Multiple Choice Questions
The following apply to evaluating results of audit sampling for tests of details of balances. For each one, select the best response.
a. 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. This situation illustrates the risk of
(1) Assessing control risk too high.
(2) Assessing control risk too low.
(3) Incorrect rejection.
(4) Incorrect acceptance.
b. Which of the following is true regarding two random samples drawn in the same way from the same population, one of size 30 and the other of size 300?
(1) The two samples would have the same expected value.
(2) The larger sample is more likely to produce a larger sample mean.
(3) The smaller sample will have a 95% confidence interval for the mean.
(4) The smaller sample will, on average, produce a lower estimate of the variance of the population.
c. The accounting department reports the accounts receivable balance as $175,000. 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 $173,000 to $187,000. You would therefore
(1) Find it impossible to determine the acceptability of the balance.
(2) Accept the balance but with a lower level of confidence.
(3) Take a larger sample before rejecting the sample and requiring adjustments.
(4) Accept the $175,000 balance because the confidence interval is within the materiality limits.