Audit Sampling Test Banks PDF

Audit Sampling 1. According to the Philippine Standard on Auditing (PSA) 530, audit sampling refers to: A) Reviewing every item in a population B) Selecting a representative sample from a population for testing C) Using judgment without applying a systematic method D) Using data analytics instead o...

Audit Sampling 1. According to the Philippine Standard on Auditing (PSA) 530, audit sampling refers to: A) Reviewing every item in a population B) Selecting a representative sample from a population for testing C) Using judgment without applying a systematic method D) Using data analytics instead of traditional sampling Answer: B) Selecting a representative sample from a population for testing 2. The purpose of audit sampling is to: A) Review all transactions within the audit period B) Determine the exact financial position of the entity C) Draw conclusions about a population based on testing a sample D) Ensure every transaction is in compliance with laws Answer: C) Draw conclusions about a population based on testing a sample 3. In the context of audit sampling, the term “population” refers to: A) All the financial statements of the company B) The total number of transactions or items being audited C) The auditors involved in the audit process D) Only the transactions that have been flagged as suspicious Answer: B) The total number of transactions or items being audited 4. What is the primary difference between statistical and non-statistical sampling? A) Statistical sampling uses random selection; non-statistical sampling does not B) Statistical sampling involves judgment-based selection C) Non-statistical sampling is less precise than statistical sampling D) There is no difference between the two types of sampling Answer: A) Statistical sampling uses random selection; non-statistical sampling does not 5. When using statistical sampling, the auditor can quantify the risk of incorrect conclusions through: A) Judgmental sampling B) Confidence level and sampling error C) Professional skepticism D) Random selection of samples Answer: B) Confidence level and sampling error 6. What is the main goal of an auditor when determining the sample size in audit sampling? A) To minimize the number of items selected for testing B) To ensure that the sample represents the entire population accurately C) To focus only on the most risky transactions D) To comply with regulatory guidelines Answer: B) To ensure that the sample represents the entire population accurately 7. In the Philippine auditing standards, which of the following is a type of sampling method used? A) Random Sampling B) Judgmental Sampling C) Systematic Sampling D) All of the above Answer: D) All of the above 8. Which of the following is NOT an example of audit sampling risk? A) Risk of selecting an unrepresentative sample B) Risk of over-relying on audit evidence C) Risk of drawing incorrect conclusions due to sampling D) Risk that the sample size is too small Answer: B) Risk of over-relying on audit evidence 9. Under the PSA, what must auditors consider when designing their sampling approach? A) The audit objective and the nature of the population B) The size of the organization C) The cost of the audit D) The level of trust between auditor and client Answer: A) The audit objective and the nature of the population 10. In a Philippine audit, when performing monetary unit sampling, the risk is primarily related to: A) Incorrect estimates of material misstatements B) The client’s ability to pay its liabilities C) The auditor’s ability to calculate taxes correctly D) The management's integrity Answer: A) Incorrect estimates of material misstatements 11. In audit sampling, what does the term “deviation rate” refer to? A) The number of transactions that were flagged as errors B) The percentage of items in the sample that do not comply with criteria C) The number of items that were tested D) The total number of misstatements found in a sample Answer: B) The percentage of items in the sample that do not comply with criteria 12. If an auditor chooses to use a non-statistical method of sampling, they must: A) Follow all of the Philippine Standards on Auditing B) Use judgment to select the sample items C) Calculate confidence intervals D) Obtain approval from the Board of Accountancy Answer: B) Use judgment to select the sample items 13. When determining the sample size, auditors should consider: A) The acceptable risk of sampling error B) The total number of audit staff available C) The client’s prior audit history D) The location of the company’s headquarters Answer: A) The acceptable risk of sampling error 14. According to PSA 530, the primary factor that affects the sample size is: A) The complexity of the audit B) The population size C) The tolerable misstatement D) The auditor's experience Answer: C) The tolerable misstatement 15. Which of the following is a characteristic of random sampling? A) Items are selected based on the auditor’s judgment B) All items have an equal chance of being selected C) A set percentage of the population is selected D) It focuses only on high-value items Answer: B) All items have an equal chance of being selected 16. If an auditor is testing for errors in a large population and uses a higher confidence level, what effect will this have on the sample size? A) The sample size will increase B) The sample size will decrease C) The sample size will remain the same D) The sample size will depend on the auditor’s discretion Answer: A) The sample size will increase 17. In Philippine audit practice, which of the following is considered a deviation from control in audit sampling? A) A transaction is recorded correctly B) A document is missing required signatures C) A ledger entry is posted at the wrong amount D) A transaction is recorded in the wrong period Answer: B) A document is missing required signatures 18. What is the risk of