Auditing

ch9
Student: ___________________________________________________________________________

1.

The risk of incorrect acceptance and the risk of assessing control risk too low relate to the A. Preliminary estimates of materiality levels. B. Allowable risk of tolerable error. C. Efficiency of the audit. D. Effectiveness of the audit.

2.

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. The situation illustrates the risk of A. Incorrect rejection. B. Incorrect acceptance. C. Assessing control risk too high. D. Assessing control risk too low.

3.

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? A. Greater reliance on internal accounting controls. B. Greater reliance on analytical review procedures. C. Smaller expected frequency of misstatements. D. Smaller measure of tolerable misstatements.

4.

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?

A. A Above. B. B Above. C. C Above. D. D Above.

1

5.

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 auditor's estimated tolerable misstatement is extremely small. D. The standard deviation of recorded amounts is relatively small.

6.

An auditor is preparing to sample a client's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is A. Attribute sampling. B. Ratio-estimation sampling. C. Monetary-unit sampling. D. Mean-per-unit sampling.

7.

Which of the following statements best describes an inherent limitation of the probability-proportional-to-size (PPS) sampling method? A. It can only be used for substantive testing of asset accounts. B. It requires the use of a computer system to perform the required calculations. C. Misstatement rates must be large and the misstatements must be overstatements. D. Misstatement rates must be small and the misstatements must be overstatements.

8.

For monetary-unit sampling, the number of items tested is A. Always equal to sample size. B. Always greater than sample size. C. Always greater than or equal to sample size. D. Always less than or equal to sample size.

9.

Monetary-unit sampling should not be used if A. The population includes several large items. B. The auditor expects overstatement errors. C. Many errors are expected. D. No items in the account have zero balances.

10. In monetary-unit sampling, population size is A. The dollar balance in an account. B. The number of items in an account. C. Unrelated to sample size. D. Included in the denominator of the formula to determine sample size. 11. Monetary-unit sampling is said to eliminate the need to stratify the sample because A. Sample items are selected in proportion to their dollar amount. B. The risk of incorrect acceptance is inversely related to sample size. C. Tolerable misstatement is considered when determining sample size. D. The upper limit on misstatements can be computed based on statistical principles.

2

12. An account balance is $300,000 and there are 25 items in the account, six of which have balances that equal or exceed $15,000. The auditor plans to use a monetary-unit sampling plan with systematic sample selection. To ensure that all accounts with balances of at least $15,000 are selected, the sampling interval should be A. 6. B. 20. C. 12,000. D. 15,000. 13. For monetary-unit sampling, a sampling interval of 400 means that A. Every 400th item in the account will be selected in the sample. B. The average size of items in the account is 400. C. Every 400th dollar in the account will be included in the sample. D. The average misstatement in sample items is $400. 14. Which of the following sampling methods would be used to estimate a numerical measurement of population, such as a dollar value? A. Attributes sampling. B. Stop-or-go sampling. C. Variables sampling. D. Random-number sampling. 15. Which of the following would be designed to estimate a numerical measurement of a population, such as a dollar value? A. Sampling for variables. B. Sampling for attributes. C. Discovery sampling. D. Numerical sampling. 16. 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.

3

17. How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

A. A Above. B. B Above. C. C Above. D. D Above. 18. Precision is a statistical measure of the maximum likely difference between the sample estimate and the true but unknown population total, and is directly related to A. Reliability of evidence. B. Relative risk. C. Materiality. D. Cost benefit analysis. 19. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items A. Which include fraud will not be overlooked when the auditor exercises compatible reciprocal options. B. May occur in a systematic pattern, thus making the sample more representative. C. May occur more than once in a sample. D. Do not have to be prenumbered in order for the auditor to use the technique. 20. Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? A. Set the tolerable deviation rate at a lower level than originally planned. B. Stratify the cash disbursements population so that the unusually large disbursements are selected. C. Increase the sample size to reduce the effect of the unusually large disbursements. D. Continue to draw new samples until all the unusually large disbursements appear in the sample. 21. What is the primary objective of using stratification as a sampling method in auditing? A. To increase the audit risk at which a decision will be reached from the results of the sample selected. B. To determine the tolerable deviation rate for a given characteristic in the population being studied. C. To decrease the effect of variance in the total population. D. To determine the precision range of the sample selected.

