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auditing

Questions and Answers of Auditing

In audit sampling applications, sampling risk is a. A characteristic of statistical sampling applications but not of non-statistical applications. b. The probability that the audit team will fail to
The risks of incorrect acceptance in variables sampling and of assessing control risk too low in attributes sampling both relate to a. Effectiveness of an audit. b. Efficiency of an audit. c. Control
The type of sampling most frequently used by auditors during their study of internal control is referred to as a. Attributes sampling. b. Control sampling. c. Monetary unit sampling. d. Variables
Which of the following components of the audit risk model is most closely associated with attributes sampling? a. Audit risk. b. Control risk. c. Detection risk. d. Inherent risk.
The audit team will choose to reduce the reliance on controls if the _____ is greater than the _____ a. Tolerable rate of deviation; upper limit rate of deviation. b. Upper limit rate of deviation;
An advantage of statistical sampling over non-statistical sampling methods is that statistical methods a. Afford more assurance than a non-statistical sample of equal size. b. Provide an objective
When using sampling in the study of internal control, the audit team would compare the upper limit rate of deviation to the a. Expected rate of deviation. b. Sample rate of deviation. c. Statistical
Which of the following would not result in exposure to non-sampling risk? a. Measuring the characteristic of interest in an inappropriate manner. b. Selecting items that are not representative of the
Which of the following statements is not true with respect to non-statistical sampling? a. It cannot be used in an audit conducted in accordance with generally accepted auditing standards. b. It
In a sampling application to determine the average weight of students enrolled in a fitness class, if the sample estimate is 120 pounds, the precision is 10 pounds, and the reliability is 90 percent,
Which of the following steps would normally be performed last in a sampling application? a. Examine sample items and determine the sample estimate. b. Determine the level of reliability for the
The risk of incorrect rejection and the risk of underreliance relate to the a. Effectiveness of the audit. b. Efficiency of the audit. c. Preliminary estimates of performance materiality. d.
You and a friend are deciding whether to pack heavy clothing for a trip to the northeastern United States. You have decided that you would need heavy clothing only if the temperature is expected to
This module provided a detailed example of the use of sampling to determine whether individuals could increase their driving distance by using Wilson’s golf balls. Required: Indicate whether each
Read the following five independent sampling applications. Required: Indicate whether each situation is characteristic of sampling risk (S) or non-sampling risk (N). Provide a brief explanation for
You are attempting to determine whether you are taller or shorter than the average of students currently enrolled in your university. You have just learned about sampling and have decided to sample
You are evaluating the feasibility of opening a new 10- screen movie theater in a town that has only one existing theater. To be viable, the proposed theater would need an average attendance of at
You are employed by Northeast Airlines and have been asked to deter-mine the rate of on- time arrivals for competing airlines at a proposed hub location. North-east is known for its outstanding
In the most recent local election between two candidates, you heard your local news anchor indicate that your preferred candidate had 48 percent of the vote with a margin for error (precision) of 6 6
For each of the following independent cases, identify the missing value(s).
The National Football League (NFL) is interested in determining whether the average age of its fan base is less than 35 years of age to identify this demo-graphic for potential advertisers. Following
Gloria Bush has performed a sampling plan to estimate the number of children per household in her neighborhood. In doing so, she established a 10 percent acceptable level of sampling risk and found a
Your political consulting group, Electem Inc., is assisting a local political candidate, Alice Evans, to determine the likelihood of her election to office during the upcoming campaign. She would
Marts Inc., a local fund- raising organization, is considering the feasibility of a fund- raising campaign to assist a youth organization in building a new recreation center in College Bryan, Texas.
Reagan Russell is considering opening a multipurpose hardware and lawn store in Anytown, USA. Based on his knowledge of the industry, he believes that if the average household income is more than $
Arianna Casey is trying to select a sample of registered voters in Hoops County to see how they intend to vote on funding a stadium for the local professional basketball team. She has determined that
You are employed by FishWrap Ltd., a local newspaper distribution company, and are attempting to determine the average level of customer satisfaction with the newspaper’s delivery service. All
Arthur Castle is interested in identifying the average number of family members living in each household in his neighborhood. He has heard about sampling and thinks that it could help him identify
You are conducting a research study to determine the effect of a two- week workout and diet regimen on the weight loss experienced by individuals between the ages of 30 and 35 years. Health Busters,
You are interested in selecting a sample of 100 students on your campus to participate in a survey of the effects of coffee on students’ ability to compreend material from a faculty member’s
Indicate how each of the following factors influences the sample size in an attributes and variables sampling application by using I (inverse relation-ship), D (direct relationship), or U(unrelated).
