Which of the following statements is a valid criticism of the use of nonstatistical sampling methods

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Which of the following statements is a valid criticism of the use of nonstatistical sampling methods?A.Nonstatistical sampling does not differ substantially from statistical sampling methods.B.Many audit tests, such as footing of journals, must be performed outside a statistical sampling context.C.The cost of performing random selection or testing often exceeds the benefits.D.It can be difficult to remain unbiased in the selection of items.
A sample in which the characteristics of the sample are the same as those of the population is a(n)A.representative sample.B.attribute sample.C.variables sample.D.random sample.
Assume that the client's internal controls require a clerk to attach a shipping document to every duplicate sales invoice but this procedure is not followed exactly 3 percent of the time. If the auditor selects a sample of 200 duplicate sales invoices, which of the following sample results is most representative of the population?A.five shipping document are missingB.six shipping documents are missingC.three shipping documents are missingD.there were no shipping documents missing
One of the ways to eliminate nonsampling risk is throughA.the use of attribute sampling rather than variables sampling.B.controls that ensure the sample drawn is random and representative.C.proper supervision and instruction of the client's employees.D.proper supervision and instruction of the audit team.
An underlying feature of the random-based selection of items is that eachA.stratum of the population is given equal representation in the sample.B.each item must be systematically selected using replacement.C.each item in the population must be randomly ordered.D.each item in the population should have an equal opportunity to be selected.
Helen found that the expense reports were not properly approved while the senior accounts payable clerk was on vacation in July. Helen decided to perform a test of control on the authorization of expense reports for all the months except for July, which she will test substantively. Helen is allowed to do this becauseA.compensating controls exist in the payroll reconciliation process.B.the authorizations for the month of July are not representative of the population as a whole.C.the authorized expense reports for July are not material.D.it would not be cost beneficial to test the entire population substantively.
A statistical method used to estimate the proportion of items in a population containing a characteristic of interest isA.estimation sampling.B.attribute sampling.C.population-proportional-to-size sampling.D.variables sampling.
The auditing standards indicate thatA.it is preferable to use nonstatistical sampling instead of statistical sampling.B.it is equally acceptable to use either statistical or nonstatistical sampling.C.nonstatistical sampling should only be used if statistical sampling is too costly to use.D.it is preferable to use statistical sampling instead of nonstatistical sampling.
In performing a review of his client's cash disbursements, a public accountant uses systematic sampling with a random start. The primary disadvantage of systematic sampling is that population itemsA.must be replaced in the population after sampling to permit valid statistical inference.B.may occur twice in the sample.C.may occur in a systematic pattern, thus negating the randomness of the sample.D.must be reordered in a systematic pattern before the sample can be drawn.
The most common method used for performing statistical tests of controls isA.variables sampling.B.judgment sampling.C.attribute sampling.D.random selection of samples.
One of the ways to reduce sampling risk is toA.use an appropriate method of selecting sample items from the population.B.carefully design the audit procedures to be used.C.provide proper supervision and instruction of the audit team.D.use variables sampling rather than attribute sampling.
Nonsampling errors occur when audit tests do not uncover existing exceptions in theA.planning stage.B.sample.C.population.D.financial statements.
Auditors consider statistical sampling to be characterized byA.representative sample selection and statistical calculation of the results.B.representative sample selection and nonmathematical consideration of the results.C.carefully biased sample selection and nonmathematical consideration of the results.D.carefully biased sample selection and statistical calculation of the results.
The auditor is going to select a sample that is a statistical probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic or attribute of interest. The auditor is using what type of sampling?A.variable estimation samplingB.monetary unit samplingC.attribute samplingD.discovery sampling
When statistical sampling is used, the sample selected must be a probabilistic one. In addition, the auditor shouldA.use the haphazard selection method to make sure that the sample is properly selected.B.request the client to review the sample and approve all items that are selected.C.use appropriate statistical evaluation methods of nonsampling risk computations.D.use appropriate statistical evaluation methods of sampling risk computations.
8 - Which one of the following is an example of a specific authorization?A.The highest credit limit allowed for accounts receivable customers is $100 000.B.Each sales transaction that exceeds the credit limit of a customer must be approved by the controller.C.The computer systems automatically reorder inventory when quantities fall below the economic order quantity.D.Grocery sales clerks may approve returns of goods less than ten dollars in value.
8 - Management assesses risks as a part of designing and operating internal controls to minimize fraud and errors. Auditors assess risks toA.decide the evidence needed in the audit.B.make sure that the company will continue to operate over the next year.C.enable them to assess the completeness of internal controls.D.fully implement the audit risk model.
Which is one aspect of management's assessment of internal control over financial reporting? A.Evaluate the design of the payroll system.B.Have the external auditors document the internal control over financial reporting.C.Have the external auditors test the effectiveness the internal control over financial reporting.D.Evaluate the design of internal control over financial reporting.
