AUDITING THEORY

Handout 08

Topic Coverage: Laco CPA Review

Audit Sampling Instructor: Vincent Rafelson Borja, CPA

Instructions: Read each question carefully and choose the best answer from the options provided.

1. Which of the following circumstances is most likely to justify the auditor’s use of 100% examination of a
population?
a. The population is very large and consists of many low-value items.
b. The population is small and consists of a few items of large value.
c. The auditor is testing controls where documentation is lacking.
d. The auditor seeks to minimize audit cost regardless of audit risk.

2. 100% examination is least likely to be appropriate when:

a. There is significant risk and no other procedure provides sufficient appropriate evidence.
b. The population consists of a small number of individually material items.
c. The auditor is testing automated calculations performed by an information system.
d. The auditor is testing the design and implementation of a preventive control.

3. The selective examination of specific items:

a. Is considered a form of audit sampling.
b. Can provide evidence about the entire population.
c. Is subject to non-sampling risk.
d. Allows projection of results to the entire population.

4. An auditor decides to test all items over ₱1,000,000 in accounts receivable to cover 85% of the balance.
This approach is an example of:
a. Value-weighted sampling.
b. Selecting items over a certain amount.
c. Stratification.
d. Random number sampling.

5. Which of the following is NOT an example of selecting specific items?

a. Testing all items above a threshold.
b. Testing unusual or suspicious items.
c. Randomly selecting items using a computer.
d. Selecting items to obtain information about internal control.

6. Audit sampling involves:

a. Testing only suspicious transactions.
b. Applying audit procedures to less than 100% of items in a population.
c. Testing all material items above a certain threshold.
d. Using only statistical techniques.

7. Which of the following is an error in audit sampling?

a. A deviation from a prescribed control procedure.
b. A misstatement in an account balance.
c. An anomaly from an isolated event.
d. Both a and b.

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8. An “anomaly” in audit sampling refers to:
a. A pervasive misstatement across the population.
b. An isolated error that is not representative of the population.
c. A deviation rate that exceeds tolerable limits.
d. A control failure due to poor segregation of duties.

9. Which type of audit risk is directly controllable by the auditor?

a. Inherent risk
b. Control risk
c. Detection risk
d. Risk of material misstatement

10. Sampling risk refers to:

a. The risk that procedures selected are inappropriate.
b. The risk of auditor bias in selecting items.
c. The possibility that conclusions from a sample differ from those if the entire population were tested.
d. The uncertainty caused by human error.

11. Assessing control risk too high in attribute sampling primarily affects audit:
a. Effectiveness
b. Efficiency
c. Reliability
d. Risk of misstatement

12. Assessing control risk too low in attribute sampling results in:
a. Over-auditing and inefficiency
b. Under-auditing and ineffectiveness
c. Greater assurance of control reliability
d. More extensive substantive testing

13. The risk of incorrect acceptance in substantive testing is most closely related to audit:
a. Efficiency
b. Effectiveness
c. Sampling size
d. Stratification

14. Which of the following is an advantage of statistical sampling?

a. It eliminates all risks of auditor judgment.
b. It provides a mathematical measure of sampling risk.
c. It is always less costly than non-statistical sampling.
d. It requires fewer professional judgments.

15. The main disadvantage of non-statistical sampling is:

a. It cannot be used for tests of controls.
b. It does not allow measurement of sampling risk.
c. It requires the use of CAATs.
d. It is less reliable than statistical sampling in all cases.

16. Systematic sampling is appropriate when:

a. Each item in the population has no identifying number.
b. The auditor wishes to test only high-value items.
c. The auditor wishes to avoid stratification.
d. The sample is chosen solely by auditor judgment.

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17. Which sample selection method is least recommended due to high sampling risk?
a. Random number sampling
b. Systematic sampling
c. Block selection
d. Haphazard sampling

18. Haphazard sampling:

a. Is free of auditor bias and valid for statistical sampling.
b. Involves selection without conscious bias but may not be representative.
c. Is appropriate for all tests of details.
d. Ensures coverage of all strata in a population.

