Week 11: Module 8 Sampling

Total Questions: 16

MNL-22-1504

1 The following excerpt is taken for a table of probabilities in percent of including at least one deviation in a sample for population between 5000
and 10,000.

Sample Size
Examined
Upper Precision Limit

0.003 0.004 0.005 0.006 0.008 1.000

. . . . . . .
. . . . . . .
350 35% 10% 14% 18% 22% 31%
360 36 11 17 21 26 36
370 37 13 19 25 30 41
. . . . . . .
. . . . . . .
460 38 61 76 85 91 97
500 40 64 79 87 92 98
600 46 17 84 92 96 99
700 52 77 89 95 97 99
800 57 81 92 96 98 99

Which of the following statements is true if the tolerable error is 0.006?

a. With one observed deviation and expected 95% confidence, 700 would be an efficient sample size to conclude that a control
procedure is effective.
b. With a sample size of 500 and no found deviations, one can conclude that deviations from the observed control will occur 87% of the
time.
c. Without observing any deviation, the auditor, at 700 examined units, can conclude with 95% confidence that deviations in the
population will not be more than 0.6%.
d.

2 The auditor is sampling 500 items from a population of P125,000 and 8,000 items. Given the following excerpt from the list of sales invoices,
what is more likely the third item in the sample employing systematic interval?

Invoice Number Invoice Amount

1001 300
1002 500
1003 275
1004 25
1005 250
1006 .

a. 1002
b. 1003
c. 1004
 d. 1005

3 An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test
consists of all

a. Vendors' invoices.
b. Cancelled checks.
c. Receiving reports.
d. Merchandise received.

4 To determine sample size in an attribute sampling application, what must be specified?

a. Population mean, expected error rate, precision.

b. Precision, reliability, standard deviation.
c. Precision, reliability, expected occurrence rate.
d. Population mean, standard deviation, precision.

5 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. Sampling for attributes.

b. Sampling for variables.
c. Stratified random sampling.
d. Random sampling with replacement.

6 As a result of tests of controls, an auditor under-assessed control risk and decreased substantive testing. This underassessment occurred
because the true occurrence rate in the population was

a. Less than the risk of underassessment in the auditor's sample.

b. Less than the occurrence rate in the auditor's sample.
c. More than the risk of underassessment in the auditor's sample.
d. More than the occurrence rate in the auditor's sample.

7 An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that
would provide a 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The
auditor estimated from previous experience that about 2 1/2% of the sales invoices lacked approval. A sample of 200 invoices was examined and
7 of them were lacking approval. The auditor then determined the upper occurrence limit to be 8%. In the evaluation of this sample, the auditor
decided to increase the level of the preliminary assessment of control risk because the

a. Expected occurrence rate (2 1/2%) was less than the tolerable rate (7%).
b. Tolerable rate (7%) was less than the achieved upper occurrence limit (8%).
c. Expected occurrence rate (7%) was more than the percentage of errors in the sample (3 1/2%).
d. Achieved upper occurrence limit (8%) was more than the percentage of errors in the sample (3 1/2%).

8 Precision is defined as the range (plus or minus) within which the true answer most likely falls. Reliability, also referred to as the confidence
level, is the likelihood that the sample range contains the true value. Of the following statements concerning precision and reliability, which one
is not true?

a. Precision is set by the auditor and is a function of materiality and risk.

b. The narrower the range of precision, the smaller the sample size.
c. An increase in control risk, other parameters remaining unchanged, causes a narrowing of the precision range.
d. Overall audit risk is the complement of reliability.

9 To determine the number of items to be selected in a sample for a particular substantive test of details, the auditor should consider all of the
following except

a. Tolerable error.
b. Expected error.
c. Characteristics of the population.
d. Allowable risk of incorrect acceptance.
10 Auditors who prefer statistical to non-statistical sampling believe that the principal advantage of statistical sampling flows from its unique
ability to

a. Provide a mathematical measurement of risk.

b. Promote a more legally defensible procedural approach.
c. Establish conclusive audit evidence with decreased audit effort.
d. Define the precision required to provide adequate satisfaction.