The essence of an effectively controlled organization lies in theA.attitude of its management.B.effectiveness of its auditor.C.attitude of its employees.D.effectiveness of its internal auditor.
Management safeguards assets byA.controlling access and by comparing physical items to records.B.requiring the external auditors to do surprise audits.C.having management sign a management representation letter.D.having the internal auditors conduct periodic counts of physical assets.
As a first time auditor of a small company, what will be your strategy to obtain an understanding of internal controls of the company?A.conduct the procedure of understanding internal controls in the current yearB.rely on the verbal assurance from management that internal control existsC.as the company is small, defer the procedure to understand internal controls until next yearD.get the company employees to test the internal controls for you
To help with corporate governance and a positive "tone at the top," the board of directors and its committees, such as the audit committee, shouldA.rubber-stamp the financial statements once per year.B.consist of all members of executive management.C.take an active role in overseeing the company.D.follow the policies and procedures approved by management.
Why is it important to separate systems development (or acquisition) and program maintenance activities from accounting?A.Custody of media is important to help ensure ongoing operations.B.This allows accounting to reconcile transaction totals to transaction details.C.Lack of separation could result in unauthorized changes to programs and systems.D.Accounting personnel have the expertise to evaluate program changes that have been implemented.
FiddleWare Limited uses a purchased software package to handle the processing of its transactions. An important control that management should implement with respect to information systems is theA.use of a formal systems development methodology.B.tracking of routine program maintenance changes.C.evaluation of potential new systems against organizational objectives.D.use of appropriate checkpoints and milestones during development.
A major control available in a small company, which might not be feasible in a large company, isA.use of sequentially numbered documents.B.fewer transactions to process.C.the owner-manager's personal interest in and close relationship with personnel.D.a wider segregation of duties.
Public key encryption usesA.two keys.B.three keys.C.one key.D.four keys.
Carrie is the manager of the Bay Street Pharmacy. Carrie is considering implementing a security tag system to reduce the losses related to stolen goods at their store. The system Carrie is looking at currently costs $60 000 and is expected to be effective for 5 years. In order to justify the implementation of the security tag system, average theft per year should be at leastA.$1000.B.$12 000.C.$60 000.D.Theft should be prevented at all costs.
Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced byA.delegation of full, clear-cut responsibility to each employee for the functions assigned to each.B.engaging a public accountant to perform monthly "write-up" work.C.direct participation by the owner of the business in the record-keeping activities of the business.D.employment of temporary personnel to aid in the segregation of duties.
An essential characteristic of the persons performing internal check procedures isA.an analytical and inquisitive mind.B.independence from the original data preparer.C.a thorough knowledge of accounting.D.competence in data entry skills.
A system of internal control consists of policies and procedures designed to provide management withA.assurance that fraud will be prevented.B.assurance that the firm's resources will be used in the optimal way.C.reasonable assurance that the company achieves its objectives.D.reasonable assurance that fraud will be detected.
To comply with auditing standards, the auditor need not be concerned with all areas of internal control that apply to management. The auditor's primary concerns are with the system's ability toA.promote efficiency and encourage adherence to policy.B.prevent and detect financial statement fraud and error.C.provide reliable data and safeguard assets.D.maintain reliable control systems pertaining to financial transactions.
The Sarbanes Oxley Act has had consequences for many areas of corporate activities, including the following impact on the work of the auditor:A.The auditor is now required to report all fraudulent activities he/she uncovers directly to the Securities and Exchange Commission.B.The auditor is specifically required to assess and report on the effectiveness of internal control over financial reporting..C.The auditor must monitor how well management is carrying out its financial reporting responsibilities.D.The auditor must prepare a report verifying the information in the financial statements.
For large companies, what is essential for effective monitoring of internal controls?A.competent external auditorsB.competent accounting departmentC.competent fraud departmentD.competent internal audit department
It is important for the public accountant to consider the competence of the audit clients' employees because their competence bears directly and importantly upon theA.timing of the tests to be performed.B.achievement of the objectives through effective internal controls.C.cost/benefit relationship of internal controls.D.comparison of recorded accountability with assets.
Which of the following best describes the inherent limitations that should be recognized by an auditor when considering the potential effectiveness of an accounting system?A.The benefits expected to be derived from an effective accounting system usually do not exceed the costs of such control.B.Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion.C.The competence and integrity of client personnel provides an environment conducive to accounting control and provides assurance that effective control will be achieved.D.Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against irregularities perpetrated by management.
Which of the following is a characteristic of Nonstatistical sampling?
What is a Nonstatistical sample?
What are the advantages of Nonstatistical sampling over statistical sampling?
Which of the following statements best expresses the impact that the performance of audit procedures has on statistical vs Nonstatistical sampling?

