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AUDIT SAMPLING (Tests of Controls and Substantive Tests) QUIZ NO.

1
Name: _________________________________ Section: ________________________________ Date: ______________________________ Score: _____________________________

True or False: Write the word TRUE if the statement is true, and the word FALSE if the statement is false.

________1. The professional standards require the auditor to obtain sufficient appropriate evidence to be able to draw reasonable conclusions on which to base an audit opinion. ________2. The auditor may decide that it would be more appropriate to examine the entire population (100% examination) of items that make up an account balance since the population constitutes a small number of large value items. ________3. Regardless of the approach used, the auditor needs to be satisfied that sufficient appropriate evidence is obtained to meet the objectives of the test. ________4. The Beta risk affects the audit effectiveness. ________5. The Alpha risk affects the audit efficiency. ________6. Sampling risk refers to the risk that the auditor may draw incorrect conclusions about the account balance or class of transactions because of human error. ________7. There is no way to eliminate sampling risk. ________8. The first step in audit sampling is determining the audit procedures to be performed. ________9. Audit sampling for substantive tests is generally appropriate when application of the control leaves evidence to performance. ________10. Auditors usually draw conclusions about the account balance or transaction class by examining the entire population.

Multiple Choice questions: Instructions: Encircle the letter of the best answer. 1. PSA 530 defines audit sampling as, the application of _______ to less than 100% of the items within a population of audit relevance such that all sampling units have a chance of selection in order to provide auditor with a reasonable basis on which to draw conclusions about the entire population. a. Audit sampling b. Audit techniques c. Audit procedures d. Audit tests

2. I. Audit sampling is performed on the assumption that the sample selected for testing is representative of the population. II. The auditor may decide to apply audit procedures only to those items which have particular significance, which is selective testing. a. b. c. d. Both are true Both are false Only I is true Only II is true

3. Uses the law of probability to measure sampling risk and evaluate sample results. a. Statistical sampling b. Non-statistical sampling c. Attribute sampling d. Variable sampling 4. A sampling approach that purely uses auditors judgment in estimating sampling risks, determining sample size, and evaluating sample results. a. Statistical sampling b. Non-statistical sampling c. Attribute sampling d. Variable sampling 5. A sampling plan used to estimate a numerical measurement of a population such as peso value. a. Statistical sampling b. Non-statistical sampling c. Attribute sampling d. Variable sampling 6. A sampling plan used to estimate the frequency of occurrence of a certain characteristic in a population, that is, occurrence rate. a. Statistical sampling b. Non-statistical sampling c. Attribute sampling d. Variable sampling 7. An error that arises from an isolated event that has not recurred other than specifically identifiable occasions and is therefore not representative of errors in the population. a. Tolerable error b. Non-sampling error c. Sampling error d. Anomalous error

8. The possibility that the auditors conclusion based on sample may be different from the conclusion reached if the entire population were subjected to the same procedure is called a. Tolerable error b. Non-sampling risk c. Sampling risk d. Anomalous error 9. PSA 530 identifies two general approaches to audit sampling. They are: a. Random and non-random b. Statistical and non-statistical c. Precision and reliability d. Risk and non-risk 10. The maximum amount of error in a population that the auditor is willing to accept is referred to as the a. Acceptable risk b. Tolerable error c. Expected error d. Tolerable materiality Given: Recorded amount of accounts receivable: Reliability factor for risk of overstatement: Tolerable misstatement: Expected/Anticipated misstatement: Expansion factor for anticipated misstatement: 11. The sample size for a PPS sample is a. 55 b. 65 12. The sampling interval is a. 18,642 b. 18,462 1,200,000PHP 2.31 50,000PHP 5,000PHP 1.5

c. 75

d. 85

c. 18,264

d. 18,624

13. Which statement is incorrect regarding factors affecting sample size for substantive tests? a. The lower the tolerable misstatement, the larger the sample size needs to be. b. The greater the amount of misstatement the auditor expects to find in the population, the larger the sample size needs to be. c. The more audit evidence that is obtained from test of details, the larger the sample size will need to be. d. The greater the level of assurance that the auditor requires that the results of the sample are in fact indicative of the actual amount of misstatement in the population, the smaller the sample size needs to be. 14. Given: Overall audit risk: 5% Inherent risk: 100% Control risk: 80% Risk of analytical procedures not detecting a misstatement: 60%