11 Auditors who prefer statistical sampling to non-statistical sampling may do so because statistical sampling helps the auditor

a. Measure the sufficiency of the evidential matter obtained.

b. Eliminate subjectivity in the evaluation of sampling results.
c. Reduce the level of tolerable error to a relatively low amount.
d. Minimize the failure to detect a material misstatement due to non-sampling risk.

12 In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage
of such a systematic selection is that population items

a. Which include errors will not be overlooked when the auditor exercises compatible reciprocal options.
b. May occur in a systematic pattern, thus making the sample more representative.
c. May occur more than once in a sample.
d. Do not have to be pre-numbered in order for the auditor to use the technique.

13 Which of the following statements concerning sample size is true?

a. An increase in the tolerable occurrence rate, other factors remaining unchanged, increases sample size.
b. The higher the expected occurrence rate, other factors remaining unchanged, the larger will be the sample size.
c. The more critical the attribute being tested, the higher will be the tolerable occurrence rate set by the auditor, and the larger will be the
sample size.
d. The lower the acceptable risk of underassessment of control risk, the smaller will be the sample size.

14 The auditor is performing a test to determine whether the gas and electric appliance company should move its service center from one
location to another. The service center houses the service trucks that are used to drive to the customers' locations to service their appliances. The
auditor wants to determine the reduction in average miles driven as a result of moving to the other location. Which of the following statistical
sampling methods would be most appropriate for this test?

a. attribute sampling
b. discovery sampling
c. probability-proportional-to-size (peso-unit) sampling
d. mean-per-unit sampling

15 An auditor is using peso-unit sampling with a fixed interval to test an account with a balance of P750,000. The sample size is 50. The auditor
started the selection process with a random start of 04719. Which of the following items would be the third sample item selected?

a.

Invoice Amount Cumulative Amount

7,985 31,374

b.
c.
d.

Invoice Amount Cumulative Amount

4,108 35,482
f.

Invoice Amount Cumulative Amount

12,305 47,787
h.
 Invoice Amount Cumulative Amount
456 48,243

16 You were asked to test whether controls are truly effective in the processing of check disbursements in ABC Co. There have been 10,000
disbursements made during the current audit year. Last year, out of 7,000 disbursements, 280 deviations were observed and still the controls were
found to be effective. You believe that there has been nothing that will make your prior year’s audit findings any different for this current year.
Refer to the table for sample size selection below.

Sample Size
Examined
No. of Probability that Deviation is less than:
Deviations
Found

1% 2% 3% 4% 5% 6% 7%
50 0 39.5 63.58 78.19 87.01 92.31 95.47 97.34
1 8.94 26.42 44.47 59.95 72.06 81.00 87.35
2 1.38 7.84 18.92 32.33 45.95 58.38 68.92
. . . . . . . .
  . . . . . . . .
70 0 50.52 75.69 88.14 94.26 97.24 98.69 99.38
1 15.53 40.96 62.47 77.51 87.03 92.81 96.1
2 3.34 16.5 35.08 53.44 68.63 79.87 87.59
. . . . . . . .
  . . . . . . . .
100 0 63.40 86.74 85.25 98.31 99.41 99.8 99.93
1 26.42 59.67 80.54 91.28 96.29 98.48 99.4
2 7.94 32.33 58.02 76.79 88.17 94.34 97.42
. . . . . . . .
  . . . . . . . .
120 0 70.06 91.15 97.41 99.25 99.79 99.94 99.98
1 33.77 69.46 87.82 95.53 98.45 99.48 99.83
2 11.96 43.13 70.16 86.28 94.25 97.75 99.17
. . . . . . . .
  . . . . . . . .

If you shall accept 95% reliability that checks are disbursed only when there are approved vouchers, but have found 1 deviation in the sample,
what will you set as the most efficient sample size?

a. 100
b. 70
c. 120
d. 50