CHAPTER 15

Multiple-Choice Questions

A sample in which the characteristics of the sample are the same as those of the population is

a(n)

b. representative sample.

When the auditor decides to select less than 100 percent of the population for testing, the

auditor is said to be using

b. representative sampling.

One of the ways to eliminate nonsampling risk is through

a. proper supervision and instruction of the client’s employees.

b. proper supervision and instruction of the audit team.

c. the use of attributes sampling rather than variables sampling.

d. controls which ensure that the sample drawn is random and representative.

One cause of nonsampling risk is

a. ineffective use of audit procedures.

b. testing less than the entire population.

c. use of extensive tests of controls.

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 sample selection.

c. systematic sample selection.

d. statistical selection.

When the auditor intends to evaluate a sample statistically, the only acceptable selection method

a. probabilistic selection.

d. block sample selection.

A sample in which every possible combination of items in the population has an equal chance of

constituting the sample is a

d. representative sample.

Which of the following statements is a valid criticism of the use of nonstatistical sampling methods?A.Nonstatistical sampling does not differ substantially from statistical sampling methods.B.Many audit tests, such as footing of journals, must be performed outside a statistical sampling context.C.The cost of performing random selection or testing often exceeds the benefits.D.It can be difficult to remain unbiased in the selection of items.

D

A sample in which the characteristics of the sample are the same as those of the population is a(n)A.representative sample.B.attribute sample.C.variables sample.D.random sample.

A

Assume that the client's internal controls require a clerk to attach a shipping document to every duplicate sales invoice but this procedure is not followed exactly 3 percent of the time. If the auditor selects a sample of 200 duplicate sales invoices, which of the following sample results is most representative of the population?A.five shipping document are missingB.six shipping documents are missingC.three shipping documents are missingD.there were no shipping documents missing

B

One of the ways to eliminate nonsampling risk is throughA.the use of attribute sampling rather than variables sampling.B.controls that ensure the sample drawn is random and representative.C.proper supervision and instruction of the client's employees.D.proper supervision and instruction of the audit team.

D

An underlying feature of the random-based selection of items is that eachA.stratum of the population is given equal representation in the sample.B.each item must be systematically selected using replacement.C.each item in the population must be randomly ordered.D.each item in the population should have an equal opportunity to be selected.

