cpa audit review ch15 review 1

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cpa audit review ch15 review 1
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cpa audit review ch15 review 1
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  1. Which of the following would be a consideration in planning an auditor’s sample for a test of controls?  

    The level of detection for the account.  

    The auditor’s allowable risk of underreliance.  

    The auditor’s allowable risk of overreliance.

    Preliminary judgments about materiality levels.
    The auditor’s allowable risk of overreliance.  

    A test of controls is an application of attribute sampling. The initial size for an attribute sample is based on (1) the desired assurance (complement of the risk of overreliance) that the tolerable population deviation rate is not exceeded by the actual rate, (2) the tolerable population deviation rate, (3) the expected population deviation rate, and (4) the population size. However, a change in the size of the population has a very small effect on the required sample size when the population is large. Consequently, population size is often not considered unless it is small.
  2. The possibility of the auditor’s failure to recognize a misstatement in an amount or a deviation from a prescribed control arises from  

    The standard error of the mean.  

    Nonsampling risk.  

    Statistical risk.

    Sampling risk.
    Nonsampling risk.  

    Nonsampling risk is the risk that the auditor may draw an erroneous conclusion for any reason not related to sampling risk. Examples include the use of inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize a misstatement or deviation. Nonsampling risk may be reduced to an acceptable level through such factors as adequate planning and proper conduct of a firm’s audit practice in accordance with the quality control standards (AU-C 530). Sampling risk results from the use of statistical sampling.
  3. Which of the following factors does an auditor usually need to consider in planning a particular audit sample for a test of controls?  

    Total dollar amount of the items to be sampled.

    Number of items in the population.  

    Tolerable misstatement.

    Acceptable risk of overreliance.
    Acceptable risk of overreliance.

    A test of controls is an application of attribute sampling. The initial size for an attribute sample from a large population is based on the desired assurance (complement of the risk of overreliance) that the tolerable population deviation rate is not exceeded by the actual rate, the tolerable population deviation rate, and the expected population deviation rate.
  4. Which of the following would be designed to estimate a numerical measurement of a population, such as a dollar value?  

    Sampling for variables.  

    Numerical sampling.  

    Discovery sampling.

    Sampling for attributes.
    Sampling for variables.  

    .Variables sampling is used to estimate the amount of misstatement in or the amount of a population. In auditing, this process involves estimating the monetary value of an account balance or other accounting totals. The result is often stated in terms of a point estimate plus or minus a stated dollar amount (the precision at the desired level of confidence).
  5. Stratified mean-per-unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually  

    Yields a weighted sum of the strata standard deviations that is greater than the standard deviation of the population.  

    May be applied to populations in which many monetary misstatements are expected to occur.

    Increases the variability among items in a stratum by grouping sampling units with similar characteristics.

    Produces an estimate having a desired level of precision with a smaller sample size.
    Produces an estimate having a desired level of precision with a smaller sample size.  

    The primary objective of stratification is to reduce the effect of high variability by dividing the population into subpopulations. Reducing the variance within each subpopulation allows the auditor to sample a smaller number of items while holding precision and confidence level constant.
  6. As a result of sampling procedures applied as tests of controls, an auditor incorrectly underrelies on controls. The most likely explanation for this situation is that


    The deviation rate in the auditor’s sample is less than the tolerable population rate, but the deviation rate in the population exceeds the tolerable population rate.  

    The deviation rates of both the auditor’s sample and the population exceed the tolerable population rate.  

    The deviation rate in the auditor’s sample exceeds the tolerable population deviation rate, but the deviation rate in the population is less than the tolerable population deviation rate.

    The deviation rates of both the auditor’s sample and the population are less than the tolerable population rate.
    The deviation rate in the auditor’s sample exceeds the tolerable population deviation rate, but the deviation rate in the population is less than the tolerable population deviation rate.   

    If the auditor underrelies on controls, the result is likely to be an unnecessary extension of substantive procedures, which affects audit efficiency. Underreliance is the erroneous conclusion that controls are less effective than they actually are. The most likely explanation is that (1) the auditor expected the sample to be representative of the population, (2) the sample deviation rate exceeded the tolerable population deviation rate, and (3) the actual population deviation rate is less than the tolerable population deviation rate.
  7. A CPA’s client wishes to determine inventory shrinkage by weighing a sample of inventory items. If a stratified random sample is to be drawn, the strata should be identified in such a way that  

    The sample means and standard deviation of each individual stratum will be equal to the means and standard deviations of all other strata.  

    The overall population is divided into subpopulations of equal size so that each subpopulation can be given equal weight when estimates are made.

    The items in each stratum will follow a normal distribution so that probability theory can be used in making inferences from the sample data.

    Each stratum differs as much as possible with respect to expected shrinkage, but the shrinkages expected for items within each stratum are as close as possible.
    Each stratum differs as much as possible with respect to expected shrinkage, but the shrinkages expected for items within each stratum are as close as possible.  

    When the items in a population are heterogeneous, it may be advantageous to stratify the population into homogeneous subpopulations. Each stratum should differ from the others, but the items within each stratum should be similar.

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