Name: ________________________________

Date: _________________

Year &Sec. _____________________________

Score: ________________

ACCO 3116 Q3
I.

Multiple Choice Questions. Select the best answer.

1. The entire set of data about which the auditor wishes to draw conclusions is called
a. Population
b. Sampling frame
c. Sample
d. Sampling unit.
2. Which of the following constitutes audit sampling?
a. Selecting and examining specific items to determine whether or not a particular procedure is
being performed.
b. Examining items to obtain information about matters such as the clients business, the
nature of transactions, accounting and internal control systems.
c. Examining items whose values exceed a certain amount so as to verify a large proportion of
the total amount of an account balance or class of transactions.
d. Applying audit procedures to less than 100% of items within an account balance or class of
transactions such that all sampling units have a chance of selection.
3. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps
an auditor to
a. Minimize the failure to detect errors and frauds.
b. Eliminate nonsampling risk.
c. Reduce the level of audit risk and materiality to a relatively low amount.
d. Measure the sufficiency of the evidential matter obtained.
4. Each time an auditor draws a conclusion based on evidence from a sample, an additional risk,
sampling risk, is introduced. An example of sampling risk is
a. Projecting the results of sampling beyond the population tested.
b. Properly applying an improper audit procedure to sample data.
c. Improperly applying a proper audit procedure to sample data.
d. Drawing an erroneous conclusion from sample data.
5. Which of the following best illustrates the concept of sampling risk?
a. A randomly chosen sample may not be representative of the population as a whole on the
characteristic of interest.
b. An auditor may select audit procedures that are not appropriate to achieve the specific
objective.
c. An auditor may fail to recognize errors in the documents examined for the chosen sample.
d. The documents related to the chosen sample may not be available for inspection.
6. A sample in which every possible combination of items in the population has an equal chance of
constituting the sample is a
a. Representative sample
b. Random sample
c. Statistical sample
d. Judgment sample
7. The process which requires the calculation of an interval and then selects the items based on the
size of the interval is
a. Statistical sampling
b. Systematic selection
c. Random selection

d. Computerized selection
8. When the auditor goes through a population and selects items for the sample without regard to
their size, source, or other distinguishing characteristics, it is called
a. Block selection
b. Systematic selection
c. Random selection
d. Haphazard selection
9. Which
a.
b.
c.
d.

of the following statistical selection techniques is least desirable for use by an auditor?
Systematic selection
Block selection
Stratified selection
Sequential selection

10. Tests of controls provide reasonable assurance that controls are applied as prescribed. A sampling
method that is useful when testing controls is:
a. Nonstatistical sampling
b. Discovery sampling
c. Attribute estimation sampling
d. Stratified random sampling
11. Statistical sampling may be applied to test controls when a clients control procedures
a. Depend primarily on segregation of duties.
b. Are carefully reduced to writing and are included in client accounting manuals.
c. Leave an audit trail as evidence of compliance.
d. Enable the detection of fraud.
12. Since auditors are interested in the occurrence of exceptions in population, they refer to the
occurrence as
a. Exception rate
b. Deviation rate
c. Population rate
d. Confidence level
13. The deviation rate the auditor will permit in the population and still be willing to reduce the
assessed level of control risk is called the
a. Tolerable deviation rate
b. Acceptable risk of over-reliance
c. Estimated population deviation rate
d. Sample deviation rate
14. Which
a.
b.
c.

of the following statements is correct?

The expected population deviation rate has little or no effect on sample size.
As the population size doubles, the sample size also should double.
For a given tolerable rate, a larger sample size should be selected as the expected
population deviation rate decreases.
d. The population size has little or no effect on sample size except for very small populations.