D

Helen found that the expense reports were not properly approved while the senior accounts payable clerk was on vacation in July. Helen decided to perform a test of control on the authorization of expense reports for all the months except for July, which she will test substantively. Helen is allowed to do this becauseA.compensating controls exist in the payroll reconciliation process.B.the authorizations for the month of July are not representative of the population as a whole.C.the authorized expense reports for July are not material.D.it would not be cost beneficial to test the entire population substantively.

B

A statistical method used to estimate the proportion of items in a population containing a characteristic of interest isA.estimation sampling.B.attribute sampling.C.population-proportional-to-size sampling.D.variables sampling.

B

The auditing standards indicate thatA.it is preferable to use nonstatistical sampling instead of statistical sampling.B.it is equally acceptable to use either statistical or nonstatistical sampling.C.nonstatistical sampling should only be used if statistical sampling is too costly to use.D.it is preferable to use statistical sampling instead of nonstatistical sampling.

B

In performing a review of his client's cash disbursements, a public accountant uses systematic sampling with a random start. The primary disadvantage of systematic sampling is that population itemsA.must be replaced in the population after sampling to permit valid statistical inference.B.may occur twice in the sample.C.may occur in a systematic pattern, thus negating the randomness of the sample.D.must be reordered in a systematic pattern before the sample can be drawn.

C

The most common method used for performing statistical tests of controls isA.variables sampling.B.judgment sampling.C.attribute sampling.D.random selection of samples.

C

One of the ways to reduce sampling risk is toA.use an appropriate method of selecting sample items from the population.B.carefully design the audit procedures to be used.C.provide proper supervision and instruction of the audit team.D.use variables sampling rather than attribute sampling.

C

Nonsampling errors occur when audit tests do not uncover existing exceptions in theA.planning stage.B.sample.C.population.D.financial statements.

B

Auditors consider statistical sampling to be characterized byA.representative sample selection and statistical calculation of the results.B.representative sample selection and nonmathematical consideration of the results.C.carefully biased sample selection and nonmathematical consideration of the results.D.carefully biased sample selection and statistical calculation of the results.

A

The auditor is going to select a sample that is a statistical probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic or attribute of interest. The auditor is using what type of sampling?A.variable estimation samplingB.monetary unit samplingC.attribute samplingD.discovery sampling

C

When statistical sampling is used, the sample selected must be a probabilistic one. In addition, the auditor shouldA.use the haphazard selection method to make sure that the sample is properly selected.B.request the client to review the sample and approve all items that are selected.C.use appropriate statistical evaluation methods of nonsampling risk computations.D.use appropriate statistical evaluation methods of sampling risk computations.

D

8 - Which one of the following is an example of a specific authorization?A.The highest credit limit allowed for accounts receivable customers is $100 000.B.Each sales transaction that exceeds the credit limit of a customer must be approved by the controller.C.The computer systems automatically reorder inventory when quantities fall below the economic order quantity.D.Grocery sales clerks may approve returns of goods less than ten dollars in value.

B

8 - Management assesses risks as a part of designing and operating internal controls to minimize fraud and errors. Auditors assess risks toA.decide the evidence needed in the audit.B.make sure that the company will continue to operate over the next year.C.enable them to assess the completeness of internal controls.D.fully implement the audit risk model.

A

Which is one aspect of management's assessment of internal control over financial reporting? A.Evaluate the design of the payroll system.B.Have the external auditors document the internal control over financial reporting.C.Have the external auditors test the effectiveness the internal control over financial reporting.D.Evaluate the design of internal control over financial reporting.

D

The essence of an effectively controlled organization lies in theA.attitude of its management.B.effectiveness of its auditor.C.attitude of its employees.D.effectiveness of its internal auditor.

A

Management safeguards assets byA.controlling access and by comparing physical items to records.B.requiring the external auditors to do surprise audits.C.having management sign a management representation letter.D.having the internal auditors conduct periodic counts of physical assets.