The risk of incorrect acceptance is a. 10% b. 20%

c. 30%

d. 40%

15. I. The lower the risk the auditor is willing to accept, the greater the sample size will need to be. II. The sample size can be determined by the application of a statistically-based formula or through the exercise of professional judgment objectively applied to the circumstances. a. b. c. d. true; true true; false false; true false; false

16. In using ratio and difference estimation techniques, the following are required except: a. Book value of population item b. Audited value for each sample item c. Ratio between the audited and book values d. Differences between the audited and book values 17. Choose the incorrect statement/s: I. When the average misstatement is nearly proportional to the book value of the items, the use of ratio estimation is appropriate because large accounts have large misstatements and small accounts have small misstatements. II. In evaluating the sample results, the auditors also project the misstatements found in the sample to the population and consider sampling risk, the level of risk is quantified. III. When a projected misstatement indicates an overstatement, the difference is subtracted from the book value, when a projected misstatement indicates an understatement; the difference is added to the book value. a. b. c. d. I only I and II I, II, III all statements are correct

18. Bb. S computed an estimated audited value of the population to be P1,057,203. Items in the population and items in the sample were 1,994 and 370 respectively; while the audited value of sample items and book value of sample items were P15,750 and P25,000 respectively. The book value of the population amounts to: a. P1,687,100 b. P1,786,100

c. P1,678,100 d. P1,867,100 19. Given the information above, the estimated audited value using difference estimation is: a. P1,628,250 b. P1,862,250 c. P1,682,250 d. P1,826,250 20. The following items need further explanation when using non-statistical sampling I. Identifying individually significant items II. Determining the population size III. Selecting sample size IV. Calculating sample results a. b. c. d. I only I and III II and IV I and IV

21. Basic Steps in Audit Sampling is divided into three sections. Which is not included? a. Planning b. Test of Controls c. Performance d. Evaluation 22. In smaller sample size, I. Stratification of the population is not appropriate II. Stratification of the population is appropriate III. Stratification can sometimes be appropriate, sometimes not. IV. Stratification of the population cannot be done. Which is true? a. I only b. II only c. II and IV d. III only 23. Statement I: There is a higher acceptable risk of over reliance under Smaller Sample Size. Statement II: There is a higher acceptable risk of over reliance under Large Sample Size. a. Both are True b. Both are False c. Statement I is False

d. Statement II is False 24. What is the Relationship of Expected Error to Sample Size under Test of Controls? a. Direct b. Inversely c. Direct and Inversely d. Parallel 25. Statement I: Attributes are characteristics that provide evidence that a control was not actually performed. Statement II: Deviations happen when a sample item does have one or more attributes. a. b. c. d. Both are true Both are False Statement I is True Statement II is True

26. All of the following are factors that should be considered by an auditor in designing a sample, except. a. Audit Objectives b. Audit Procedures c. Risk And Assurance d. Tolerable Error e. All of the Above Are Factors that an Auditor must be considered 27. It is important for an auditor to ensure that the population is a. Appropriate b. Accurate c. Complete d. Only A and C e. All of the Above 28. The risk that arises from the probability that the auditors conclusion, based on the sample, may be different from the conclusion that would be reached if the entire population were subjected to the same audit procedure. a. Audit Risk b. Sampling Risk c. Inherent Risk d. Detection Risk e. Control Risk

29. Which of the following best describe about tolerable error? a. There is a directly proportional relationship between the tolerable error and the required sample size. b. It is the maximum error in the population that the auditor would be willing to accept and still conclude that the result sample has achieved his audit objective. c. The smaller the tolerable error, the larger sample size the auditor will require. d. Only B and C e. All of the Above 30. The following factors should be considered in determining the expected error in population, except a. Error levels identified in previous audits b. Changes in client procedures c. Evidence available from his evaluation of the system of internal control and from results of analytical review procedures. d. Changes in sampling method used e. All of the Above are Factors to be considered in determining the expected error