cpa audit review ch15 review 7

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Joens1313
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cpa audit review ch15 review 7
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2014-10-16 00:28:08
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cpa audit review ch15
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cpa audit review ch15 review 7
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  1. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

    A.Can more easily convert the sample into a dual-purpose test useful for substantive testing.

    B.Provide an objective basis for quantitatively evaluating sample risk.

    C.Eliminate the need to use judgment in determining appropriate sample sizes.

    D.Provide greater assurance than a nonstatistical sample of equal size.
    B.Provide an objective basis for quantitatively evaluating sample risk.

    Sampling risk is the risk that the auditor’s conclusion based on a sample may differ from the conclusion when the same procedure is applied to the entire population. Two types of erroneous conclusions may be drawn. One is that controls are more effective than they actually are, or a material misstatement does not exist when in fact it does exist. This type of error affects audit effectiveness and is more likely to result in an inappropriate opinion. The second erroneous conclusion is that controls are less effective than they actually are, or a material misstatement exists when in fact it does not exist. This type of error affects audit efficiency and results in more work. Sampling risk is measured and controlled in statistical sampling.
  2. In estimation sampling for variables, which of the following must be known in order to estimate the appropriate sample size required to meet the auditor’s needs in a given situation?

    A.The acceptable level of risk.

    B.The total dollar amount of the population.

    C.The estimated deviation rate in the population.

    D.The qualitative aspects of misstatements.
    A.The acceptable level of risk.

    Variables sampling is used in tests of details because it may be used to (1) estimate the amount of a variable, such as an account balance, and (2) quantify the risk that the estimate may not approximate the true value. For substantive tests of details, the sample size depends on the auditor’s desired assurance (1.0 – the risk of incorrect acceptance) that tolerable misstatement is not less than actual misstatement in the population. The desired assurance may be based on, among other things, the following: (1) the assessed risk of material misstatement, (2) the assurance provided by other substantive procedures related to the same assertion, (3) tolerable misstatement, and (4) expected misstatement for the population. Accordingly, as the acceptable risk of incorrect acceptance decreases, the desired assurance increases, and the auditor decreases the tolerable misstatement.
  3. An auditor suspects that the invoices from a small number of vendors contain serious misstatements and therefore limits the sample to those vendors only. A major disadvantage of selecting such a directed sample of items to examine is the

    A.Inability to quantify the sampling error related to the total population of vendor invoices.

    B.Absence of a normal distribution.

    C.Difficulty in obtaining sample items.

    D.Tendency to sample a greater number of units.
    A.Inability to quantify the sampling error related to the total population of vendor invoices.

    Judgment sampling uses the auditor’s subjective judgment to determine the sample size (number of items examined) and sample selection (which items to examine). This subjectivity is not always a weakness. The auditor, based on other audit work, may be able to test the most material and risky transactions and to emphasize the types of transactions subject to high control risk. Probability (random) sampling provides an objective method of determining sample size and selecting the items to be examined. Unlike judgment sampling, it also provides a means of quantitatively assessing precision and reliability.

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