DE LA SALLE LIPA

College of Business, Economics, Accountancy and Management

Accountancy Department
Auditing Theory
AUDIT SAMPLING

Direction: Read and answer the following questions.

___1. Which of the following types of sampling risk shall be the more concern of an auditor as it affects audit effectiveness?
a. That internal control is not reliable when in fact it is effective and can be relied upon.
b. That material misstatement exists in an account balance or transaction class when in fact such misstatement does not exist.
c. Alpha risk
d. Beta risk
___2. Non-sampling risk refers to the risk that the auditor may draw incorrect conclusions about the account balance or class of
transactions because of the following reasons, except
a. An auditor may select audit procedures that are not appropriate to achieve the specific objective.
b. A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.
c. An auditor may fail to recognize errors in the documents examined for the chosen sample.
d. The documents related to the chosen sample may not be available for inspection.
___3. Which of the following statements concerning the application of testing procedures is incorrect?
a. Audit sampling is performed on the assumption that the sample selected for testing is representative of the population.
b. The auditor may decide to apply audit procedures only to those items which have particular significance also known as
selective testing (e.g. all items over a certain amount.)
c. The auditor may decide that it would be more appropriate to examine the entire population of items when the population
constitutes a large number of small value items.
d. Audit sampling refers to the application of audit procedures to less than 100% of the items within a population of audit relevant
such that all sampling units have a change of selection in order to provide auditor with a reasonable basis on which to draw
conclusions about the entire population.
___4. Which of the following procedures shall be used in order for the auditor to control sampling risk?
a. Increase the sample size and use appropriate sample selection method.
b. Properly plan the audit procedures.
c. Carefully and appropriately select the audit procedures to be applied.
d. Adequately direct, review, and supervise the audit team.
___5. Which of the following statements is correct?
a. Non-sampling risk can be eliminated through a system of quality control.
b. Sampling risk can be eliminated through the examination of the entire population.
c. Alpha risk is the risk that the auditor will conclude than internal control is reliable when in fact it is not effective and cannot be
relied upon.
d. Beta risk is the risk that material misstatement exists in an account balance or transaction class when in fact such
misstatement does not exist.
___6. Which of the following statements concerning the general approaches to audit sampling is correct?
a. Non-statistical sampling uses the law on probability to measure sampling risk and evaluate samples and uses random based
selection of sample while statistical sampling purely uses auditors judgment in estimating sampling risks, determining sample
size, and evaluating sample results.
b. Non-statistical sampling is not acceptable approach for performing audit sampling under PSA.
c. The difference between statistical and non-statistical sampling is that statistical sampling allows auditor to measure or quantify
the sampling risks by using mathematical formula.
d. Statistical sampling will not require the use of auditors professional judgment.
___7. When shall an attribute sampling be used?
a. When the auditor aims to determine the samples for confirmation of accounts receivable.
b. When the auditor aims to determine the samples for testing effectiveness of billing procedures of the company.
c. When the auditor aims to determine the samples for the performance of reasonableness test.
d. When the auditor aims to determine the samples for inventory count.
___8. Which of the following statements concerning the principal methods of selecting samples is incorrect?
a. The advantage of random number selection technique is that it gives each item in the population an equal opportunity to be
selected.
b. The disadvantage of systematic selection technique is the destruction of sample randomness due to the creation of a
particular pattern in the population from the sampling interval.
c. Haphazard selection is useful for non-statistical sampling but is not used for statistical sampling because the auditor cannot
measure the probability of an item being selected when using this method.
d. Discovery sampling is more appropriate when more deviations are expected in the population.
___9. In the sampling for tests of controls, the auditor may encounter voided documents and missing documents. The following are the
proper treatments of these documents, except
a. If the document is properly voided, such document should be replaced by another sample item.
b. If the document is missing but the auditor is unable to determine whether the control has been properly performed, such item
should be treated as a deviation for the purpose of evaluating sample results.
c. Cancelled document should not be treated as a deviation when it is properly cancelled.
d. Both voided and missing documents should always be treated as a deviation for the purpose of evaluating sample results.

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___10. When shall an auditor apply value weighted selection sampling?