Alex Fishkin is trying to decide on a new location for an ice cream and candy shop. He has decided that if the average number of children per household within a one- mile radius of a proposed shop
You have been assigned to the audit of Phillip’s Inc., a chain of convenience stores. As part of the audit planning, you decide to perform the following tests: 1. Perform a walkthrough of purchase
You overheard the following comments during a conversation between Roger Nadal and Rafael Federer about a specific sampling application.Required: Refer to appropriate professional standards and
The accounting firm of Mason & Jarr performed the work described in each of the following separate cases. The two partners are worried about properly applying auditing standards regarding
Sample Sizes.Required: Go to the Kaplan website link at www. mhhe.com/ louwers6e , click on Abernathy Inc. ( Sample Size) AUD TBS, and complete your answer.
What is sampling risk? How does it occur?
What is statistical sampling? How does it differ from nonstatistical sampling?
Define attributes sampling. When is it used in the audit examination?
What is the tolerable rate of deviation? How does the audit team use it when deciding whether to rely on internal control?
Define variables sampling. When is it used in the audit examination?
What is tolerable misstatement? How do auditors use it when deciding whether account balances are fairly recorded?
What are the objectives of attributes and variables sampling?
Define the terms (a) Sampling risk, (b) Tolerable rate of deviation, and (c) Expected population deviation rate. How does the audit team assess or determine these factors?
What two types of sampling risks could an audit team encounter when performing attributes sampling?
What is the relationship between sample size and (a) Sampling risk, (b) Tolerable rate of deviation, and (c) Expected population deviation rate?
Describe the general procedure used by the audit team to determine sample size using AICPA sampling tables.
What is the upper limit rate of deviation? What information does the upper limit rate of deviation provide to the audit team?
Describe the general process used to determine the upper limit rate of deviation using AICPA sampling tables.
What options are available to the audit team for determining the upper limit rate of deviation if the audit team’s sample size is not included in the AICPA sampling tables?
What information does the audit team typically document in an attributes sampling application?
What is sequential sampling? What are its advantages and disadvantages?
In what steps of a sampling plan would the use of non-statistical sampling differ from the use of statistical sampling?
How should an audit team using non-statistical sampling for attributes testing evaluate the results of the test?
Which of the following major stages of the audit is most closely related to attributes sampling? a. Determining preliminary levels of materiality. b. Performing tests of controls. c. Performing
Which of the following steps in attributes sampling is most closely related to identifying key controls corresponding to the relevant management assertions? a. Determine the objective of sampling. b.
Which of the following factors has a direct relationship with sample size in an attributes samplingapplication?
Which of the following sampling risks does the audit team control in an attributes sampling application (ROO 5 risk of overreliance, ROU 5 risk ofunderreliance)?
Why is the audit team more concerned with controlling the exposure to the risk of overreliance than with the risk of underreliance? a. Only the risk of overreliance results in an incorrect audit
Which of the following would not result in the audit team’s selecting a larger sample of controls for examination? a. A reduction in the risk of overreliance from 10 percent to 5 percent. b. An
Baily Cox, an audit manager, judged that the test of controls of the company’s 50,000 purchase transactions should be based on a tolerable rate of deviation of 6 percent, a risk of overreliance of
Tony LaRussa, an audit manager, considered the control risk assessments listed in the left column of the following table in evaluating A. Cardinal€™s internal control over sales
Assume that Dylan Lee found two deviations in a sample of 90 transactions. Using AICPA sample evaluation tables, Lee determined that the upper limit rate of deviation at a 5 percent risk of
The interpretation of the upper limit rate of deviation in an attributes sampling application is a. The estimated rate of deviation in the population with probability equal to the risk of
If an audit team examined 100 transactions and found one deviation from an important control procedure, the audit conclusion could be that control risk can be assessed at the associated control risk
If an audit team calculated an upper limit rate of deviation of 5 percent when the tolerable rate of deviation was 4 percent, both at the same risk of overreliance, control risk should be a. Assessed
In which of the following circumstances would the audit team most likely use attributes sampling? a. Selecting customer accounts receivable for confirmation. b. Selecting inventory items for
Using AICPA sample evaluation tables, determine the conclusion from a statistical sample of internal controls when a sample of 125 documents indicates five deviations if the tolerable rate of
An audit team designed a sample that would provide a 10 percent risk of overreliance that not more than 7 percent of sales invoices lacked credit approval. From previous audits, the audit team
Based on the information in the preceding question, the audit team determined that the allowance for sampling risk was a. 2.2%. b. 5.0%. c. 7.8%. d. 10.0%.