incorrect rejection in audit sampling? A) The auditor concludes that the sample does not support the audit conclusion, when, in fact, it does B) The auditor fails to identify a material misstatement C) The auditor selects too few items for testing D) The auditor chooses items that are not representative of the population Answer: A) The auditor concludes that the sample does not support the audit conclusion, when, in fact, it does 19. Which of the following is the most appropriate way for an auditor to reduce sampling risk? A) Increase the sample size B) Decrease the audit time C) Rely on management’s representations D) Focus on low-value items Answer: A) Increase the sample size 20. Under PSA 530, what must an auditor do if they detect a deviation rate that is higher than expected? A) Conclude that the entire population is misstated B) Increase the sample size C) Report the deviation rate to the client immediately D) Ignore the deviation rate if it's under a certain threshold Answer: B) Increase the sample size 21. In audit sampling, what does “tolerable error” mean? A) The maximum error a sample can have without affecting the audit conclusion B) The percentage of errors allowed in a sample C) The actual error found in the sample D) The average error in the entire population Answer: A) The maximum error a sample can have without affecting the audit conclusion 22. Which sampling technique involves selecting items in a consistent, systematic manner (e.g., every nth item)? A) Judgmental sampling B) Random sampling C) Systematic sampling D) Stratified sampling Answer: C) Systematic sampling 23. Which of the following is a key consideration when applying audit sampling in the Philippine context? A) The financial materiality of the transactions being tested B) The complexity of the audit report format C) The geographic location of the company's offices D) The auditor’s personal relationship with the client Answer: A) The financial materiality of the transactions being tested 24. What type of sampling would an auditor most likely use when the population is homogeneous and the auditor wants to ensure equal representation? A) Judgmental sampling B) Random sampling C) Systematic sampling D) Stratified sampling Answer: B) Random sampling 25. If an auditor is using judgmental sampling, which of the following is true? A) Every item has an equal chance of being selected B) The auditor selects items based on their professional judgment C) The sample is selected purely at random D) The auditor must rely on statistical calculations Answer: B) The auditor selects items based on their professional judgment 26. What is the main purpose of performing a sample size calculation in audit sampling? A) To ensure that the sample is large enough to provide reliable evidence B) To calculate the cost of the audit C) To avoid selecting too many transactions for testing D) To maximize the auditor's time efficiency Answer: A) To ensure that the sample is large enough to provide reliable evidence 27. Which of the following is the best definition of a “representative sample”? A) A sample that perfectly matches the population in every way B) A sample that is selected randomly, so that it reflects the characteristics of the entire population C) A sample that includes the most significant transactions D) A sample chosen based on the auditor’s experience Answer: B) A sample that is selected randomly, so that it reflects the characteristics of the entire population 28. The sampling risk is the risk that: A) The auditor will fail to detect a material misstatement B) The sample will not represent the population accurately C) The auditor will overstate the audit conclusion D) The population size will be misinterpreted Answer: B) The sample will not represent the population accurately 29. An auditor using monetary unit sampling (MUS) would typically test: A) The accuracy of journal entries B) A randomly selected set of invoices C) Transactions based on their monetary value D) The total number of transactions Answer: C) Transactions based on their monetary value 30. What would an auditor likely do if the sample results indicate a higher deviation rate than anticipated? A) Ignore the results and continue the audit B) Decrease the sample size to minimize risk C) Increase the sample size to gather more reliable evidence D) Change the audit procedures completely Answer: C) Increase the sample size to gather more reliable evidence 31. When an auditor uses stratified sampling, the population is divided into: A) Equal groups based on value or characteristics B) A random selection of items C) Groups based on their historical significance D) Groups based on the auditor’s judgment Answer: A) Equal groups based on value or characteristics 32. Which of the following best describes the "risk of overreliance" in audit sampling? A) The risk that the auditor will accept a sample as being sufficient when, in fact, it is not B) The risk that the sample will not represent the population C) The risk that the population is not accurate D) The risk of choosing too few items for testing Answer: A) The risk that the auditor will accept a sample as being sufficient when, in fact, it is not 33. An example of non-statistical sampling would be: A) The auditor selects every tenth item from a list B) The auditor uses judgment to select high-value transactions C) The auditor selects a random number of items from the population D) The auditor calculates sample size based on confidence levels Answer: B) The auditor uses judgment to select high-value transactions 34. What is the primary risk associated with audit sampling? A) The risk of not detecting material misstatements in the sample B) The risk of selecting too many transactions for testing C) The risk of misunderstanding the sampling method D) The risk of violating auditing standards Answer: A) The risk of not detecting material misstatements in the