an account recorded at P100,000?
a. .005.
b. .100.
c. .025.
d. Not determinable from the facts given.
Step 5—Select the appropriate sampling approach
28. The two general approaches to audit sampling are
a. Random and nonrandom
b. Statistical and nonstatistical
c. Precision and reliability
d. Risk and nonrisk
29. An advantage of statistical sampling—which applies the
laws of probability to selecting sample items for
examination and evaluating sample results—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.
30. A nonstatistical sampling plan can:
a. Overstate the estimate of sampling risk
b. Misdirect an auditor to unreliable sampling units
c. Replicate the results of a statistical sampling
plan
d. Understate the degree of audit assurance
desired
Test of Controls
31. 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.
32. It refers to the statistical sampling plan that does not
use a fixed sample size for tests of controls. It is
sometimes called “stop-or-go” sampling because the
plan allows the audit team to stop after examining a
relatively small sample and evaluate the results. If the
results are clearly acceptable or clearly unacceptable,
the audit team can draw its conclusion; if the results are
inconclusive, the audit team can go forward and
examine additional items.
a. Ratio estimation sampling
b. Sequential sampling
c. MUS sampling
d. Variables sampling
33. 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.
b. Variables sampling.
c. Random sampling.
d. PPS sampling.
34. Discovery sampling should be used to estimate whether
a population contains
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a. Errors of any kind.
b. Noncritical errors.
c. Critical deviations.
d. No errors.
Test of Details
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
b. Stop-or-go sampling
c. Variables sampling
d. Random sampling
36. The following are the classical variables techniques,
except:
a. Ratio estimation
b. Mean-per-Unit (MPU) estimation
c. Value weighted selection
d. Difference estimation
37. The auditor selected samples of 200 with recorded
amount or P208,000, from population of 1,000
inventory items with total recorded amount of
P1,040,000. After performing the necessary audit
procedures, the auditor determined that the adjusted
amount of the samples is P196,000. Which of the
following illustrates difference estimation approach to
projecting sample misstatement to population?
a. Average audited amount of 200 samples divided by
200, equals P980. The estimated inventory balance
is then calculated as P980,000 (P980 X 1,000).
b. The difference of P12,000 is divided by the number
of sample items (200) to yield an average difference
of P60. The auditor then multiplies the average
difference by the number of items in the population
to calculate a total difference of P60,000 (P60 X
1,000) and the difference is subtracted from the
total recorded amount to obtain an estimated
inventory balance of P980,000.
c. The ratio of the sum of the sample’s audited
amounts to the sum of the sample’s recorded
amounts would have been 0.94 (P196,000 /
P208,000). The auditor would multiply the total
recorded amount for the population by this ratio
(0.94) to obtain an estimate of the inventory
balance of P978,000 (P1,040,000 X 0.94).
d. None of the above.
38. Classical variables sampling uses the laws of probability,
the normal distribution theory, and the central limit
theorem to estimate range of
a. The amount of misstatement in the account balance
or class of transactions.
b. The true balance for an account balance or class of
transactions.
c. Either a or b.
d. Neither a nor b.
39. The distinguishing feature of Monetary-unit sampling
(MUS) is that it tends to select higher transactions or
components within an account balance for examination.
MUS is not particularly effective at detecting:
a. overstatements.
b. understatements.
c. errors in current assets.
d. errors in noncurrent assets.
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40. Which of the following is not a problem with monetary- b. Use a small sample (referred to as a pilot sample)
unit selection? to estimate the rate of deviations in case of initial
a. Population items with a zero recorded balance. audit.
b. Accounts with negative balances. c. Either a or b.
c. Accounts with small recorded balances that are d. Neither a nor b.
significantly understated.
d. Population items that should have a zero balance 46. The tolerable rate of deviations for a test of controls is
but do not. generally
a. Lower than the expected rate of errors in the related
Step 6—Determine the sufficient sample size accounting population.
b. Higher than the expected rate of errors in the
Test of Controls related accounting records.
c. Identical to the expected rate of errors in the related
41. When sampling for attributes, which of the following accounting records.
would decrease sample size? d. Unrelated to the expected rate of errors in the
a b c d related accounting records.