If the _____ exceeds the _____, the audit team would decide to rely on internal control as planned and maintain control risk at planned levels. a. upper limit rate of deviation; tolerable rate of
If the sample evidence does not support the planned level of control risk, the audit team could a. Increase the assessed level of control risk. b. Perform additional substantive procedures, reducing
Which of the following best describes the method of determining the upper limit rate of deviation? a. Expected population deviation rate 1 Allowance for sampling risk. b. Risk of underreliance 1
Which of the following factors used to determine sample size is normally based on the extent to which the audit team expects to rely on the internal control being examined? a. Allowance for sampling
A type of sampling application in which a relatively small initial sample is examined and decisions regarding expanding that sample are based on the results of this initial sample is known as a.
Jerry Tim is examining an important internal control in the audit of Langly Company. In past audits, deviations from this control have been observed at a minimal rate ( less than 0.1 percent);
In which step of a sampling plan is non-statistical sampling different from statistical sampling? a. Define the characteristic of interest. b. Define the population. c. Measure the sample items. d.
The primary benefit of using non-statistical sampling is that a. It generally results in a smaller sample size. b. It removes the need to consider allowance for sampling risk. c. It is simpler to
Required: Review each of the following controls. Identify(1) The objective of the audit team’s test of controls and(2) One example of a deviation from the control.a. The credit department
Frazier Holyfield, a new staff accountant, is evaluating important controls over the revenue cycle and, more specifically, assessing the operating effectiveness of the control that all shipments made
Dana Beckham, CPA, is performing an attributes sampling application for Posh Company. In doing so, Beckham is interested in determining whether quantities on sales invoices are verified by client
Madison Perry, CPA, is conducting an audit of Parker Inc. In so doing, Perry is performing a study of Parker’s internal control and has identified a number of important controls related to
Cameron Jones, CPA, is verifying that all sales made by Hicks Company to customers on account are properly approved by credit personnel. Hicks has established the following control related to this
Susan Hill was examining controls for the authorization of cash disbursements. She selected cash disbursement entries made throughout the year and vouched them to paid invoices and canceled checks
Read each of the following cases. Explain for each case how you could select a sample having the best chance of being representative of the population using (1) unrestricted random selection and ( 2)
Robert Janice, CPA, is verifying a sample of controls related to the approval of vouchers for payment. His client, Fave Company, uses a prenumbered voucher system in which a voucher is prepared and
Hunter McNeal is studying and evaluating Branyon’s internal controls related to the mathematical verification of sales invoices. In this verification, Branyon’s control policies require that
Jule Phillips is examining the internal control of Cowboy Company and has identified the mathematical verification of sales invoices as an important control and decided to test this control. Based on
Review each of the following independent sets of conditions. Required: Use AICPA sample size tables to identify the appropriate sample size for use in a statistical sampling application (ROO 5 risk
Review each of the following independent sets of conditions. Required: Use AICPA sample size tables to identify the appropriate sample size for use in a statistical sampling application (ROO 5 risk
For each of the following independent cases, use AICPA sample size tables to identify the missingvalue(s).
Grady Cambridge, CPA, is performing attributes sampling to determine whether all purchases on account are properly approved by the client. Because the client typically makes more than 2,000 purchases
Jamie Plane is testing the effectiveness of an important control for Blackheart Inc. Plane is placing a high level of reliance on this control and has assessed a relatively low risk of overreliance
Review each of the following independent sets of conditions. For each condition, calculate the (1) Sample rate of deviation, and use AICPA sample evaluation tables to identify the (2) Upper
Review each of the following independent sets of conditions. For each condition, calculate the (1) Sample rate of deviation, and use AICPA sample evaluation tables to identify the (2) Upper
For each of the following independent cases, use AICPA sample size and sample evaluation tables to identify the missing value(s).
Assume that you are working on the audit of a small company and are examining purchase invoices for the presence of a €œreceived€ stamp. The omission of the stamp is thus a
Kendall Jackson, CPA, is examining the operating effectiveness of the internal control of Town Mo, a large conglomerate in the music industry. As part of the evaluation, Jackson determined a
Tom Barton, an assistant accountant with a local CPA firm, recently graduated from Other University. He studied statistical sampling for auditing in college and wants to impress his employers with
Audra Dodge, CPA, is performing an attributes sampling plan for her audit of Truck Company. In her audit of cash disbursements, she has identified preparing a voucher and marking it as “paid”

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