4

22. 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. 23. Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable? A. Combining negative and positive dollar misstatements in the appraisal of a sample. B. Using a sampling technique in which the same account balance could be selected more than once. C. Selecting a random starting point and then sampling every nth dollar. D. Defining the sampling unit in the population as an individual dollar and not as an individual account balance. 24. In a monetary-unit sampling plan, the upper limit on misstatements is $11,200 and this risk of incorrect acceptance is 5%. This means that A. Tolerable misstatement is $11,200. B. There is a 95% chance that the misstatement in the account is $11,200 or more. C. There is a 95% chance that the misstatement in the account is $11,200. D. There is a 95% chance that the misstatement in the account is $11,200 or less. 25. If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least likely to A. Increase sample size. B. Conduct other substantive tests. C. Adjust the account balance. D. Increase the risk of incorrect rejection. 26. Which of the following most likely would be an advantage in using classical variables sampling rather than probability-proportional-to-size (PPS) sampling? A. An estimate of the standard deviation of the population's recorded amounts is not required. B. The auditor rarely needs the assistance of a computer program to design an efficient sample. C. Inclusion of zero and negative balances generally does not require special design considerations. D. Any amount that is individually significant is automatically identified and selected. 27. The assurance factor for non-statistical sampling is based on A. The number of items in the account. B. Auditor judgment. C. The risk of misstatement in the account and the level of desired assurance. D. Variability in the population and the risk of misstatement in the account. 28. The formula for nonstatistical sampling for tests of account balances provided by the AICPA A. Must be used for nonstatistical sampling. B. Includes a provision for the risk of incorrect acceptance. C. Is affected by the nature of other substantive tests used to test the account balance. D. Is largely based on the variation of items in the account.

5

29. The use of the ratio estimation sampling technique is most effective when A. The calculated audit amounts are approximately proportional to the client's book amounts. B. A relatively small number of differences exist in the population. C. Estimating populations whose records consist of quantities but not book values. D. Large overstatement differences and large understatement differences exist in the population. 30. Which one of the following statements is true regarding two random samples drawn in the same way from the same population, one of size 30 and one of size 300? A. The two samples would have the same expected value. B. The larger sample is more likely to produce a large sample mean. C. The smaller sample will have a smaller 95% confidence interval for the mean. D. The smaller sample, will, on the average, produce a lower estimate of the variance of the population. 31. The accounting department reports that the balance of accounts receivable is $210,000. You are willing to accept that balance if it is within $15,000 of the actual balance. Using a variables sampling plan, you compute a 95% confidence interval of $208,000 to $225,000. You would therefore A. Not be able to determine the acceptability of the receivable 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 $210,000 balance because the confidence interval is within the materiality limits. 32. In a probability-proportional-to-size sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected error of this sample was A. $3,000 B. $4,000 C. $6,000 D. $8,000 33. An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that A. There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. B. There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. C. The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. D. The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements. 34. An auditor is performing substantive tests of pricing and extension of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate? A. Unstratified mean-per-unit. B. Probability-proportional-to-size. C. Stop or go. D. Ratio or difference estimation.

6

35. An auditor has taken a large sample from an audit population that is skewed in the sense that it contains a large number of small dollar balances. The auditor can conclude A. The sampling distribution is not normal; therefore PPS sampling will more accurately define the nature of the population. B. The sampling distribution is normal; therefore the confidence coefficient value can be used to evaluate the sample results. C. The sampling distribution is not normal; thus attribute sampling is the only alternative statistical tool that can be appropriately used. D. None of the above answers is correct. 36. Summarize the concept behind monetary-use sampling (MUS). How does MUS use attribute-sampling theory?

37. Describe two advantages and two disadvantages of monetary-use sampling (MUS).

38. Matching

7

39. You have been placed in charge of determining the sample size for an audit of accounts receivable. Your superior would like a confidence level of 99%. How does this affect your determination of size? What can you infer about the risk of incorrect acceptance that your superior will be willing to accept?

40. Matching Match each factor of sample size to (1) its relationship to sample size (a or b) and (2) the appropriate effect on the sample size if the factor increases (c or d).

41. Whenever a statistical method is used, a decision rule determines whether the population is acceptable. The decision rule for monetary unit sampling is "Accept the conclusion that the book value is not misstated by a material amount if:

42. In nonstatistical sampling, describe the two methods auditors use to project sample results to the population. How does an auditor determine which method to use?

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43. You are auditing accounts receivable for a small company and have found the following results:

Use ratio estimation to project your results.

44. What is one advantage and one disadvantage of classical variables sampling?

45. When auditing accounts payable using classical variables sampling, Sue finds evidence indicating that the account may be materially misstated. What are Sue's options?

9

ch9 Key
1. The risk of incorrect acceptance and the risk of assessing control risk too low relate to the A. B. C. D. Preliminary estimates of materiality levels. Allowable risk of tolerable error. Efficiency of the audit. Effectiveness of the audit.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Easy Learning Objective: 1 Learning Objective: 2 Messier - Chapter 09 #1

2.

