7/30/2017 Multiple Choice Quiz

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Chapter 8 Out of 23 questions, you answered 14 correctly with a final grade of 61%
Quizzes
14 correct (61%)
Multiple Choice Quiz
9 incorrect (39%)
0 unanswered
(0%)
Your Results:
The correct answer for each question is indicated by a .

1 Which of the following is true regarding technological advances and auditing?

INCORRECT
A) A well-controlled, automated accounting system that processes routine transactions with few errors can reduce the
number of times auditors need to utilize sampling techniques in an audit.
B) A well-controlled, automated accounting system that processes routine transactions with few errors can eliminate the
number of times auditors need to utilize sampling techniques in an audit.
C) Powerful audit software (e.g. ACL) has eliminated the need for sampling in an audit.

D) Technology, though not there yet, will eventually eliminate the need for auditors to rely on sampling in an audit.

2 CORRECT The risk of incorrect rejection is associated with

A) Inherent risk.

B) Engagement risk.

C) Sampling risk.

D) Audit risk.

3 CORRECT Which of the following best illustrates the concept of sampling risk?

A) An auditor may select audit procedures that are not appropriate to achieve the specific objective.

B) A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest.

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.

4 The likelihood of assessing control risk too high is the risk that the sample selected to test controls
INCORRECT
A) Does not support the auditors planned assessed level of control risk when the true operating effectiveness of the
control justifies such an assessment.
B) Does support the auditors planned assessed level of control risk when the true operating effectiveness of the control
does not justify such an assessment.
C) Contains misstatements that could be material to the financial statements when aggregated with misstatements in
other account balances or transaction classes.
D) Contains proportionately fewer monetary errors or deviations from prescribed internal controls than exist in the balance
or class as a whole.
5 CORRECT Which of the following has an inverse relationship to sample size:

A) Desired level of confidence.

B) Expected population deviation rate.

C) Tolerable deviation rate.

D) All of the above.

6 CORRECT As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk (CR) lower than
appropriate. The most likely explanation for this situation is that
A) The deviation/failure rates of both the auditors sample and the population exceed the tolerable deviation rate (TDR).

B) The deviation/failure rate in the auditors sample is less than the TDR, but the deviation/failure rate in the population
exceeds the TDR.
C) The deviation/failure rate in the auditors sample exceeds the TDR, but the deviation/failure rate in the population is
less than the TDR.
D) The deviation/failure rates of both the auditors sample and the population are less than the TDR.

7 What is an auditors evaluation of a statistical sample for attributes when a test of 50 documents results in three deviations if
INCORRECT the tolerable deviation rate is 7 per cent, the expected population deviation rate is 5 per cent, and the allowance for sampling
risk is 2 per cent?
A) The planned assessed level of control risk should be modified because the tolerable deviation rate plus the allowance for
sampling risk exceeds the expected population deviation rate.
B) The sample results should be accepted as support for the planned assessed level of control risk because the sample
deviation rate plus the allowance for sampling risk exceeds the tolerable deviation rate.
C) The sample results should be accepted as support for the planned assessed level of control risk because the tolerable
deviation rate less the allowance for sampling risk equals the expected population deviation rate.
D) The planned assessed level of control risk should be modified because the sample deviation rate plus the allowance for
sampling risk exceeds the tolerable deviation rate.
8 As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than
INCORRECT appropriate. The most likely explanation for this situation is that
A) The deviation rates of both the auditors sample and the population exceed the tolerable deviation rate.

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7/30/2017 Multiple Choice Quiz
B) The deviation rates of both the auditors sample and the population are less than the tolerable deviation rate.
C) The deviation rate in the auditors sample is less than the tolerable deviation rate, but the deviation rate in the
population exceeds the tolerable deviation rate.
D) The deviation rate in the auditors sample exceeds the tolerable deviation rate, but the deviation rate in the population
is less than the tolerable deviation rate.
9 CORRECT Which of the following types of evidence is most likely to utilize sampling?

A) Scanning.

B) Confirmation.

C) Observation.

D) Analytical procedures.

10 For which of the following audit tests would an auditor most likely use attribute sampling?
CORRECT
A) Observation of employees who control mailroom receipts.

B) Examining supporting documentation for purchases for evidence of proper authorization.

C) Examining invoices in support of the valuation of equipment additions.

D) Selected accounts receivable for confirmation of account balances.

11 Which of the following types of statistical testing is likely to be used for a test of controls?
CORRECT
A) Monetary-unit sampling.

B) Probability-proportional-to-size sampling.

C) Attribute sampling.

D) Classical variables sampling.

12 An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an auditor to
CORRECT
A) Eliminate the risk of non-sampling errors.

B) Reduce audit risk and materiality to a relatively low level.

C) Measure the sufficiency of the evidence obtained.

D) Minimize the failure to detect errors and fraud.

13 Samples to test internal controls are intended to provide a basis for an auditor to conclude whether
INCORRECT
A) The controls are operating effectively.