a. When an auditor tests effectiveness of controls and he expects very few deviations within the population.
b. When the auditor anticipates overstatement errors in an account balances.
c. When the auditor suspects that an irregularity might have been committed no deviations are expected in the population.
d. When the auditor aims to decrease the effect of variance within the population.
___11. Which of the following statements concerning the factors affecting the determination of sample size for tests of controls is
incorrect?
a. The expected deviation rate in the population has an inverse relationship with the sample size.
b. Tolerable deviation rate is inversely related to the sample size.
c. There is an inverse relationship between the acceptable sample risk and sample size.
d. The expected population deviation rate should not exceed the tolerable deviation rate.
___12. Which of the following statements concerning the factors affecting the determination of sample size for substantive tests is
correct?
a. The lower the acceptable sampling risk, the lower the sample size.
b. The higher the tolerable misstatement in the sample, the higher the sample size.
c. The lower the expected misstatement in the population, the higher the sample size.
d. As the degree of variability in the population increases, a larger sample size is required.
___13. Which of the following sampling techniques is least desirable by PSA?
a. Haphazard sampling
b. Block sampling
c. Stratified sampling
d. Sequential sampling
___14. If the maximum deviation rate exceeds the tolerable rate, what shall the auditor do?
a. The auditors preliminary assessment of control risk at low level is appropriate.
b. The auditor shall perform test of control to further reduce audit risk at an acceptable level.
c. The auditor shall increase the scope of substantive tests and perform test of details.
d. The auditor shall perform the substantive tests at interim period using smaller sample sizes.
___15. Which of the following combinations is proper?
a. Risk of underreliance and risk of incorrect rejection are both beta risks and affect audit efficiency.
b. Risk of overreliance and risk of incorrect acceptance are both alpha risks and affect audit effectiveness.
c. Risk of underreliance and risk of incorrect acceptance are both alpha risks and affect audit effectiveness.
d. Risk of overreliance and risk of incorrect acceptance are both beta risk and affect audit effectiveness.
___16. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical sampling
methods
a. Can more easily convert the sample into a dual-purpose test useful for substantive testing.
b. Eliminate the need to use judgment in determining appropriate sample sizes.
c. Afford greater assurance than a nonstatistical sample of equal size.
d. Provide an objective basis for quantitatively evaluating sample risk.
___17. The size of a sample designed for dual purpose testing should be
a. The larger of the samples that would otherwise have been designed for the two separate purposes.
b. The larger of the samples that would otherwise have been designed for the two separate purposes.
c. The combined total of the samples that would otherwise have been designed for the two separate purposes.
d. More than the larger of the samples that would otherwise have been designed for the two separate purposes but less than the
combined total of the samples that would otherwise have been designed for the two separate purposes.
___18. 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.
___19. Which of the following statistical sampling plans does not use a fixed sample size for tests of controls?
a. Dollar-unit sampling
b. Sequential sampling
c. Probability proportional to size sampling
d. Variables sampling
___20. When assessing the tolerable rate, the auditor should consider that, while deviations from control procedures increase the risk
of material misstatements, such deviations do not necessarily result in errors. This explain why
a. A recorde4d disbursement that does not show evidence of required approval may nevertheless be a transaction that is
properly authorized and recorded.
b. Deviations would result in errors in the accounting records only if the deviations and the errors occurred on different
transactions.
c. Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in errors at a higher rate.
d. A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material error.
___21. The tolerable rate of deviations for a test of control is generally
a. Lower than the expected rate of errors in the related accounting records.
b. Higher than the expected rate of errors in the related accounting records.
c. Identical to the expected date of errors in related accounting records.
d. Unrelated to the expected rate of errors in the related accounting records.

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___22. Which of the following statements us correct concerning statistical sampling for tests of controls?
a. The population size has little or no effect on determining sample size except for very small populations.
b. The expected population deviation rate has little or no effect on determining sample size except for very small populations.
c. As the population size doubles, the sample size should also double.
d. For a given tolerable rate, a larger sample size should be selected as the expected population deviation rate decreases.
___23. It will be appropriate to audit all the items that make up a class of transactions or account balance (100% examination), except
a. When the class of transactions or account balance consists of a large number of small value items.
b. When the class of transactions or account balance consists of a small number of large value items.
c. When there is a significant risk of misstatement and other selection methods do not provide sufficient appropriate audit
evidence.
d. When the repetitive nature of a calculation or other process performed automatically by the clients computer information
system makes a 100% examination cost effective.
___24. PSA 500 states that the auditor may decide select specific items from a population based on such factors as the auditors
understanding of the entity, the assessed risk of material misstatement, and the characteristics of the population being tested. Specific
items that may be selected for testing usually include the following, except
a. Items that are of high value.
b. Items that are suspicious, unusual, risk-prone, or have a history of error.
c. All items whose values do not exceed a certain amount so as to verify only a small proportion of the total amount of class of
transactions or account balance.
d. Items that provide information about matters such as the nature of the entity, the nature of transactions, and internal control.
___25. The likelihood of assessing control risk too high is the risk that the sample selected to test controls
a. Does not support the tolerable error for some or all of managements assertions.
b. Contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole.
c. Does not support the auditors planned assessed level of control risk when the true operating effectiveness of internal control
justifies such an assessment.
d. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other
account balances or transactions classes.
___26. Given random selection, the same sample size, and the same tolerable deviation rate for the testing of two unequal populations,
the risk of assessing control risk too low for the larger population is
a. Higher than the risk of assessing control risk too low for the smaller population.
b. Lower than the risk of assessing control risk too low for the smaller population.
c. The same as the risk of assessing control risk too low for the smaller population.
d. Indeterminable relative to the risk of assessing control risk too low for the smaller population.
___27. For which of the following audit tests would an auditor most likely use attribute sampling?
a. Selecting accounts receivable for confirmation of account balances.
b. Examining invoices in support of the valuation of property, plant, and equipment additions.
c. Making an independent estimate of the amount of FIFO inventory.
d. Inspecting employee time cards for proper approval by supervisors.

