cpa audit review ch15 review 4

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cpa audit review ch15 review 4
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2014-10-15 00:36:14
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cpa audit review ch15 review 4
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  1. The expected population deviation rate varies ----------- with sample size, while the tolerable population deviation rate varies ------------ with sample size.
    directly

    inversely
  2. the tolerable population deviation rate varies ------------- with sample size. As it decreases, the sample size ---------------.
    inversely

    increases
  3. The expected population deviation rate -------------- affects the sample size. As it increases, the sample size increases affects the sample size. As it -----------------, the sample size ----------------
    directly

    increases

    increases
  4. Which of the following statements is true concerning monetary-unit sampling (MUS), also known as probability-proportional-to-size sampling?

    A.The sampling distribution should approximate the normal distribution.

    B.The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.

    C.The sampling interval is calculated by dividing the number of physical units in the population by the sample size.

    D.Overstated units have a lower probability of sample selection than units that are understated.
    B.The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.

    MUS is one technique whereby the auditor can measure and control the risks associated with observing less than 100% of the population. The auditor can quantify and measure the risk of accepting a client’s recorded amount as fair when it is materially misstated.
  5. Which of the following statements is true concerning statistical sampling in tests of controls?

    A.There is an inverse relationship between the expected population deviation rate and the sample size.

    B.In determining the tolerable deviation rate, an auditor considers detection risk and the sample size.

    C.Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements.

    D.As the population size increases, the sample size should increase proportionately.
    C.Deviations from specific control activities increase the likelihood of misstatements but do not always cause misstatements.

    Deviations from a specific control increase the risk of misstatements in the accounting records but do not always result in misstatements. Thus, deviations from a specific control at a given rate ordinarily result in misstatements at the financial statement level at a lower rate.
  6. Many statistical estimates may be useful to an auditor. But most are either of a quantity or a deviation rate. The statistical terms that correspond to quantities and deviation rates, respectively, are

    A.Constants and variables.

    B.Constants and attributes.

    C.Variables and attributes.

    D.Attributes and variables.
    C.Variables and attributes.

    Variables sampling is used by auditors to estimate quantities or dollar amounts in substantive testing. Attribute sampling applies to testing of internal controls and is used to estimate a deviation rate (occurrence rate) within a population.
  7. An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that

    A.The asset account is fairly stated because the total projected misstatement is less than the tolerable misstatement.

    B.There is an unacceptably high risk that the tolerable misstatement exceeds the sum of actual overstatements and understatements.

    C.There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.

    D.The asset account is fairly stated because the tolerable misstatement exceeds the net of projected actual overstatements and understatements.
    C.There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.

    By taking every twentieth item, the auditor chose a sample containing 5% (1 ÷ 20) of the items in the population. If the sample contains $3,700 of overstatements and $200 of understatements, the projected overstatements and understatements are $74,000 and $4,000, respectively, a projected misstatement of $78,000. Furthermore, sampling risk should be considered. The allowance for sampling risk calculated for a specified level of confidence is an interval around the sample result that is expected to contain the true amount of misstatement. The upper limit of this interval equals $78,000 plus the calculated allowance. Accordingly, given that projected misstatement exceeds tolerable misstatement, the auditor most likely will conclude that the risk that actual misstatement exceeds tolerable misstatement is unacceptably high.

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