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Exam 10: Audit Sampling

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Question 31

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Efficiency risk exists only in non-statistical sampling.

A) True
B) False

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Question 32

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Which description best illustrates sampling risk?

A) Applying audit procedures which are inappropriate for the audit objectives.
B) Failing to recognize errors or deviations in the documents examined.
C) Arriving at incorrect statistical conclusions because of computational errors.
D) Choosing a sample that does not represent the population.

E) C) and D)
F) B) and D)

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Question 33

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The purpose of tests of controls is to determine whether ________.

Huey and Duey,PAs audited the accounts receivable of Grando Limited on a sample basis.There were 2,000 customer accounts in the subsidiary ledger with a total recorded value of $450,000.As part of the audit program,Huey and Duey selected a sample of 100 accounts having a recorded value of $25,000.They performed the audit procedures and determined that the audited amount of the sample totaled $24,000. Required: A)Calculate the projected likely misstatement (PLM)using (1)the average difference method and (2)the ratio method. B)Evaluate the results of the calculation in part (A).Assume that Huey and Duey set the tolerable misstatement for accounts receivable at $28,000.

In addition to population size,which of the following is used in attribute sampling to determine the sample size?

The determination of an appropriate sample on a representative basis must be made using statistical methods.

Non-sampling risk exists in both statistical and non-statistical sampling.

Under CAS 520 efficiency risk is the risk of concluding from a sample or test that a material misstatement exists when in fact it does not.

Using the audit risk model: If audit risk is 0.05,inherent risk is 1.0,control risk is 0.20,and analytical procedures risk is 1.0,the risk of incorrect acceptance is 0.25.

Jack and Jill,two auditors who have separate accounting practices,have independently assessed the risks associated with the accounts receivable of their respective clients.The appropriate audit risk for both is determined to be.02.Both agree that inherent risk should be set at the maximum (1.0)and that no analytical procedures will be performed.Jack evaluates control risk as moderate (.40),while Jill assesses it as relatively low (.20).Using the audit risk model,answer the following questions. Required: A)What is the risk of incorrect acceptance (RIA)for Jack and for Jill? B)Based on your answer in part (A),which auditor will have to collect the most evidence? Explain your reasoning. C)What effect does differing assessments of control risk have on the sample size of accounts receivable? Explain.

Sampling risk is the risk that the auditor chooses the wrong sample selection method.

When performing the substantive tests on an account balance,the auditor is concerned about two aspects of sampling-based decision errors: (1) the risk of incorrect rejection (RIR) and (2) the risk of incorrect acceptance (RIA) .Which of the following is true about RIR and RIA?

The probability that an auditor's conclusion based on a sample might differ from the auditor's conclusion based on an audit of the entire population identifies the concept of ________.

After extrapolating the results of performing substantive tests on a sample of accounts from the accounts receivable subsidiary ledger,Allen CPA concluded that the accounts receivable balance was materially misstated.In fact,the balance was materially correct.This situation illustrates the risk of ________.