cpa audit review ch 15 review 8

The flashcards below were created by user Joens1313 on FreezingBlue Flashcards.

  1. An advantage of statistical over nonstatistical sampling methods in tests of controls is that the statistical methods
    Provide an objective basis for quantitatively evaluating sample risks.

    The results of statistical (probability) sampling are objective and subject to the laws of probability. Hence, sampling risk can be quantified and controlled, and the degree of reliability desired (the confidence level) can be specified. Sampling risk is the risk that the sample selected does not represent the population.
  2. Certain variables sampling plans (e.g., monetary-unit sampling) specifically consider the ------------------------------ and the ------------------------------- or ------------------------ in the determination of sample size
    Certain variables sampling plans (e.g., monetary-unit sampling) specifically consider the expected amount of misstatement and the measure of tolerable misstatement or performance materiality in the determination of sample size
  3. Assume that an auditor estimates that 10,000 checks were issued during the accounting period. If a computer application control that performs a limit check for each check request is to be subjected to the auditor’s test-data approach, the sample should include
    One transaction.

    A limit check compares an input with a limit (e.g., the number of the month cannot exceed 12). If the limit is exceeded, an error message is printed. Because this is a mechanical check (done by the computer), only one transaction need be in the sample. The transaction should exceed the limit to verify that the limit check is operating correctly.
  4. An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that
    There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.

    By taking every twentieth item, the auditor chose a sample containing 5% (1 ÷ 20) of the items in the population. If the sample contains $3,700 of overstatements and $200 of understatements, the projected overstatements and understatements are $74,000 and $4,000, respectively, a projected misstatement of $78,000. Furthermore, sampling risk should be considered. The allowance for sampling risk calculated for a specified level of confidence is an interval around the sample result that is expected to contain the true amount of misstatement. The upper limit of this interval equals $78,000 plus the calculated allowance. Accordingly, given that projected misstatement exceeds tolerable misstatement, the auditor most likely will conclude that the risk that actual misstatement exceeds tolerable misstatement is unacceptably high.
  5. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to
    Measure the sufficiency of the evidence obtained.

    Statistical sampling helps the auditor to design an efficient sample, to measure the sufficiency of the evidence obtained, and to evaluate the sample results. Auditors are required to obtain sufficient appropriate evidence. Sufficiency is the measure of the quantity of evidence. It relates to the design and size of the sample.
Card Set
cpa audit review ch 15 review 8
cpa audit review ch 15 review 8
Show Answers