Operating Increase Decrease Increase Decrease
effectiveness 47. Which of the following statements is most likely
of controls incorrect regarding high expected deviation rate and
Tolerable Decrease Increase Increase Increase high expected misstatement relating to sampling used
rate of for tests of controls and tests of details, respectively?
deviation a. If the expected rate of deviation is unacceptably
Expected Increase Decrease Decrease Decrease high, the auditor will normally decide not to perform
control tests of controls.
deviation b. If the expected misstatement is high, the auditor
Risk of over Decrease Increase Increase Decrease will normally decide not to perform tests of details.
reliance c. If the expected misstatement is high, 100%
examination may be appropriate when performing
42. Which of the following statements is correct concerning tests of details.
statistical sampling in tests of controls? d. If the expected misstatement is high, use of a large
a. There is an inverse relationship between the sample sample size may be appropriate when performing
size and the expected control deviation rate. tests of details
b. As the population size doubles, the sample size
should also double. Test of Details
c. The qualitative aspects of deviations are not
considered by the auditor. 48. In substantive testing, which of the following would
d. There is an inverse relationship between the sample increase sample size?
size and the tolerable rate of deviation. a b c d
Assessment Increase Increase Increase Decrease
43. The tolerable rate of deviation is the maximum rate of of control risk
deviations permissible by the audit team without Reliance on Increase Decrease Decrease Increase
modifying the planned assessed level of control risk. In other
substantive
determining the tolerable rate of deviation, the audit
procedures
team should consider
Tolerable Decrease Increase Decrease Increase
a. The planned assessed level of control risk. misstatement
b. The degree of assurance desired by the audit Expected Increase Decrease Increase Decrease
evidence in the sample. amount of
c. If a control is judged to be more important and misstatement
would result in a more significant reduction in Risk of Decrease Increase Decrease Increase
substantive testing, the tolerable rate of deviation incorrect
should be established at lower levels. acceptance
d. All of the above.
49. Determine which of the following would lead to a larger
44. In determining the acceptable level of the risk of sample size for substantive test of details of an account
overreliance (i.e., the sampling risk), an auditor should balance. Assume all other factors being equal.
consider a. Smaller measure of tolerable misstatement
a. The planned assessed level of control risk. b. Greater reliance of analytical procedures
b. The degree of reliance that the audit team wishes c. Greater reliance on internal controls
to place on the client’s internal control. d. Smaller expected frequency of errors
c. As the planned level of control risk is lower, it
becomes quite important for the audit team to 50. When planning a test of details using MUS sampling,
reduce the exposure to the risk of overreliance. tolerable misstatement is usually set
d. All of the above. a. higher than planning materiality.
b. lower than planning materiality.
45. How is the expected population deviation rate c. either higher or lower than planning materiality.
determined? d. the same as materiality.
a. Rate of deviations from prior engagements
adjusted, if any, for controls improvement or 51. Tolerable misstatement may be _____ amount than
deterioration during the current year. performance materiality?
a. higher, lower or the same.

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EXCEL PROFESSIONAL SERVICES, INC.
b. high or lower.
c. lower or the same.
d. the same.
52. In determining the acceptable level of the risk of
incorrect acceptance (i.e., the sampling risk), for
example 10%, an auditor should consider
a. The audit risk.
b. The risks of material misstatement (i.e., inherent
risk and control risk).
c. The analytical procedures risk.
d. All of the above.
Step 7—Select the representative sample items
53. The audit team’s basic goal in selecting a sample is to
increase the likelihood that it is representative of the
population, thereby reducing sampling risk. For
example, if the audit team is examining a sample of
sales invoices, this sample should include sales invoices
that
a. Have been prepared throughout the year.
b. Represent both large and small amounts.
c. Have been prepared by different individuals
involved in the invoice preparation process and
represent different customers or geographic areas.
d. All of the above.
54. 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.
55. 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.
56. 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.
57. In systematic sample selection, the population size is
divided by the number of sample items desired in order
to determine the:
a. sampling interval.
b. tolerable exception rate.
c. computed upper exceptions rate.
d. mean.