sample 35. In an audit of financial statements, which of the following is considered an appropriate population for sampling? A) All sales transactions recorded during the year B) Only the largest sales transactions C) Random selections from the payroll records D) Transactions from a specific accounting period Answer: A) All sales transactions recorded during the year 36. Under PSA 530, what does "sampling error" refer to? A) The difference between the sample estimate and the actual population parameter B) The audit fee charged for selecting the sample C) The time taken to test the sample D) The incorrect classification of an item in the sample Answer: A) The difference between the sample estimate and the actual population parameter 37. Which of the following is a characteristic of systematic sampling? A) It is based on random selection B) It involves dividing the population into subgroups C) Items are selected using a fixed interval, such as every nth item D) Items are chosen based on their value Answer: C) Items are selected using a fixed interval, such as every nth item 38. When an auditor uses judgmental sampling, what factor is most likely considered? A) The randomization of the sample B) The size and complexity of the sample C) The materiality of transactions or items D) The cost of selecting the sample Answer: C) The materiality of transactions or items 39. Which of the following is the best way for an auditor to minimize sampling risk? A) Use judgmental sampling B) Increase the sample size C) Test only the high-value items D) Test all transactions in the population Answer: B) Increase the sample size 40. Which of the following sampling methods is most suitable when there is a large population with a known pattern of errors? A) Judgmental sampling B) Stratified sampling C) Random sampling D) Monetary unit sampling Answer: B) Stratified sampling 41. What is the "confidence level" in statistical sampling? A) The likelihood that the sample will be selected correctly B) The probability that the sample results are representative of the population C) The total number of items in the sample D) The likelihood that the sample contains no errors Answer: B) The probability that the sample results are representative of the population 42. When is audit sampling most appropriate? A) When the auditor can test every item in the population B) When the auditor needs to make conclusions about the population without testing every item C) When the auditor wants to focus only on high-risk transactions D) When the population is small Answer: B) When the auditor needs to make conclusions about the population without testing every item 43. What does the "tolerable misstatement" refer to in the context of audit sampling? A) The amount by which the auditor is willing to accept errors in the sample B) The cost of performing sampling C) The total error found in the population D) The maximum deviation rate allowed in a sample Answer: A) The amount by which the auditor is willing to accept errors in the sample 44. Which of the following is a key advantage of statistical sampling over non-statistical sampling? A) It allows auditors to rely on their professional judgment B) It provides a measurable way to calculate sampling risk C) It reduces the need to use audit procedures D) It allows auditors to test fewer items Answer: B) It provides a measurable way to calculate sampling risk 45. What is a key feature of judgmental sampling? A) It involves random selection of items B) The sample is selected based on the auditor’s professional judgment C) It involves systematic selection of every nth item D) It is based on statistical models and calculations Answer: B) The sample is selected based on the auditor’s professional judgment 46. In monetary unit sampling (MUS), the risk of incorrect rejection is: A) The risk that the auditor concludes that a population is misstated when it is not B) The risk that the auditor will fail to detect a material misstatement C) The risk that the sample size is too small D) The risk that the auditor selects too many transactions for testing Answer: A) The risk that the auditor concludes that a population is misstated when it is not 47. How does an auditor typically decide on the sample size for substantive testing? A) By considering the materiality of the transactions B) By considering the total number of transactions C) By dividing the population into equal subgroups D) By calculating the population’s average deviation rate Answer: A) By considering the materiality of the transactions 48. Which sampling method is appropriate when you want to focus on transactions with the highest dollar value? A) Judgmental sampling B) Random sampling C) Stratified sampling D) Systematic sampling Answer: C) Stratified sampling 49. In an audit of financial statements, an auditor’s sample might include all transactions from which group? A) Only the transactions from high-value customers B) A random sample of all transactions C) Transactions exceeding a specific monetary threshold D) Transactions from a particular period Answer: B) A random sample of all transactions 50. What does "confidence interval" mean in the context of statistical sampling? A) The range within which the population’s true value is expected to lie with a certain level of confidence B) The amount of time needed to complete the sampling process C) The number of items selected in the sample D) The margin of error in the sample calculations Answer: A) The range within which the population’s true value is expected to lie with a certain level of confidence 51. Which of the following is the most important factor in determining the sample size for statistical sampling? A) The auditor's experience B) The total population size C) The desired level of confidence D) The risk of material misstatement Answer: C) The desired level of confidence 52. In audit sampling, which of the following