___28. Which of the following statements is correct concerning statistical sampling in tests of controls?
a. In determining the tolerable rate, an auditor considers detection risk and the sample size.
b. Deviations from specific control activities at a given rate ordinarily result in misstatement at a lower rate.
c. As the population size increases, the sample size should increase proportionately.
d. There is an inverse relationship between the expected population deviation rate and the sample size.
___29. An attribute sampling plan may be used to test the effectiveness of controls. The auditors evaluation to the
sampling results ordinarily leads to a conclusion concerning
a. The relation of the population deviation rate to the tolerable rate.
b. Monetary precision exceeding a certain predetermined amount.
c. The population value not being misstated by more than a predetermined amount.
d. Population characteristics occurring at least once in the population.
___30. As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower
than appropriate. Which of the following is the most likely explanation for this situation?
a. The deviation rate in the auditors sample exceeds the tolerable rate, but the deviation rate in the population is
less than the tolerable rate.
b. The deviation rate in the auditors sample is less than the tolerable rate, but the deviation rate in the population
exceeds the tolerable rate.
c. The deviate rates of both the auditors sample and the population are less than the tolerable rate.
d. The deviation rates of both the auditors sample and the population exceed the tolerable rate.
___31. Which of the following statements concerning projection of errors found in the sample to the population is
incorrect?
a. For tests of details, the auditor should project monetary errors found in the sample to the population, and should
consider the effect of the projected error on the audit objective and on other areas on the audit.
b. Anomalous errors found in the sample should be included in the projection of errors to the population.

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c.

For tests of controls, no explicit projection of errors is necessary since the sample deviation rate is also the
projected deviation rate for the population as a whole.
d. If a class of transactions or an account balance has been divided into strata, the error is projected for each
stratum separately.
___32. In applying variables sampling, an auditor attempts to
a. Predict a monetary population value within a range of precision.
b. Estimate a qualitative characteristic of interest.
c. Determine various rates of occurrence for specified attributes.
d. Discover at least one instance of a critical deviation.
___33. An auditor may decide to increase the risk of incorrect rejection when
a. The cost and effort of selecting additional sample items are low.
b. Increased reliability from sample is desired.
c. Many differences (audit value minus recorded value) are expected.
d. Initial sample results do not support the planned level of control risk.
___34. 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. Continue to draw new samples until all the unusually large disbursements appear in the sample.
b. Increase the sample size to reduce the effect of the unusually large disbursements.
c. Stratify the cash disbursements population so that the unusually large disbursements are selected.
d. Set the tolerable rate of deviation at a lower level than originally planned.
___35. 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. Smaller measure of tolerable misstatement.
b. Smaller expected frequency of errors.
c. Greater reliance on analytical procedures.
d. Greater reliance on internal control.
___36. If certain forms are not consecutively numbered
a. Selection of a random sample probably is not possible.
b. Systematic sampling may be appropriate.
c. Random number tables cannot be used.
d. Stratified sampling should be used.
___37. Which of the following statements relating to stratification is incorrect?
a. When performing tests of details of transactions and account balances, the population is often stratified by
monetary value.
b. The results of audit procedures applied to a sample of items within a stratum can be projected to the entire
population.
c. When verifying the valuation assertion for accounts receivable, account balances may be stratified by age.
d. Stratification reduces the variability of items within each stratum.
___38. Which of the following sample selection methods is not appropriate when using statistical sampling?
a. Random selection
b. Systematic selection
c. Monetary unit sampling
d. Haphazard selection
___39. Which of the following most likely would be an advantage in using classical variables sampling rather than
probability-proportional-to-size sampling?
a. An estimate of the standard deviation of the populations recorded amount 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.
___40. The use of the ratio estimation sampling technique is most effective when
a. The calculated audit amounts are approximately proportional to the clients book amounts.
b. A relatively small number of differences exist in the population.
c. Estimating populations whose records consist of quantities, but not of book values.
d. Large overstatement differences and large understatement differences exist in the population.

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Solution
1. D
2. B
3. C
4. A
5. B
6. C
7. B
8. D
9. D
10. B
11. A
12. D
13. B
14. C
15. D
16. D
17. A
18. C
19. B
20. D
21. B
22. A
23. A
24. C
25. C
26. A
27. D
28. A
29. A
30. B
31. B
32. A
33. A
34. C
35. A
36. B
37. B
38. D
39. C
40. A

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