15. How would increases in tolerable misstatement and assessed level of control risk affect the sample
size in a substantive test of details?
Increase in tolerable misstatement
Increased in assessed level of control risk
a. Increase sample size
Increase sample size
b. Increase sample size
Decrease sample size
c. Decrease sample size
Increase sample size
d. Decrease sample size
Decrease sample size

16. Using statistical sampling to assist in verifying the year-end accounts payable balance, an auditor
has accumulated the following data:
Population
Sample

Number of Accounts
4,100
200

Book Balance
P5,000,000
P 250,000

Balance Determined by the Auditor

?
P300,000

Using the ratio estimation technique, the auditors estimate of year-end accounts payable balance
is
a. P6,150,000
b. P6,000,000
c. P5,125,000
d. P5,050,000
17. An auditor is applying a difference estimation sampling plan. Recorded book value is P1,000,000
and the auditor estimates a P75,000 understatement difference. In this case, the auditors
estimated population value is
a. P925,000
b. P1,075,000
c. P1,000,000
d. P1,025,000
18. An auditor is applying mean-per-unit estimation. Assuming estimated audited value is P950,000,
the achieved allowance for sampling risk is P75,000, and recorded book value is P925,000, what is
the auditor's conclusion?
a. Recorded book value is not likely misstated by a material amount.
b. Recorded book value is misstated by a material amount.
c. Recorded book value is not likely misstated by a material amount, assuming the client
records an adjusting journal entry equal to the allowance for sampling risk.
d. There is insufficient evidence to reach a conclusion.
19. In a probability-proportional-to-size sample interval of P10,000, an auditor discovered that a
selected account receivable with a recorded amount of P5,000 had an audit amount of P2,000. The
projected error of this sample is
a. P3,000
b. P4,000
c. P6,000
d. P8,000
20. An auditor is evaluating the results of a variables sampling plan. Which of the following is not
relevant to the auditor's judgment about the sample?
a. Management's explanations for why errors in the sample occurred.
b. Projecting the sample error to the population.
c. Considering the effects of sampling risk.
d. Qualitative information that lends insight into errors found.
21. When using classical variables sampling for estimation, an auditor normally evaluates the sampling
results by calculating the possible error in either direction. This statistical concept is known as
a. Precision.
b. Projected error.
c. Reliability.
d. Standard deviation.
22. It means an approximation of the amount of an item in the absence of a precise means of
measurement
a. Accounting estimate
b. Accounting error
c. Accounting policy
d. Accounting change
23. The auditor should adopt one or a combination of the following approaches in the audit of an
accounting estimate:
I.
Review and test the process used by management to develop the estimate.
II.
Use an independent estimate for comparison with that prepared by management.
III.
Review subsequent events which confirm the estimate made.
a.
b.
c.
d.

Any of the above

Either I or II
None of the above
I only

24. In evaluating the assumptions on which the estimate is based, the auditor would need to pay
particular attention to assumptions which are

a.
b.
c.
d.

Reasonable in light of actual results in prior periods.

Consistent with those used for other accounting estimates.
Consistent with managements plans which appear appropriate.
Subjective or susceptible to material misstatement.

25. Which statement is incorrect regarding auditing fair value measurements and disclosures?
a. The auditor should obtain sufficient appropriate audit evidence that fair value
measurements and disclosures are in accordance with GAAP in the Philippines.
b. Many measurements based on estimates, including fair value measurements, are inherently
imprecise.
c. The auditor's consideration of such assumptions is based on information available to the
auditor at the time of the audit.
d. The auditor is responsible for predicting future conditions, transactions or events which, had
they been known at the time of the audit, may have had a significant effect on
management's actions or management's assumptions underlying the fair value
measurements and disclosures.
26. Which statement is incorrect regarding fair value measurements?
a. Underlying the concept of fair value measurements is a presumption that the entity is a
going concern.
b. Fair value is normally the amount that an entity would receive or pay in a forced transaction,
involuntary liquidation, or distress sale.
c. The measurement of fair value may be relatively simple for assets that are bought and sold
in active and open markets.
d. The estimation of fair value may be achieved through the use of a valuation model or
through the assistance of an expert, such as an independent appraiser.
27. The degree to which a fair value measurement is susceptible to misstatement is a(an)
a. Audit risk
b. Inherent risk
c. Control risk
d. Detection risk
28. Regarding fair value measurements and disclosures, the auditor is not required to
a. Obtain evidence about management's intent to carry out specific courses of action, and
consider its ability to do so, where relevant to the fair value measurements and disclosures
under GAAP in the Philippines.
b. Evaluate whether the entity's method for its fair value measurements is applied consistently.
c. Use the work of an expert.
d. Test the entity's fair value measurements and disclosures.
29. Which of the following is ordinarily the best evidence of fair value?
a. Published price quotations in an active market.
b. Discounted cash flow analysis.
c. Comparative transaction model.
d. None of the above.
30. When testing the entity's fair value measurements and disclosures, the auditor evaluates whether:
a. The assumptions used by management are reasonable.
b. The fair value measurement was determined using an appropriate model, if applicable.
c. Management used relevant information that was reasonably available at the time.
d. All of the above.
31. Which statement is incorrect regarding the auditor's responsibilities and audit procedures regarding
related parties and transactions with such parties?
a. The auditor should perform audit procedures designed to obtain sufficient appropriate audit
evidence regarding the identification and disclosure by management of related parties and
the effect of related party transactions that are material to the financial statements.
b. An audit cannot be expected to detect all related party transactions.
c.
The auditor is responsible for the identification and disclosure of related parties and
transactions with such parties.
d. The auditor needs to have a level of knowledge of the entity's business and industry that will
enable identification of the events, transactions and practices that may have a material
effect on the financial statements.