A

As a first time auditor of a small company, what will be your strategy to obtain an understanding of internal controls of the company?A.conduct the procedure of understanding internal controls in the current yearB.rely on the verbal assurance from management that internal control existsC.as the company is small, defer the procedure to understand internal controls until next yearD.get the company employees to test the internal controls for you

A

To help with corporate governance and a positive "tone at the top," the board of directors and its committees, such as the audit committee, shouldA.rubber-stamp the financial statements once per year.B.consist of all members of executive management.C.take an active role in overseeing the company.D.follow the policies and procedures approved by management.

C

Why is it important to separate systems development (or acquisition) and program maintenance activities from accounting?A.Custody of media is important to help ensure ongoing operations.B.This allows accounting to reconcile transaction totals to transaction details.C.Lack of separation could result in unauthorized changes to programs and systems.D.Accounting personnel have the expertise to evaluate program changes that have been implemented.

C

FiddleWare Limited uses a purchased software package to handle the processing of its transactions. An important control that management should implement with respect to information systems is theA.use of a formal systems development methodology.B.tracking of routine program maintenance changes.C.evaluation of potential new systems against organizational objectives.D.use of appropriate checkpoints and milestones during development.

C

A major control available in a small company, which might not be feasible in a large company, isA.use of sequentially numbered documents.B.fewer transactions to process.C.the owner-manager's personal interest in and close relationship with personnel.D.a wider segregation of duties.

C

Public key encryption usesA.two keys.B.three keys.C.one key.D.four keys.

A

B

Effective internal control in a small company that has an insufficient number of employees to permit proper division of responsibilities can best be enhanced byA.delegation of full, clear-cut responsibility to each employee for the functions assigned to each.B.engaging a public accountant to perform monthly "write-up" work.C.direct participation by the owner of the business in the record-keeping activities of the business.D.employment of temporary personnel to aid in the segregation of duties.

C

An essential characteristic of the persons performing internal check procedures isA.an analytical and inquisitive mind.B.independence from the original data preparer.C.a thorough knowledge of accounting.D.competence in data entry skills.

B

A system of internal control consists of policies and procedures designed to provide management withA.assurance that fraud will be prevented.B.assurance that the firm's resources will be used in the optimal way.C.reasonable assurance that the company achieves its objectives.D.reasonable assurance that fraud will be detected.

C

To comply with auditing standards, the auditor need not be concerned with all areas of internal control that apply to management. The auditor's primary concerns are with the system's ability toA.promote efficiency and encourage adherence to policy.B.prevent and detect financial statement fraud and error.C.provide reliable data and safeguard assets.D.maintain reliable control systems pertaining to financial transactions.

D

The Sarbanes Oxley Act has had consequences for many areas of corporate activities, including the following impact on the work of the auditor:A.The auditor is now required to report all fraudulent activities he/she uncovers directly to the Securities and Exchange Commission.B.The auditor is specifically required to assess and report on the effectiveness of internal control over financial reporting..C.The auditor must monitor how well management is carrying out its financial reporting responsibilities.D.The auditor must prepare a report verifying the information in the financial statements.

B

For large companies, what is essential for effective monitoring of internal controls?A.competent external auditorsB.competent accounting departmentC.competent fraud departmentD.competent internal audit department

D

It is important for the public accountant to consider the competence of the audit clients' employees because their competence bears directly and importantly upon theA.timing of the tests to be performed.B.achievement of the objectives through effective internal controls.C.cost/benefit relationship of internal controls.D.comparison of recorded accountability with assets.

B

Which of the following best describes the inherent limitations that should be recognized by an auditor when considering the potential effectiveness of an accounting system?A.The benefits expected to be derived from an effective accounting system usually do not exceed the costs of such control.B.Procedures whose effectiveness depends on segregation of duties can be circumvented by collusion.C.The competence and integrity of client personnel provides an environment conducive to accounting control and provides assurance that effective control will be achieved.D.Procedures designed to assure the execution and recording of transactions in accordance with proper authorizations are effective against irregularities perpetrated by management.

