modg

Module GVariables Sampling

True / False Questions1.Variables sampling is used primarily when the auditor uses analytical procedures.TrueFalse

2.Classical variables sampling methods are unique in that they define the population as a number of dollars in an account balance or class of transactions.TrueFalse

3.A significant advantage of monetary unit sampling (MUS) is that it typically results in relatively small sample sizes.TrueFalse

4.Both the expected error and tolerable misstatement have direct relationships with sample size.TrueFalse

5.In a monetary unit sampling (MUS) application, the auditor has a higher level of concern with the risk of incorrect acceptance than the risk of incorrect rejection.TrueFalse

6.The risk of incorrect rejection typically results in an efficiency loss for the auditor.TrueFalse

7.The level of tolerable misstatement assessed by the auditor is based on the recorded balance of the account balance or class of transactions as well as the relationship of the account balance to important financial statement subtotals.TrueFalse

8.In a first-year engagement, auditors cannot estimate the expected error because they have no prior historical relationship with the client.TrueFalse

9.Monetary unit samples are selected using a form of systematic random selection.TrueFalse

10.One logical unit can account for more than one sample selection in a monetary unit sampling (MUS) application.TrueFalse

11.The tainting percentage is determined by dividing the recorded amount of the sample item by the sampling interval.TrueFalse

12.The projected misstatement assumes that the sampling interval contains a slightly higher percentage of misstatement than the sample item.TrueFalse

13.The basic allowance for sampling risk should only be calculated if the auditor identifies a misstatement.TrueFalse

14.If the upper limit on misstatement is less than or equal to the tolerable misstatement, the auditor would conclude that the account balance or class of transactions is fairly recorded.TrueFalse

15.If the upper limit on misstatement exceeds the tolerable misstatement, the auditor could not initially conclude that the account balance is fairly recorded.TrueFalse

16.Stratifying the sample allows the auditor to reduce the overall sample size required in a classical variables sampling application.TrueFalse

17.The standard deviation has an inverse relationship with sample size in a classical variables sampling application.TrueFalse

18.In a classical variables sampling application, the precision interval has a (1 minus the risk of incorrect acceptance) probability of including the true population value.TrueFalse

19.If the auditor's estimate of the recorded amount of the account balance falls within the precision interval, the auditor will decide to accept the account balance as fairly recorded.TrueFalse

20.Nonstatistical sampling methods are not permitted under generally accepted auditing standards.TrueFalse

Multiple Choice Questions21.Which component of the expanded audit risk model is most closely associated with the risk of incorrect acceptance?

A.Analytical procedures risk.

B.Risk of material misstatement.

C.Nonsampling risk.

D.Test of details risk.

22.The sampling method used to examine a population when the auditor wants to estimate a continuous amount (or value) of the population is

A.Attributes sampling.

B.Balance sampling.

C.Discovery sampling.

D.Variables sampling.

23.Which of the following would not be estimated using variables sampling?

A.The balance in the client's accounts receivable.

B.The extent to which an internal control procedure is not functioning as intended.

C.The amount of misstatement in a client's inventory.

D.All of the above would be estimated using variables sampling.

24.Which of the following courses of action would an auditor who is aware of several unusually large cash disbursements most likely follow in planning a sample of cash disbursements?

A.Set the tolerable misstatement at a lower level than originally planned.

B.Stratify the cash disbursements population so that the unusually large disbursements are selected.

C.Increase the sample size to reduce the effect of the unusually large disbursements.

D.Continue to draw new samples until all the unusually large disbursements appear in the sample.

25.The total amount of actual monetary misstatement found in a sample is referred to as the

A.Projected misstatement.

B.Tolerable misstatement.

C.Actual misstatement.

D.Incremental allowance for sampling risk.

26.Which of the following is not an advantage associated with monetary unit sampling (MUS)?

A.Its methods typically include transactions or components reflecting relatively large dollar amounts.

B.Its methods are more effective in identifying overstatement errors.