32. When
a.
b.
c.
d.

auditing related-party transactions, an auditor places primary emphasis on

Confirming the existence of the related parties.
Verifying the valuation of the related-party transactions.
Evaluating the disclosure of the related-party transactions.
Ascertaining the rights and obligations of the related parties.

33. After determining that a related-party transaction has, in fact, occurred, and auditor should
a. Add a separate paragraph to the auditors standard report to explain the transaction.
b. Perform analytical procedures to verify whether similar transactions occurred, but were not
recorded.
c. Obtain an understanding of the business purpose of the transaction.
d. Substantiate that the transaction was consummated on terms equivalent to an arms-length
transaction.
34. Which of the following least likely indicates the existence of previously unidentified related parties?
a. Transactions which have abnormal terms of trade., such as unusual prices, interest rates,
guarantees, and repayment terms.
b. Transactions which lack an apparent logical business reason for their occurrence.
c. Transactions in which substance does not differ from form.
d. Unrecorded transactions such as the receipt or provision of management services at no
charge.
35. Which statement is incorrect regarding the auditors use of the work of an expert?
a. When using the work performed by an expert, the auditor should obtain sufficient
appropriate audit evidence that such work is adequate for the purposes of the audit.
b. Expert means a person or firm possessing special skill, knowledge and experience in a
particular field other than accounting and auditing.
c. The auditor's education and experience enable the auditor to be knowledgeable about
business matters in general, but the auditor is not expected to have the expertise of a
person trained for or qualified to engage in the practice of another profession or occupation.
d. When the auditor uses the work of an expert employed by the auditor, that work is used in
the employee's capacity as an assistant on the audit.
36. An expert may be:

Engaged by the entity

Yes

Engaged by the auditor

No

Employed by the entity

Yes

Employed by the auditor

No

37. Which
a.
b.
c.
d.

C
No

D
Yes

Yes

Yes

Yes

No

No

Yes

Yes

No

Yes

Yes

of the following least likely requires the services of an expert?

Valuations of certain types of assets like land and buildings.
Legal opinions concerning interpretations of engagements, statutes and regulations.
Determination of amounts using specialized techniques.
Application of accounting methods in computing inventory balances.

38. When the auditor has to determine the need to use the work of an expert, he would least likely
consider:
a. The cost of using the services of an expert.
b. The quantity and quality of other audit evidence available.
c. The materiality of the financial statement item being considered.
d. The risk of misstatement based on the nature and complexity of the matter being
considered.
39. Which of the following statements concerning the auditors use of the work of a specialist is true?