58. When using systematic selection procedures with
monetary-unit sampling of accounts receivable, the
interval is determined by:
a. consulting a random number table.
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b. dividing the population size by the desired sample
size.
c. dividing the sample size by the account with the
largest value.
d. dividing the population size by the account
receivable with the largest value.
59. One unique feature of using systematic random
selection in MUS is that the sampling unit is defined as
an individual amount within a population. The audit
team examines the logical unit (e.g., a transaction, a
customer balance, etc.) that contains the individual
sampling unit that is selected for examination. The
statistical methods used to evaluate monetary-unit
samples:
a. neither exclude nor include units twice.
b. permit the inclusion of a unit in the sample more
than once.
c. do not permit a unit to be included in the sample
more than once.
d. ignore the possibility that a unit may be included in
a sample more than once.
60. Which of the following sample selection techniques is
least desirable for use by an auditor?
a. Systematic selection
b. Stratified selection
c. Block selection
d. Sequential selection
Step 8—Perform the testing and evaluate evidence
61. An auditor is testing internal control procedures that are
evidenced on an entity’s vouchers by matching 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
a. Constitutes a deviation.
b. Has been properly voided.
c. Cannot be located.
d. Represents an immaterial peso amount.
62. An auditor plans to examine a sample of 20 purchase
orders for proper approvals as prescribed by the client’s
internal control procedures. 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.
Step 9—Evaluate the test results and reach conclusion
63. Anomalous error means
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.
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EXCEL PROFESSIONAL SERVICES, INC.
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.
64. Regardless of the results of the attributes sampling
application, the audit team should conduct a qualitative
evaluation of deviations to determine their nature and
cause. A qualitative evaluation of deviations attempts to
answer questions such as:
a. Do deviations represent a pervasive error made
consistently on all transactions or an isolated
mistake made on a specific transaction?
b. Are deviations intentional or unintentional in
nature? Do deviations represent
misunderstanding of instructions or careless
attention to duties?
c. Do deviations have implications with regard to the
effectiveness of other controls?
d. All of the above.
65. Which of the following statements regarding projecting
the results of audit sampling is incorrect?
a. For tests of details, the auditor shall project
misstatements found in the sample to the
population.
b. When a misstatement has been established as an
anomaly, it may be excluded when projecting
misstatements to the population.
c. Projected misstatement may not be sufficient to
determine an amount to be recorded.
d. For tests of controls, projection of deviations is
necessary.
Test of Controls
Use the following information for the next two questions:
An auditor desired to test credit approval on 10,000 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 ½% of the
sales invoices lacked approval. A sample of 200 invoices
was examined and 7 of them were lacking approval. The
auditor then determined the achieved upper precision limit
to be 8%.
66. The allowance for sampling risk was
a. 5 ½% c. 3 ½%
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b. 4 ½% d. 1%
67. 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 ½%).
c. Achieved upper precision limit (8%) was more than
the percentage of error in the sample 3-1/2%).
d. Expected deviation rate (2 - ½ %) was less than the
tolerable rate (7%).
68. When the upper precision limit exceeds the tolerable
rate of deviation, the auditor may
a. Reduce reliance on internal control.
b. Expand the sample to examine a larger number of
items by at least the number of items in the original
sample, as a rule of thumb.
c. Either a or b.
a d. Neither a nor b.
Test of Details
69. 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.
70. Which one of the following is a proper course of action
for the auditor when the upper misstatement limit
exceeds the tolerable misstatement?
a. Analyze the detected misstatements for some
common problems.
b. The auditor can ask the client to correct the known
misstatements or investigate misstatements that
have been identified and the potential for further
misstatements and to make any necessary
adjustments.
c. The auditor can expand the sample. If enough
additional items are examined and no additional
misstatements are detected, the recalculated upper
limit on misstatements could fall below the tolerable
misstatement to enable the audit team could
conclude that the financial statements were not
materially misstated
d. All of the above.
Step 10—Complete documentation
End of AT.3114
AT.3113