cpa audit review ch 15 review 5

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Joens1313
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cpa audit review ch 15 review 5
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2014-10-15 01:09:59
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cpa audit review ch 15 review 5
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  1. An auditor may decide to increase the risk of incorrect rejection when

    A.Initial sample results do not support the assessed risk of material misstatement.

    B.The cost and effort of selecting additional sample items are low.

    C.Increased reliability from the sample is desired.

    D.Many differences (audit amount minus recorded amount) are expected.
    B.The cost and effort of selecting additional sample items are low.

    The risk of incorrect rejection is the risk that the sample supports the conclusion that the recorded account balance is materially misstated when it is not. This risk relates to the efficiency, not the effectiveness, of the audit. Incorrect rejection ordinarily results in the application of additional procedures that finally lead the auditor to the proper conclusion. If the cost and effort of selecting additional sample items are low, a higher risk of incorrect rejection may be acceptable.
  2. Which of the following would be a consideration in planning an auditor’s sample for a test of controls?

    A.The auditor’s allowable risk of overreliance.

    B.The level of detection for the account.

    C.Preliminary judgments about materiality levels.

    D.The auditor’s allowable risk of underreliance.
    A.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.
  3. Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls?

    A.The population size has little or no effect on the sample size.

    B.As the population size doubles, the sample size should increase by about 67%.

    C.The sample size is inversely proportional to the expected population deviation rate.

    D.There is no relationship between the tolerable population deviation rate and the sample size.
    A.The population size has little or no effect on the sample size. 

    In an attribute sampling application, e.g., for testing internal controls, the total number of sampling units in the population should be known. However, the sample size is relatively insensitive to size changes in large populations.
  4. When using statistical sampling for testing the effectiveness of internal controls, an auditor’s evaluation would include a statistical conclusion concerning whether

    A.Population characteristics occur at least once in the population.

    B.The population total is not misstated by more than a fixed amount.

    C.Procedural deviations in the population were within an acceptable range.

    D.Monetary precision is in excess of a certain predetermined amount.
    C.Procedural deviations in the population were within an acceptable range.

    The auditor uses attribute sampling to test the effectiveness of controls. The auditor considers the occurrence rate of deviations in the population. Attribute sampling enables the auditor to estimate the occurrence rates of deviations and to determine whether the estimated rates are within acceptable ranges.
  5. For which of the following audit tests is an auditor most likely to use attribute sampling?

    A.Estimating the amount in an expense account.

    B.Evaluating the reasonableness of depreciation expense.

    C.Selecting receivables for confirmation of account balances.

    D.Identifying entries posted to incorrect accounts.
    D.Identifying entries posted to incorrect accounts.

    Attribute sampling enables the auditor to (1) estimate the actual rate of control deviations and (2) determine its relation to the tolerable rate. Thus, attribute sampling is used for tests of controls, and variables sampling is used for substantive tests of details. Identifying entries posted to incorrect accounts is an example of a test of controls.
  6. In planning a statistical sample for a test of controls, an auditor increased the expected population deviation rate from the prior year’s rate because of the results of the prior year’s tests of controls and the overall control environment. The auditor most likely would then increase the planned

    A.Tolerable deviation rate.

    B.Allowance for sampling risk.

    C.Sample size.

    D.Risk of overreliance.
    C.Sample size.

    To determine the sample size for a test of controls, the auditor considers (1) the tolerable rate of deviations, (2) the expected actual rate of deviations, and (3) the allowable risk of overreliance. An increase in the expected rate has the effect of increasing the degree of assurance to be provided by the sample and therefore increasing the planned sample size.

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