best describes "non-sampling risk"? A) The risk that the sample will not be representative of the population B) The risk that errors will not be detected due to the auditor's judgment errors or procedural mistakes C) The risk of selecting an unrepresentative sample D) The risk that the sample is too small Answer: B) The risk that errors will not be detected due to the auditor's judgment errors or procedural mistakes 53. What does "population size" refer to in audit sampling? A) The total number of transactions or items in the population being tested B) The number of auditors available for testing C) The number of errors expected in the population D) The total monetary value of the population Answer: A) The total number of transactions or items in the population being tested 54. When should an auditor use judgmental sampling instead of statistical sampling? A) When the population is large and diverse B) When the auditor is testing controls or looking for errors C) When the auditor believes the sample will not be representative D) When the auditor has a limited budget or timeframe Answer: D) When the auditor has a limited budget or timeframe 55. Which of the following best defines "audit evidence" in the context of sampling? A) The documentation of transactions B) The information obtained through sampling that supports audit conclusions C) The formal audit report D) The total value of transactions tested in the sample Answer: B) The information obtained through sampling that supports audit conclusions 56. What does the auditor do if the results of a sample indicate that the deviation rate is higher than expected? A) Extend the audit to include additional tests B) Increase the sample size C) Conclude the entire population is misstated D) Ignore the results and proceed with the audit Answer: A) Extend the audit to include additional tests 57. In the Philippine context, an auditor may apply audit sampling to which of the following? A) Financial transactions and balances B) Internal control procedures C) Tax compliance issues D) All of the above Answer: D) All of the above 58. In audit sampling, what does "expected deviation rate" refer to? A) The percentage of items in the sample that are expected to comply with the audit criteria B) The auditor's expected level of confidence in the sample results C) The auditor’s estimate of the percentage of items that will be found with deviations D) The average monetary value of all items in the sample Answer: C) The auditor’s estimate of the percentage of items that will be found with deviations 59. Under the Philippine Standard on Auditing (PSA) 530, how should an auditor address a situation where there is high risk of material misstatement in the population? A) Ignore the sampling risk and use a smaller sample size B) Increase the sample size to reduce the sampling risk C) Decrease the confidence level to reduce audit costs D) Reduce the sample size to expedite the audit process Answer: B) Increase the sample size to reduce the sampling risk 60. What is the primary objective of using monetary unit sampling (MUS) in an audit? A) To ensure the sample contains the largest transactions B) To identify deviations in the financial statements C) To achieve a higher level of assurance by focusing on high-value items D) To test for compliance with accounting standards Answer: C) To achieve a higher level of assurance by focusing on high-value items 61. Which of the following would most likely lead to an increase in sample size? A) Lower tolerance for misstatement B) Higher confidence level C) Higher population variability D) All of the above Answer: D) All of the above 62. In audit sampling, what is "tolerable misstatement"? A) The maximum misstatement in a sample that is acceptable without altering the conclusion of the audit B) The average error found in the sample C) The minimum error that must be detected to affect the audit conclusion D) The number of deviations in the sample Answer: A) The maximum misstatement in a sample that is acceptable without altering the conclusion of the audit 63. What type of audit sampling method should be used when the auditor wants to ensure every item in the population has an equal chance of being selected? A) Judgmental sampling B) Random sampling C) Systematic sampling D) Stratified sampling Answer: B) Random sampling 64. Which of the following would be an example of "systematic sampling"? A) Selecting the first 10 invoices from a list of 1,000 B) Selecting every 10th item from a list of transactions C) Selecting invoices based on their value D) Choosing invoices based on the auditor’s judgment Answer: B) Selecting every 10th item from a list of transactions 65. If an auditor performs a sample and detects errors at a rate higher than expected, what action should they take? A) Accept the sample as representative and conclude the audit B) Increase the sample size and perform further testing C) Assume the entire population is misstated D) Decrease the confidence level for the sampling results Answer: B) Increase the sample size and perform further testing 66. In the Philippine setup, which of the following would be considered an appropriate approach to sample design? A) Select a sample based on the auditor’s experience alone B) Use a random sample that covers different periods, types of transactions, and accounts C) Focus only on high-value transactions, disregarding other potential areas of risk D) Only sample transactions from the final quarter of the year Answer: B) Use a random sample that covers different periods, types of transactions, and accounts 67. Under the PSA 530, when is audit sampling not appropriate? A) When the population is small and manageable B) When the auditor intends to review all items individually C) When the audit is focusing on internal controls rather than transactions D) When the cost of sampling exceeds the benefit Answer: B) When the auditor