Auditing Arens Ch15

Front 1

ARACR

Back 1

Acceptable risk of assessing control risk.

The risk that the auditor is willing to take of accepting a control as effective or a rate of monetary misstatement as tolerable, when the true population exception rate is greater than the tolerable exception rate

Front 2

TER

Back 2

Tolerable exception rate
Exception rate that the auditor will permit in the population and still be willing to conclude the control is operating effectively and/or the monetary misstatement in the transaction established during the planning is acceptable

Front 3

EPER

Back 3

Estimated population Exception rate
Exception rate that the auditor expects to find in the population before testing begins

Front 4

SER

Back 4

Sample exception rate
Number of exceptions in the sample divided by the sample size

Front 5

CUER

Back 5

Computed upper exception rate
The highest estimated exception rate in the population at a given ARACR

Front 6

Non-sampling risk

2 reasons why

Back 6

The risk that audit test do not uncover existing exceptions in the sample.
2 causes are the auditor failure to recognize exceptions and inappropriate/ineffective audit procedures.

Front 7

Sampling risk

2 controls

Back 7

The risk that an auditor reaches an incorrect conclusion because the sampling is not representative of the population
The sampling risk is an inherent risk bc we’re not testing the entire population
2 ways to control sampling risks are adjusting the sample size and use an appropriate method of selecting items from the population

Front 8

Auditors should control sample risk by:
Testing the entire population
Selecting the appropriate method of selecting a sample
Adjusting the sample size

Back 8

Selecting the appropriate method of selecting a sample
Adjusting the sample size

Front 9

Using one's own judgmental criteria instead of random selection is an example of:
Direct- relationship selection
Direct sample selection
Inverse sample selection
Indirect sample selection

Back 9

Direct sample selection

Front 10

Which of the following is a key component in using systematic sample selection?
Probability
Internal
Fluctuation

Back 10

Internal

Front 11

The likelihood that the sample exception rate differs from that of the actual population exception rate refers to:
Upper exception error
Detection error
Control error
Sampling error

Back 11

Sampling error

Front 12

Tolerable exception rate is a question of:
Professional judgment
Monetary restraints
Materiality

Back 12

Professional judgment
Materiality

Front 13

The following factors must be determined in setting the initial sample size:
Estimated population exception rate
Population size
Tolerable exception rate

Back 13

Estimated population exception rate
Population size
Tolerable exception rate

Front 14

The sample size should be increased if:
The sample risk is low
The tolerable exception rate is low
The initial sample was not representative of the population
The sample error is low

Back 14

The initial sample was not representative of the population

Front 15

Documentation on sample methods, tests performed and conclusions are required for:
Statistical sampling
Non-Statistical sampling
Default sampling

Back 15

Statistical sampling
Non-Statistical sampling

Front 16

A ____________ distribution is a frequency distribution of the results of all possible samples of a specific size that could be obtained from a population containing specific characteristics.
Population
Attribute
Sampling
Risk

Back 16

Sampling

Front 17

Non-Statistical sampling and attribute sampling are similar in that both require the auditor to:
Estimate the population exception rate
Define the sample unit
Define the population
All of the above

Back 17

all of the above

Front 18

T/F
Non-sampling risk is the risk that an auditor will reach an incorrect conclusion because the sample is not representative of the population.

Back 18

False

Front 19

T/F
Non-Statistical sampling requires an auditor to use professional judgment.

Back 19

True

Front 20

T/F
An auditor that uses haphazard sample selection selects items listed on the biases of the auditor.

Back 20

False

Front 21

T/F
When selecting random samples, an auditor must be assured that the entire population has an equal chance of being selected

Back 21

True

Front 22

T/F
The size of the respective accounts should not be taken into consideration when selecting a sample.

Back 22

False

Front 23

T/F
The exception rate in the population is used to determine the exception rate of the sample.

Back 23

False

Front 24

T/F
Sample size is inversely related to the tolerable exception rate.

Back 24

True

Front 25

T/F
The sample exception rate is calculated by taking the actual sample exceptions divided by the population.

Back 25

False

Front 26

T/F
If auditors communicate with management on a timely basis, then control deficiencies may be corrected before the year's end.

Back 26

True

Front 27

T/F
Attribute sampling is a statistical method.

Back 27

True

Front 28

If you increase ARACR what is the effect on the initial sample size

Back 28

Decrease

Front 29

If you increase the TER, what is the effect on the initial sample size

Back 29

Decrease

Front 30

If you increase the EPER what is the effect on the initial sample size

Back 30

Increase

Front 31

If you increase the population size what is the effect on the initial sample size

Back 31

Increase (minor effect)

Front 32

direct sample selection
block sample selection
haphazard selection

Back 32

Non probabilistic sample selection methods

Front 33

Simple random sample selection
Systematic sample selection
Probability proportional to size sample selection
Stratified sample selection

Back 33

Probabilistic sample selection

Front 34

When the computed upper exception rate is greater than the tolerable exception rate, it is necessary for the auditor to take specific action. Which of the following courses of action would be most difficult to defend if the auditor is ever subject to review by a court?
a. Reduce the tolerable exception rate so as to accept the sample results.
b. Expand the sample size and perform more tests.
c. Revise the assessed control risk.
d. Write a letter to management which outlines the control deficiencies.