a. If the auditor believes that the determinations made by the specialist are unreasonable, only
a qualified opinion may be expressed.
b. If the specialist is related to the client, the auditor is still permitted to use the specialists
findings as corroborative evidence.
c. The specialist may not be related to the client.
d. The specialist is identified in the auditors report when the auditor expresses an unqualified
opinion.
40. In using the work of a specialist, an auditor referred to the specialists findings in the auditors
report. This is an appropriate reporting practice if the
a. Auditor is not familiar with the professional certification, personal reputation, or particular
competence of the specialist.
b. Auditor, as a result of the specialists findings, adds an explanatory paragraph emphasizing
a matter regarding the financial statements.
c. Specialist is aware that his/her work will be used to evaluate the assertions in the financial
statements.
d. Auditor, as a result of the specialists findings, decides to indicate a division of responsibility
with the specialist.
41. In selecting specific items which of the following statement is correct
I.
The auditor may decide to select specific items within a population because they are of high
value, or exhibit some other characteristic, for example items that are suspicious, unusual,
particularly risk-prone or that have a history of error.
II.
The auditor may decide to examine items whose values exceed a certain amount so as to
verify a large proportion of the total amount of an account balance or class of transactions.
III.
The auditor may use judgment to select and examine specific items to determine whether or
not a particular procedure is being performed.
a. All
b. I and II
c. I only
d. II and III
42. which of the following statement is correct
I. While selective examination of specific items from an account balance or class of
transactions will often be an efficient means of gathering audit evidence, it does not
constitute audit sampling.
II. The results of procedures applied to items selected in this way cannot be projected to the
entire population.
III. The auditor considers the need to obtain appropriate evidence regarding the remainder of
the population when that remainder is material.
a. All
b. III only
c. I only
d. I and III
43. Sampling is not involve in
a. 100% examination

b. Selective testing; c. Analytical procedures

d. all of the above

44. Tests of controls provide reasonable assurance that controls are applied as prescribed. A sampling
method that is useful when testing controls is:
a. Nonstatistical sampling
b. Discovery sampling
c. Attribute estimation sampling
d. Stratified random sampling
45. Statistical sampling may be applied to test controls when a clients control procedures
a. Depend primarily on segregation of duties.
b. Are carefully reduced to writing and are included in client accounting manuals.
c. Leave an audit trail as evidence of compliance.
d. Enable the detection of fraud.
46. Since auditors are interested in the occurrence of exceptions in population, they refer to the
occurrence as
a. Exception rate
b. Deviation rate
c. Population rate
d. Confidence level

47. The deviation rate the auditor will permit in the population and still be willing to reduce the
assessed level of control risk is called the
a. Tolerable deviation rate
b. Acceptable risk of over-reliance
c. Estimated population deviation rate
d. Sample deviation rate
48. Which
a.
b.
c.

of the following statements is correct?

The expected population deviation rate has little or no effect on sample size.
As the population size doubles, the sample size also should double.
For a given tolerable rate, a larger sample size should be selected as the expected
population deviation rate decreases.
d. The population size has little or no effect on sample size except for very small populations.

49. When sampling for attributes, which of the following would decrease sample size?

a.
b.
c.
d.

Risk of assessing
Control risk too low
Increase
Decrease
Increase
Increase

Tolerable rate
of deviation
Decrease
Increase
Increase
Increase

Expected population
deviation rate
Increase
Decrease
Decrease
Increase

50. A statistical sampling technique that will minimize sample size whenever a low deviation rate is
expected is
a. Ratio-estimation sampling.
b. Stratified mean-per-unit sampling.
c. Difference-estimation sampling.
d. Stop-or-go sampling.
51. In CIS environment, all the components must exist but computers affect the implementation of
these internal controls in many ways. Some of the effects are under:
a. Separation of Duties
b. Delegation of Authority and Responsibility
c. Comparing recorded Accountability with assets
d. Independent Checks on Performance
e. All are effects
52. Effects of Computers on Auditing
I.
The objective of auditing does not change in CIS environment.
II.
The auditor must provide a competent, independent opinion as to whether the financial
statements record and report a true and fair of the state of affairs of an entity.
III.
Computer systems have affected how auditors need to collect and evaluate evidence.
a. All
b. I and II
c. I only
d. II and III
53. Which
a.
b.
c.
d.

is a not major class of control that the auditor must evaluate?