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. The situation illustrates the risk of A. B. C. D. Incorrect rejection. Incorrect acceptance. Assessing control risk too high. Assessing control risk too low.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Easy Learning Objective: 1 Learning Objective: 2 Messier - Chapter 09 #2

3.

A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? A. B. C. D. Greater reliance on internal accounting controls. Greater reliance on analytical review procedures. Smaller expected frequency of misstatements. Smaller measure of tolerable misstatements.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 1 Learning Objective: 2 Messier - Chapter 09 #3

1

4.

Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?

A. B. C. D.

A Above. B Above. C Above. D Above.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 1 Learning Objective: 2 Messier - Chapter 09 #4

5.

In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if A. B. C. D. Probability-proportional-to-size (PPS) sampling is used. The population has highly variable recorded amounts. The auditor's estimated tolerable misstatement is extremely small. The standard deviation of recorded amounts is relatively small.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 1 Learning Objective: 2 Messier - Chapter 09 #5

6.

An auditor is preparing to sample a client's customer receivables for overstatement. A statistical sampling method that automatically provides stratification when using systematic selection is A. B. C. D. Attribute sampling. Ratio-estimation sampling. Monetary-unit sampling. Mean-per-unit sampling.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #6

2

7.

Which of the following statements best describes an inherent limitation of the probability-proportional-to-size (PPS) sampling method? A. B. C. D. It can only be used for substantive testing of asset accounts. It requires the use of a computer system to perform the required calculations. Misstatement rates must be large and the misstatements must be overstatements. Misstatement rates must be small and the misstatements must be overstatements.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #7

8.

For monetary-unit sampling, the number of items tested is A. B. C. D. Always equal to sample size. Always greater than sample size. Always greater than or equal to sample size. Always less than or equal to sample size.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #8

9.

Monetary-unit sampling should not be used if A. B. C. D. The population includes several large items. The auditor expects overstatement errors. Many errors are expected. No items in the account have zero balances.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #9

10.

In monetary-unit sampling, population size is A. B. C. D. The dollar balance in an account. The number of items in an account. Unrelated to sample size. Included in the denominator of the formula to determine sample size.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #10

11.

Monetary-unit sampling is said to eliminate the need to stratify the sample because A. B. C. D. Sample items are selected in proportion to their dollar amount. The risk of incorrect acceptance is inversely related to sample size. Tolerable misstatement is considered when determining sample size. The upper limit on misstatements can be computed based on statistical principles.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #11

3

12.

An account balance is $300,000 and there are 25 items in the account, six of which have balances that equal or exceed $15,000. The auditor plans to use a monetary-unit sampling plan with systematic sample selection. To ensure that all accounts with balances of at least $15,000 are selected, the sampling interval should be A. B. C. D. 6. 20. 12,000. 15,000.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 2 Learning Objective: 3 Messier - Chapter 09 #12

13.

For monetary-unit sampling, a sampling interval of 400 means that A. B. C. D. Every 400th item in the account will be selected in the sample. The average size of items in the account is 400. Every 400th dollar in the account will be included in the sample. The average misstatement in sample items is $400.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 2 Learning Objective: 3 Messier - Chapter 09 #13

14.

Which of the following sampling methods would be used to estimate a numerical measurement of population, such as a dollar value? A. B. C. D. Attributes sampling. Stop-or-go sampling. Variables sampling. Random-number sampling.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 5 Messier - Chapter 09 #14

15.

Which of the following would be designed to estimate a numerical measurement of a population, such as a dollar value? A. B. C. D. Sampling for variables. Sampling for attributes. Discovery sampling. Numerical sampling.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 5 Messier - Chapter 09 #15

4

16.

In applying variables sampling, an auditor attempts to A. B. C. D. Estimate a qualitative characteristic of interest. Determine various rates of occurrence for specified attributes. Discover at least one instance of a critical deviation. Predict a monetary population value within a range of precision.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Easy Learning Objective: 5 Messier - Chapter 09 #16

17.

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

A. B. C. D.

A Above. B Above. C Above. D Above.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 1 Learning Objective: 2 Messier - Chapter 09 #17

18.

Precision is a statistical measure of the maximum likely difference between the sample estimate and the true but unknown population total, and is directly related to A. B. C. D. Reliability of evidence. Relative risk. Materiality. Cost benefit analysis.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Moderate Learning Objective: 1 Learning Objective: 2 Messier - Chapter 09 #18

5

19.

In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items A. Which include fraud will not be overlooked when the auditor exercises compatible reciprocal options. B. May occur in a systematic pattern, thus making the sample more representative. C. May occur more than once in a sample. D. Do not have to be prenumbered in order for the auditor to use the technique.
AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #19

20.