Back 34

Reduce the tolerable exception rate so as to accept the sample results

Front 35

T/F
When using nonstatistical sampling, the sample must be a probabilistic one

Back 35

False

Front 36

_________ represents the auditor’s measure of sampling risk.
a. TER
b. ARACR
c. SER
d. EPER

Back 36

ARACR

Front 37

T/F
It is virtually impossible to reduce sampling risk to zero

Back 37

True

Front 38

A sample in which the characteristics of the sample are the same as those of the population is a(n):
a. variables sample.
b. representative sample.
c. attributes sample.
d. random sample

Back 38

representative sample

Front 39

T/F
ARACR is normally lower for a public company audit than a private company audit.

Back 39

True

Front 40

The highest estimated exception rate in the population at a particular acceptable risk of assessing control risk too low is:
a. the upper exception rate.
b. estimated population exception rate.
c. the computed upper exception rate.
d. the tolerable exception rate

Back 40

computed upper exception rate

Front 41

T/F
Tolerable exception rate (TER) is inversely related to sample size.

Back 41

True

Front 42

If an auditor, planning to use statistical sampling, is concerned with the number of a client’s sales invoices that contain mathematical errors, the auditor would most likely utilize:
a. random sampling with replacement.
b. sampling for attributes.
c. sampling for variables.
d. stratified random sampling.

Back 42

sampling for attributes

Front 43

Which of the following statements is not correct regarding probabilistic and non-probabilistic sample selection?
a. In probabilistic selection, every population item has a known chance of being selected.
b. It is not acceptable to make non-probabilistic evaluations using probabilistic selection.
c. Probabilistic selection is required for all statistical sampling methods.
d. Both methods are acceptable and commonly used.

Back 43

It is not acceptable to make non-probabilistic evaluations using probabilistic selection

Front 44

To evaluate sample results using statistical sampling, which of the following must be known?

a. Sample size.
b. Standard exception of the values in the population.
c. Actual number of exceptions in the sample.
d. Both a. and c. must be known.
e. Estimated dollar value of the population

Back 44

d. Both a. and c. must be known.

Front 45

The relationship of tolerable exception rate (TER) to sample size is:
a. direct (larger TER = larger sample).
b. inverse (larger TER = smaller sample).
c. variable (sometimes larger, sometimes smaller).
d. not determinable.

Back 45

inverse (larger TER = smaller sample).

Front 46

35) Which of the following methods of sample selection is appropriately used when selecting a random sample?
a. Auditor’s judgmental selection of items
b. Use of computer-generated random numbers
c. Use of random number tables
d. B and C

Back 46

d. Use of computer-generated random numbers AND Use of random number tables

Front 47

T/F
The higher the assessed control risk, the lower will be the acceptable risk of assessing control risk too low

Back 47

False

Front 48

The use of mathematical measurement techniques to calculate formal statistical results and quantify sampling risk
h. Representative sample
i. Statistical sampling
j. Systematic sample selection
k. Sampling distribution

Back 48

i. Statistical sampling

Front 49

A non-probabilistic method of sample selection in which items are selected in measured sequences
a. Haphazard selection
b. Attributes sampling
c. Block sample selection
d. Judgmental sampling

Back 49

c. Block sample selection

Front 50

A sample whose characteristics are the same as those of the population.
h. Representative sample
i. Statistical sampling
j. Systematic sample selection
k. Sampling distribution

Back 50

h. Representative sample

Front 51

A statistical, probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic of interest
a. Haphazard selection
b. Attributes sampling
c. Block sample selection
d. Judgmental sampling

Back 51

Attributes sampling

Front 52

A non-probabilistic method of sample selection in which items are chosen without regard to their size, source, or other
a. Haphazard selection
b. Attributes sampling
c. Block sample selection
d. Judgmental sampling

Back 52

a. Haphazard selection

Front 53

An auditor selects items such that each population item has a known probability of being included in the sample
d. Judgmental sampling
e. Non-probabilistic sample selection
f. Probabilistic sample selection
g. Random sample

Back 53

f. Probabilistic sample selection

Front 54

A frequency distribution of the results of all possible samples of a specified size that could be obtained from a population containing some specific parameters
h. Representative sample
i. Statistical sampling
j. Systematic sample selection
k. Sampling distribution

Back 54

k. Sampling distribution

Front 55

A sample in which every possible combination of elements in the population has an equal chance of constituting the sample
e. Non-probabilistic sample selection
f. Probabilistic sample selection
g. Random sample
h. Representative sample

Back 55

g. Random sample

Front 56

If all other factors specified in a sampling plan remain constant, changing the ARACR from 10% to 5% will cause the sampling size to
a. increase
b. remain the same
c. decrease
d. become indeterminate

Back 56

a. increase

Front 57

If all other factors specified in a sampling plan remain constant, changing the TER from 8% to 12% will cause the sampling size to
a. increase
b. remain the same
c. decrease
d. become indeterminate

Back 57

c. decrease

Front 58

If an auditor wishes to select a random sample that must have a 10% ARACR and a TER of 10%, the sample size of the sample selected will decrease as the estimate of the
a. population exception rate increases
b. population exception rate decreases
c. population size increases
d. ARACR increases

Back 58

b. population exception rate decreases

Front 59

In planning a statistical sample for tests of controls, an auditor increases the expected population exception rate from the prior years rate because of the results of the prior years tests of controls. As a result, the auditor will most likely increase the planned
a. TER
b. allowance for exception rate
c. ARACR to low
d. sample size

Back 59

d. sample size