Accuracy Control
Security Control
Completeness Control
Redundancy Control

54. Which of the following control procedures could best prevent direct labor from being charged to
manufacturing overhead?
a. Comparison of daily journal entries with factory labor summary.
b. Examination of routing tickets from finished goods on delivery.
c. Reconciliation of work in process inventory with cost records.
d. Re-computation of direct labor based on inspection of time cards.
55. For appropriate segregation of duties, journalizing and posting summary payroll transactions should
be assigned to
a. The treasurers department

b. Payroll accounting
c. General accounting
d. The timekeeping department
56. Low Tek, Inc. has changed from a conventional to a computerized payroll clock card system. Factory
employees now record time in and out with magnetic cards, and the computer system
automatically updates all payroll records. Because of this change,
a. The auditor must audit through the computer
b. Internal control has improved
c. Part of the audit trail has been lost
d. The potential for payroll related fraud has been diminished
57. To minimize the opportunities for fraud, unclaimed cash payroll should be
a. Deposited in a safe deposit box.
b. Held by the payroll custodian.
c. Deposited in a special bank account.
d. Held by the controller.
58. A common audit procedures in the audit of payroll transactions involves tracing selected items from
the payroll journal to employee time cards that have been approved by supervisory personnel. This
procedure is designed to provide evidence in support of the audit proposition that
a. Only bona fide employees worked, and their pay was properly computed b
b. Jobs on which employees worked were charged with the appropriate labor cost
c. Internal controls relating to payroll disbursements are operating effectively
d. All employees worked the number of hours for which their pay was computed
59. For internal control purposes, which of the following individuals should preferably be responsible for
the distribution of payroll checks?
a. Bookkeeper
b. Cashier
c. Payroll clerk
d. Receptionist
60. After the auditor has prepared a flowchart of internal control for sales, and cash receipts
transactions and evaluated the design of the system, the auditor would perform tests of controls on
all control procedures
a. Documented in the flowchart.
b. Considered to be deficiencies that might allow errors to enter the accounting system.
c. Considered to be strengths that the auditor plans to rely on in assessing control risk.
d. That would aid in preventing irregularities.
61. Which
a.
b.
c.
d.

of the following is not a universal rule for achieving control over cash?
Separate the cash-handling and record-keeping functions.
Deposit each days cash receipts by the end of the day.
Have bank reconciliations performed by employees who do not handle cash.
Decentralize the receiving of cash as much as possible.

62. The least crucial element of control over cash is

a. Separation of cash record keeping from custody of cash.
b. Preparation of the monthly bank reconciliation.
c. Separation of cash receipts from cash disbursements.
d. Batch processing of checks.
63. The use of fidelity bonds protects a company from embezzlement losses and also
a. Minimizes the possibility of employing persons with dubious records in positions of trust.
b. Protects employees who make unintentional errors form possible monetary damages
resulting from such errors.
c. Allows the company to substitute the fidelity bonds for various parts of internal control.
d. Reduces the companys need to obtain expensive business interruption insurance.
64. An underlying feature of random based selection of item is that each
a. Stratum of the accounting population be given equal representation in the sample
b. Item in the accounting population be randomly ordered.
c. Item in the accounting population should have an opportunity to be selected.

d. Item must be systematically selected using replacement.

65. Audit Sampling, identifies two general approaches to audit sampling. They are
a. Random and Non Random
b. Statistical and Non Statistical
c. Precision and Reliability
d. Risk and Non Risk

Answer Key Q3
1. A
2. D
3. D
4. D
5. A
6. B
7. B
8. D
9. B
10. C
11. C
12. B
13. A
14. D
15. C
16. B
17. B
18. A
19. C
20. A
21. A
22. A
23. A
24. D
25. D
26. B
27. B
28. C
29. A
30. D
31. C
32. C
33. C
34. C

35. D
36. D
37. D
38. A
39. B
40. B
41. A
42. A
43. D
44. C
45. C
46. B
47. A
48. D
49. C
50. D
51. E
52. A
53. B
54. A
55. C
56. C
57. C
58. D
59. D
60. C
61. D
62. D
63. A
64. C
65. B
66.
67.

68.