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements? A. B. C. D. Set the tolerable deviation rate at a lower level than originally planned. Stratify the cash disbursements population so that the unusually large disbursements are selected. Increase the sample size to reduce the effect of the unusually large disbursements. Continue to draw new samples until all the unusually large disbursements appear in the sample.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #20

21.

What is the primary objective of using stratification as a sampling method in auditing? A. To increase the audit risk at which a decision will be reached from the results of the sample selected. B. To determine the tolerable deviation rate for a given characteristic in the population being studied. C. To decrease the effect of variance in the total population. D. To determine the precision range of the sample selected.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #21

22.

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. B. C. D. The sampling risk. The size of an account balance misstatement considered material. The audit resources available for execution of the sampling plan. The objectives of the audit test being conducted.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #22

6

23.

Which of the following would be an improper technique when using monetary-unit statistical sampling in an audit of accounts receivable? A. B. C. D. Combining negative and positive dollar misstatements in the appraisal of a sample. Using a sampling technique in which the same account balance could be selected more than once. Selecting a random starting point and then sampling every nth dollar. Defining the sampling unit in the population as an individual dollar and not as an individual account balance.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #23

24.

In a monetary-unit sampling plan, the upper limit on misstatements is $11,200 and this risk of incorrect acceptance is 5%. This means that A. B. C. D. Tolerable misstatement is $11,200. There is a 95% chance that the misstatement in the account is $11,200 or more. There is a 95% chance that the misstatement in the account is $11,200. There is a 95% chance that the misstatement in the account is $11,200 or less.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 2 Learning Objective: 3 Messier - Chapter 09 #24

25.

If the upper limit on misstatements exceeds tolerable misstatement, the auditor is least likely to A. B. C. D. Increase sample size. Conduct other substantive tests. Adjust the account balance. Increase the risk of incorrect rejection.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Moderate Learning Objective: 2 Learning Objective: 3 Messier - Chapter 09 #25

26.

Which of the following most likely would be an advantage in using classical variables sampling rather than probability-proportional-to-size (PPS) sampling? A. B. C. D. An estimate of the standard deviation of the population's recorded amounts is not required. The auditor rarely needs the assistance of a computer program to design an efficient sample. Inclusion of zero and negative balances generally does not require special design considerations. Any amount that is individually significant is automatically identified and selected.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Moderate Learning Objective: 2 Learning Objective: 5 Messier - Chapter 09 #26

7

27.

The assurance factor for non-statistical sampling is based on A. B. C. D. The number of items in the account. Auditor judgment. The risk of misstatement in the account and the level of desired assurance. Variability in the population and the risk of misstatement in the account.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 4 Messier - Chapter 09 #27

28.

The formula for nonstatistical sampling for tests of account balances provided by the AICPA A. B. C. D. Must be used for nonstatistical sampling. Includes a provision for the risk of incorrect acceptance. Is affected by the nature of other substantive tests used to test the account balance. Is largely based on the variation of items in the account.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Difficulty: Moderate Learning Objective: 4 Messier - Chapter 09 #28

29.

The use of the ratio estimation sampling technique is most effective when A. B. C. D. The calculated audit amounts are approximately proportional to the client's book amounts. A relatively small number of differences exist in the population. Estimating populations whose records consist of quantities but not book values. Large overstatement differences and large understatement differences exist in the population.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Moderate Learning Objective: 4 Learning Objective: 5 Messier - Chapter 09 #29

30.

Which one of the following statements is true regarding two random samples drawn in the same way from the same population, one of size 30 and one of size 300? A. B. C. D. The two samples would have the same expected value. The larger sample is more likely to produce a large sample mean. The smaller sample will have a smaller 95% confidence interval for the mean. The smaller sample, will, on the average, produce a lower estimate of the variance of the population.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 5 Messier - Chapter 09 #30

8

31.

The accounting department reports that the balance of accounts receivable is $210,000. You are willing to accept that balance if it is within $15,000 of the actual balance. Using a variables sampling plan, you compute a 95% confidence interval of $208,000 to $225,000. You would therefore A. B. C. D. Not be able to determine the acceptability of the receivable balance. Accept the balance but with a lower level of confidence. Take a larger sample before totally rejecting the balance and requiring adjustments. Accept the $210,000 balance because the confidence interval is within the materiality limits.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 5 Messier - Chapter 09 #31

32.

In a probability-proportional-to-size sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audit amount of $2,000. The projected error of this sample was A. B. C. D. $3,000 $4,000 $6,000 $8,000
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Messier - Chapter 09 #32

33.