intends to review all items individually 68. In an audit of financial statements, which of the following is NOT a valid reason to use audit sampling? A) The cost of reviewing every item exceeds the benefit B) The population is large and testing every item is not feasible C) The auditor is concerned about detecting errors but doesn't need to review all items D) The auditor is conducting a full review and does not need to sample transactions Answer: D) The auditor is conducting a full review and does not need to sample transactions 69. When applying audit sampling, the auditor should consider the risk that: A) The sample is not representative of the population B) The sample size is too large C) The population has too many deviations D) The sample will not be tested accurately Answer: A) The sample is not representative of the population 70. Which of the following could lead to sampling error in audit testing? A) The sample was selected randomly B) The sample was too small to provide sufficient evidence C) The auditor used professional judgment to select items D) The auditor used statistical methods to select items Answer: B) The sample was too small to provide sufficient evidence Case Questions 71. Case: A company’s management is concerned about the accuracy of inventory transactions, which are highly volatile due to price fluctuations. The auditor decides to apply audit sampling to test a representative subset of transactions. Given that price fluctuations are a risk factor, which sampling method would be most appropriate for the auditor to use? A) Stratified sampling B) Judgmental sampling C) Random sampling D) Systematic sampling Answer: A) Stratified sampling 72. Case: The auditor is testing for misstatements in a large population of sales transactions in a retail company. The auditor has calculated a sampling risk of 5%. The auditor is testing a random sample of 100 transactions. Based on the results, the auditor finds 3 errors. The population contains 10,000 transactions. Which of the following actions should the auditor take? A) Conclude that the entire population is misstated B) Increase the sample size to gain more confidence in the result C) Reduce the sample size to save on testing time D) Report the 3 errors in the sample as material misstatements Answer: B) Increase the sample size to gain more confidence in the result 73. Case: During an audit, the auditor is using monetary unit sampling (MUS) and focuses on high-value transactions, assuming that higher-value items are more likely to be misstated. The auditor selects transactions based on monetary values. However, the auditor is unsure about the effect of sampling errors on the final results. What is the primary risk when using MUS in this case? A) The auditor will miss the high-value transactions B) The risk of incorrect rejection due to sampling errors C) The sample might not include enough high-value transactions D) The sample will not be representative of the entire population Answer: B) The risk of incorrect rejection due to sampling errors 74. Case: An auditor is testing a random sample of invoices in a construction company. The total population consists of 5,000 invoices. The auditor determines the tolerable misstatement is PHP 50,000, and the sample size is 100 invoices. The auditor finds no significant misstatements in the sample. What conclusion can the auditor draw from this result? A) The entire population is free of misstatements B) The sample does not provide enough evidence to conclude about the entire population C) The auditor can conclude the population is materially misstated D) The results can be generalized to the entire population with a high level of assurance Answer: B) The sample does not provide enough evidence to conclude about the entire population 75. Case: The auditor is performing substantive testing on a population of 1,000 payroll transactions. The auditor decides to use statistical sampling to select 50 items for testing. The sample includes both high-value and low-value transactions. After testing, the auditor finds one minor error. What action should the auditor take next? A) Conclude the entire population is free of material misstatements B) Increase the sample size and retest the population C) Report the error in the sample as indicative of the population's misstatement D) Conclude the error found is not material and finish the audit Answer: B) Increase the sample size and retest the population 76. Case: A Philippine-based company has a population of 2,000 transactions in its accounts payable system. The auditor selects a stratified sample, targeting high-value transactions. During testing, the auditor finds several misstatements, including duplicate payments and unapproved invoices. What should the auditor do after finding multiple misstatements? A) Report the misstatements as indicative of the entire population and issue a qualified opinion B) Conclude that the population is materially misstated based on the sample errors C) Increase the sample size and perform further testing to confirm the findings D) Ignore the misstatements because the sample size is small Answer: C) Increase the sample size and perform further testing to confirm the findings 77. Case: A bank’s financial statements are being audited, and the auditor is testing loan agreements. The population consists of 500 loans. The auditor is using random sampling to select 50 loans. During testing, the auditor finds 2 loans with errors in the documentation. What should the auditor do next? A) Conclude that the loan portfolio is free of significant misstatements B) Increase the sample size and perform further testing to ensure accuracy C) Report the 2 errors as material misstatements and issue an adverse opinion D) Conclude that the errors found are not material and proceed with the audit Answer: B) Increase the sample size and perform further testing to ensure accuracy