19. The main objective of stratification in audit sampling is:

a. To increase the size of the sample.
b. To reduce variability within each stratum.
c. To eliminate detection risk.
d. To ensure every item has an equal chance of selection.

20. When an auditor selects monetary units (e.g., pesos) as sampling units, this is called:
a. Stratification
b. Value-weighted selection
c. Systematic sampling
d. Block sampling

21. In attributes sampling, the auditor’s first step is to:

a. Define the population
b. Determine the objectives of the test
c. Perform the sampling plan
d. Evaluate sample results

22. Which of the following is an example of a deviation condition in attributes sampling?

a. An invoice properly authorized by the purchasing manager
b. A purchase without an approved purchase order
c. A sales transaction correctly recorded in the general ledger
d. A petty cash voucher with appropriate supporting documents

23. Which factor generally has a negligible effect on sample size in tests of controls?
a. Tolerable deviation rate
b. Auditor’s required confidence level
c. Population size
d. Expected deviation rate

24. If an auditor increases reliance on internal controls, the sample size for tests of controls will:
a. Increase
b. Decrease
c. Remain unaffected
d. Depend on tolerable deviation rate

25. Which sampling technique is most appropriate when even a single deviation would be considered a serious
concern (e.g., suspected fraud)?
a. Sequential sampling
b. Discovery sampling
c. Random sampling
d. Stratified sampling

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26. In non-statistical sampling for tests of controls, if the Sample Deviation Rate (SDR) is less than or equal to
the Tolerable Deviation Rate (TDR), the auditor should conclude that:
a. Controls are ineffective
b. Control risk is assessed as High
c. Controls may be effective
d. Additional tests are always required

27. In statistical sampling for controls, the Upper Deviation Rate (UDR) is computed as:
a. TDR + SDR
b. SDR – Expected deviation
c. SDR + Allowance for sampling risk
d. Expected deviation + TDR

28. Which of the following would generally decrease sample size in substantive tests?
a. Increase in inherent risk
b. Increase in control risk
c. Increase in tolerable error
d. Increase in expected error

29. The process of dividing a population into subgroups with similar characteristics to improve efficiency of
sampling is called:
a. Projection
b. Stratification
c. Ratio estimation
d. PPS sampling

30. Which estimation technique is most appropriate when the misstatement in an account is directly
proportional to its book value?
a. Difference estimation
b. Ratio estimation
c. Mean-per-unit estimation
d. Sequential estimation

31. Mean-per-unit estimation is best suited for:

a. Accounts where each item has a recorded book value
b. Populations without recorded values
c. Testing only overstatements in asset accounts
d. Testing only understatements in liability accounts

32. Probability-Proportional-to-Size (PPS) sampling is most appropriate when:

a. Understatements are suspected
b. No or few errors are expected and auditor tests for overstatement
c. Controls are highly ineffective
d. The auditor is testing completeness assertions

33. If an anomalous error is discovered and verified as isolated, the auditor:

a. Must project it to the entire population
b. May exclude it from projection but still consider its effect if uncorrected
c. Ignores it entirely as immaterial
d. Always extends the sample size

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34. In projecting misstatements from substantive tests, the auditor should:
a. Use only non-statistical judgment
b. Project monetary misstatements to the population
c. Consider only anomalous errors
d. Adjust tolerable error upwards to offset

35. An auditor finds 4 deviations in a sample of 100 transactions. The expected deviation rate was 3% and the
tolerable deviation rate is 6%. Using non-statistical sampling, the auditor should conclude that:
a. Controls are ineffective (CR = High)
b. Controls may be effective (CR = Less than High)
c. More sampling must be performed
d. Discovery sampling is required

End.

"Great auditors don’t just accept the sample — they understand the story it tells.
Every sample is a window — and with the right lens, even a small view reveals the whole picture."

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