An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that A. There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement. B. There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements. C. The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement. D. The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Hard Learning Objective: 2 Learning Objective: 3 Messier - Chapter 09 #33

9

34.

An auditor is performing substantive tests of pricing and extension of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension errors. Which of the following statistical sampling approaches is most appropriate? A. B. C. D. Unstratified mean-per-unit. Probability-proportional-to-size. Stop or go. Ratio or difference estimation.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Hard Learning Objective: 2 Learning Objective: 5 Messier - Chapter 09 #34

35.

An auditor has taken a large sample from an audit population that is skewed in the sense that it contains a large number of small dollar balances. The auditor can conclude A. The sampling distribution is not normal; therefore PPS sampling will more accurately define the nature of the population. B. The sampling distribution is normal; therefore the confidence coefficient value can be used to evaluate the sample results. C. The sampling distribution is not normal; thus attribute sampling is the only alternative statistical tool that can be appropriately used. D. None of the above answers is correct.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Hard Learning Objective: 2 Learning Objective: 5 Messier - Chapter 09 #35

36.

Summarize the concept behind monetary-use sampling (MUS). How does MUS use attribute-sampling theory? MUS uses attribute-sampling theory to estimate the percentage of monetary units in a population that might be misstated and then multiplies this percentage by an estimate of the degree to which the dollars are misstated.
AACSB: Communications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #36

10

37.

Describe two advantages and two disadvantages of monetary-use sampling (MUS).

Should include two advantages and disadvantages from the following:

AACSB: Communications AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #37

11

38.

Matching

(1.) C (2.) B (3.) D (4.) A
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 2 Messier - Chapter 09 #38

39.

You have been placed in charge of determining the sample size for an audit of accounts receivable. Your superior would like a confidence level of 99%. How does this affect your determination of size? What can you infer about the risk of incorrect acceptance that your superior will be willing to accept? A lot of work will be required to achieve a 99% confidence level. This work is reflected in a relatively large sample size. Because confidence levels and the risk of incorrect acceptance are complements, the superior is willing to accept a 1% risk of incorrect acceptance.
AACSB: Communications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #39

12

40.

Matching Match each factor of sample size to (1) its relationship to sample size (a or b) and (2) the appropriate effect on the sample size if the factor increases (c or d).

1. B, D 2. A, C 3. A, C 4. A, C
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #40

41.

Whenever a statistical method is used, a decision rule determines whether the population is acceptable. The decision rule for monetary unit sampling is "Accept the conclusion that the book value is not misstated by a material amount if: "Accept the conclusion that the book value is not misstated by a material amount if the upper misstatement limit is less than or equal to the tolerable misstatement."
AACSB: Communications AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Moderate Learning Objective: 2 Messier - Chapter 09 #41

42.

In nonstatistical sampling, describe the two methods auditors use to project sample results to the population. How does an auditor determine which method to use? With ratio estimation, the auditor applies the misstatement ratio observed in the sample to the population. Ratio estimation should be used if the auditor expects the amount of misstatement to relate closely to the size of the item. Difference estimation projects the average misstatement of each item in the sample to all items in the population. Difference estimation should be used if the auditor expects the misstatements to be relatively constant for all items in the population.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Moderate Learning Objective: 4 Messier - Chapter 09 #42

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43.

You are auditing accounts receivable for a small company and have found the following results:

Use ratio estimation to project your results.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Risk Analysis Difficulty: Hard Learning Objective: 4 Messier - Chapter 09 #43

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44.

What is one advantage and one disadvantage of classical variables sampling?

Should include one advantage and disadvantage from the following:

AACSB: Communications AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 5 Messier - Chapter 09 #44

45.

When auditing accounts payable using classical variables sampling, Sue finds evidence indicating that the account may be materially misstated. What are Sue's options? Sue can (1) increase the sample size, (2) perform additional substantive procedures, (3) adjust the account, or (4) issue a qualified or adverse opinion if management refuses to adjust the account.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Difficulty: Easy Learning Objective: 5 Messier - Chapter 09 #45

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ch9 Summary
Category # of Questions AACSB: Analytic 40 AACSB: Communications 5 AICPA BB: Critical Thinking 44 AICPA BB: Industry 1 AICPA FN: Decision Making 17 AICPA FN: Measurement 12 AICPA FN: Risk Analysis 16 Difficulty: Easy 21 Difficulty: Hard 5 Difficulty: Moderate 19 Learning Objective: 1 7 Learning Objective: 2 33 Learning Objective: 3 6 Learning Objective: 4 5 Learning Objective: 5 11 Messier - Chapter 09 45

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