B

Which of the following is a characteristic of Nonstatistical sampling?

Which of the following is a characteristic of nonstatistical sampling? It requires judgment to select a sample. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods: provide an objective basis for quantitatively evaluating sample risk.

What is a Nonstatistical sample?

Non-statistical sampling is the selection of a test group that is based on the examiner's judgment, rather than a formal statistical method. For example, an examiner could use his own judgment to determine one or more of the following: The sample size. The items selected for the test group.

What are the advantages of Nonstatistical sampling over statistical sampling?

The main advantages of audit sampling using non-statistical method are a statistically derived sample and a statistical evaluation of sampling risk. One of the disadvantages of non-statistical method includes the use of formal techniques to determine sample size, select the sample and to evaluate results.

Which of the following statements best expresses the impact that the performance of audit procedures has on statistical vs Nonstatistical sampling?

Which of the following statements best expresses the impact that the performance of audit procedures has on statistical vs. nonstatistical sampling? Audit procedures on the sample item will not vary as a result of using either statistical or nonstatistical sampling.

Which of the following statements is a valid criticism of the use of nonstatistical sampling methods

D

A sample in which the characteristics of the sample are the same as those of the population is​ a(n)A.representative sample.B.attribute sample.C.variables sample.D.random sample.

A

B

D

D

B

A statistical method used to estimate the proportion of items in a population containing a characteristic of interest isA.estimation sampling.B.attribute sampling.C.population-proportional-to-size sampling.D.variables sampling.

B

B

C

The most common method used for performing statistical tests of controls isA.variables sampling.B.judgment sampling.C.attribute sampling.D.random selection of samples.

C

One of the ways to reduce sampling risk is toA.use an appropriate method of selecting sample items from the population.B.carefully design the audit procedures to be used.C.provide proper supervision and instruction of the audit team.D.use variables sampling rather than attribute sampling.

C

Nonsampling errors occur when audit tests do not uncover existing exceptions in theA.planning stage.B.sample.C.population.D.financial statements.

B

A

C

D

B

A

D

The essence of an effectively controlled organization lies in theA.attitude of its management.B.effectiveness of its auditor.C.attitude of its employees.D.effectiveness of its internal auditor.

A

Management safeguards assets byA.controlling access and by comparing physical items to records.B.requiring the external auditors to do surprise audits.C.having management sign a management representation letter.D.having the internal auditors conduct periodic counts of physical assets.

A

A

C

C

C

A major control available in a small​ company, which might not be feasible in a large​ company, isA.use of sequentially numbered documents.B.fewer transactions to process.C.the owner-​manager's personal interest in and close relationship with personnel.D.a wider segregation of duties.

C

Public key encryption usesA.two keys.B.three keys.C.one key.D.four keys.

A

B

C

An essential characteristic of the persons performing internal check procedures isA.an analytical and inquisitive mind.B.independence from the original data preparer.C.a thorough knowledge of accounting.D.competence in data entry skills.

B

C

D

B

For large​ companies, what is essential for effective monitoring of internal​ controls?A.competent external auditorsB.competent accounting departmentC.competent fraud departmentD.competent internal audit department

D

B

B

Which of the following is a characteristic of Nonstatistical sampling?

What is a Nonstatistical sample?

What are the advantages of Nonstatistical sampling over statistical sampling?

Which of the following statements best expresses the impact that the performance of audit procedures has on statistical vs Nonstatistical sampling?

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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.representative sample.B.attribute sample.C.variables sample.D.random sample.

A major control available in a small company, which might not be feasible in a large company, isA.use of sequentially numbered documents.B.fewer transactions to process.C.the owner-manager's personal interest in and close relationship with personnel.D.a wider segregation of duties.

For large companies, what is essential for effective monitoring of internal controls?A.competent external auditorsB.competent accounting departmentC.competent fraud departmentD.competent internal audit department