B) The financial statements are materially misstated.

C) The risk of incorrect acceptance is too high.

D) Materiality for planning purposes is at a sufficiently low level.

14 An auditor plans to examine a sample of 40 accounts payable invoices for proper approval as prescribed by the entitys internal
INCORRECT accounting control procedures. One of the invoices in the chosen sample cannot be found, and the auditor is unable to use
alternative procedures to determine whether the invoice was properly approved. The auditor should
A) Choose another invoice to replace the missing one in the sample.

B) Consider this compliance test invalid and proceed with substantive tests because internal control cannot be relied upon.

C) Treat the missing invoice as a deviation for the purpose of evaluating the sample.

D) Select a completely new random set of 40 invoices.

15 Which of the following statements is true in an attribute sampling plan where the tolerable deviation rate is 7 per cent, the
CORRECT computed upper deviation rate is 6.5per cent, the sample deviation rate is 2 per cent, and the risk of assessing control risk too
low is 5 per cent?
A) The auditor is likely to increase control risk because the computed upper deviation rate is less than the risk of assessing
control risk too low.
B) The auditor is likely to decrease control risk because the computed upper deviation rate is less than the risk of
assessing control risk too low.
C) The auditor is likely to determine that the results do not support reliance on the control because the computed upper
deviation rate plus the sample deviation rate is greater than the tolerable deviation rate.
D) The auditor is likely to determine that the results do support reliance on the control because the computed upper
deviation rate is less than the tolerable deviation rate.
16 Which of the following best illustrates the components that make up the upper deviation rate [UDR]?
INCORRECT
A) Sample deviation rate + allowance for sampling risk.

B) Sample deviation rate + risk of assessing control risk too high.

C) Tolerable deviation rate + allowance for sampling risk.

D) Expected population deviation rate + allowance for sampling risk.

17 When assessing the tolerable deviation rate (TDR), the auditor should consider that while deviations from control procedures
CORRECT increase the risk of material misstatements, such deviations may not necessarily result in errors. This explains why
A) Deviations from examined control procedures at a given rate would normally be expected to result in a higher rate of
dollar errors.
B) A recorded disbursement that is properly authorized may nonetheless contain a material dollar error.

C) A recorded disbursement that is not properly authorized may nonetheless be recorded properly in the cash
disbursements journal.
D) Deviations would result in dollar errors in the accounting records only when they occurred in different transactions.

18 When assessing the tolerable deviation rate, the auditor should consider that, while deviations from control procedures increase
CORRECT the risk of material misstatements, such deviations do not necessarily result in misstatements. This explains why
A) A recorded disbursement that does not show evidence of required approval may nevertheless be a transaction that is
properly authorized and recorded.
B) Deviations would result in errors in the accounting records only if the deviations and the misstatements occurred on
different transactions.

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7/30/2017 Multiple Choice Quiz
C) Deviations from pertinent control procedures at a given rate ordinarily would be expected to result in misstatements at
a higher rate.
D) A recorded disbursement that is properly authorized may nevertheless be a transaction that contains a material
misstatement.
19 In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because
CORRECT the
A) Tolerable deviation rate (7 per cent) was less than the computed upper deviation rate (8 per cent).

B) Expected population deviation rate (7 per cent) was more than the percentage of errors in the sample (3 per cent).

C) Computed upper deviation rate (8 per cent) was more than the percentage of errors in the sample (3 per cent).

D) Expected population deviation rate (2 per cent) was less than the tolerable deviation rate (7 per cent).

20 Based on the information above, the planned allowance for sampling risk was
CORRECT
A) 5 per cent.

B) 4 per cent.

C) 3 per cent.

D) 1 per cent.

21 Which of the following statements is correct concerning statistical sampling in tests of controls?
CORRECT
A) Deviations from controls at a given rate usually result in misstatements at a higher rate.

B) As the population size doubles, the sample size should also double.

C) The qualitative aspects of deviations are not considered by the auditor.

D) There is an inverse relationship between the sample size and the tolerable deviation rate.

22 Which of the following statements is true regarding non-statistical sampling?

INCORRECT
A) It quantifies the auditors exposure to sampling risk.

B) Its use is required for small entities by auditing standards.

C) Sample sizes for non-statistical sampling should be comparable to statistical sampling.

D) It gives greater assurance than statistical sampling that samples are randomly selected.

23 Most of the steps for planning and carrying out a non-statistical test of controls are the same as those for a statistical test of
INCORRECT controls. Which of the following represent the steps that could differ between non-statistical and statistical sampling as
discussed in the text?
A) Defining the control deviation conditions, determining the sample size, calculating the upper deviation rate.

B) Defining the control deviation conditions, defining the sampling unit, calculating the computed upper deviation rate.

C) Determining the sample size, selecting the sample items, calculating the computed upper deviation rate.

D) Defining the sampling unit, selecting the sample items, performing the audit procedures.

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