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59 Cards in this Set
- Front
- Back
ARACR
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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 |
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TER
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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 |
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EPER
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Estimated population Exception rate
Exception rate that the auditor expects to find in the population before testing begins |
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SER
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Sample exception rate
Number of exceptions in the sample divided by the sample size |
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CUER
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Computed upper exception rate
The highest estimated exception rate in the population at a given ARACR |
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Non-sampling risk
2 reasons why |
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. |
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Sampling risk
2 controls |
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 |
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Auditors should control sample risk by:
Testing the entire population Selecting the appropriate method of selecting a sample Adjusting the sample size |
Selecting the appropriate method of selecting a sample
Adjusting the sample size |
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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 |
Direct sample selection
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Which of the following is a key component in using systematic sample selection?
Probability Internal Fluctuation |
Internal
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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 |
Sampling error
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Tolerable exception rate is a question of:
Professional judgment Monetary restraints Materiality |
Professional judgment
Materiality |
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The following factors must be determined in setting the initial sample size:
Estimated population exception rate Population size Tolerable exception rate |
Estimated population exception rate
Population size Tolerable exception rate |
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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 |
The initial sample was not representative of the population
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Documentation on sample methods, tests performed and conclusions are required for:
Statistical sampling Non-Statistical sampling Default sampling |
Statistical sampling
Non-Statistical sampling |
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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 |
Sampling
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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 |
all of the above
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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. |
False
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T/F
Non-Statistical sampling requires an auditor to use professional judgment. |
True
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T/F
An auditor that uses haphazard sample selection selects items listed on the biases of the auditor. |
False
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T/F
When selecting random samples, an auditor must be assured that the entire population has an equal chance of being selected |
True
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T/F
The size of the respective accounts should not be taken into consideration when selecting a sample. |
False
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T/F
The exception rate in the population is used to determine the exception rate of the sample. |
False
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T/F
Sample size is inversely related to the tolerable exception rate. |
True
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T/F
The sample exception rate is calculated by taking the actual sample exceptions divided by the population. |
False
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T/F
If auditors communicate with management on a timely basis, then control deficiencies may be corrected before the year's end. |
True
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T/F
Attribute sampling is a statistical method. |
True
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If you increase ARACR what is the effect on the initial sample size
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Decrease
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If you increase the TER, what is the effect on the initial sample size
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Decrease
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If you increase the EPER what is the effect on the initial sample size
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Increase
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If you increase the population size what is the effect on the initial sample size
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Increase (minor effect)
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direct sample selection
block sample selection haphazard selection |
Non probabilistic sample selection methods
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Simple random sample selection
Systematic sample selection Probability proportional to size sample selection Stratified sample selection |
Probabilistic sample selection
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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. |
Reduce the tolerable exception rate so as to accept the sample results
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T/F
When using nonstatistical sampling, the sample must be a probabilistic one |
False
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_________ represents the auditor’s measure of sampling risk.
a. TER b. ARACR c. SER d. EPER |
ARACR
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T/F
It is virtually impossible to reduce sampling risk to zero |
True
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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 |
representative sample
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T/F
ARACR is normally lower for a public company audit than a private company audit. |
True
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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 |
computed upper exception rate
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T/F
Tolerable exception rate (TER) is inversely related to sample size. |
True
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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. |
sampling for attributes
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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. |
It is not acceptable to make non-probabilistic evaluations using probabilistic selection
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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 |
d. Both a. and c. must be known.
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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. |
inverse (larger TER = smaller sample).
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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 |
d. Use of computer-generated random numbers AND Use of random number tables
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T/F
The higher the assessed control risk, the lower will be the acceptable risk of assessing control risk too low |
False
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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 |
i. Statistical sampling
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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 |
c. Block sample selection
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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 |
h. Representative sample
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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 |
Attributes sampling
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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 |
a. Haphazard selection
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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 |
f. Probabilistic sample selection
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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 |
k. Sampling distribution
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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 |
g. Random sample
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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 |
a. increase
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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 |
c. decrease
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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 |
b. population exception rate decreases
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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 |
d. sample size
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