C.Its methods provide a conservative (higher) estimate of misstatement in the account balance or class of transactions.

D.Its methods typically result in relatively small sample sizes.

27.The amount at which an item would be recorded assuming no mistakes in judgment or incorrect applications of generally accepted accounting principles were made is the

A.Audited value.

B.Expected error.

C.Recorded value.

D.Tolerable misstatement.

28.The auditor's sample would indicate that the client's account balance is fairly stated when the _______________________ is less than the ______________________.

A.upper limit on misstatement, tolerable misstatement.

B.actual misstatement, tolerable misstatement.

C.tolerable misstatement, upper limit on misstatement.

D.tolerable misstatement, actual misstatement.

29.How does monetary unit sampling (MUS) ensure that larger dollar components are selected for examination?

A.It requires the auditor to identify all items having a balance higher than performance materiality prior to beginning the sample selection process.

B.It requires the auditor to stratify the sample into larger and smaller dollar components prior to beginning the sample selection process.

C.It defines the sampling unit as an individual dollar within an account balance or class of transactions.

D.It selects components having large balances in the prior audit.

30.Why is the auditor more concerned with controlling the exposure to the risk of incorrect acceptance than with the risk of incorrect rejection?

A.Only the risk of incorrect acceptance results in an incorrect decision by the auditor.

B.The risk of incorrect rejection is not related to the auditor's substantive procedures.

C.The risk of incorrect rejection can be controlled by performing substantive procedures during the interim period.

D.The risk of incorrect acceptance may ultimately result in the auditor's incorrectly issuing an unqualified opinion on the client's financial statements.

31.Which of the following is not true with respect to the risk of incorrect acceptance?

A.This risk provides the auditor an efficiency loss.

B.This risk results in the auditor's making an incorrect conclusion about the client's account balance or class of transactions.

C.This risk occurs when the sample results suggest that the account balance is fairly stated.

D.This risk is controlled by the auditor in determining sample size under monetary unit sampling (MUS).

32.Which of the following would not result in a lower level of the risk of incorrect acceptance?

A.An increase in the acceptable level of audit risk from 5% to 10%.

B.The inability of the auditor to rely on the internal control as planned.

C.An increase in the susceptibility of the account balance to misstatement.

D.A reduction in the utilization of analytical procedures in the audit examination.

33.The risk of incorrect acceptance relates to the

A.Effectiveness of the audit.

B.Efficiency of the audit.

C.Preliminary estimate of materiality.

D.Allowable risk of tolerable misstatement.

34.When performing substantive procedures, auditors run the sampling risk(s) of

A.Assessing control risk too high or too low.

B.Incorrect acceptance and incorrect rejection.

C.Assessing control risk too low only.

D.Incorrect acceptance only.

35.When the _______________________ exceeds the ______________________, the audit team risks incorrect acceptance.

A.upper limit on misstatement, tolerable misstatement

B.tolerable misstatement, expected error

C.tolerable misstatement, upper limit

D.upper limit, expected error

36.Incorrect rejection occurs when the auditor concludes that the account balance is _______________________ when in fact it is ______________________.

A.material, immaterial

B.immaterial, material

C.fairly stated, misstated

D.misstated, fairly stated

37.Which of the following is not true with respect to the risk of incorrect rejection?

A.Incorrect rejection occurs when the auditor concludes that the account balance is not fairly stated.

B.The risk of incorrect rejection has an inverse relationship with sample size.

C.The risk of incorrect rejection exposes the auditor to an efficiency loss.

D.Incorrect rejection occurs when the true (but unknown) account balance is materially misstated.

38.An auditor may decide to increase the risk of incorrect rejection when

A.Increased reliability from the sample is desired.

B.Many differences are expected.

C.Initial sample results do not support the planned level of control risk.

D.The cost and effort of selecting additional items is low.

39.Which of the following is true with respect to the risk of incorrect acceptance?

A.The risk of incorrect acceptance is determined in the planning stages of the audit prior to the study of internal control.

B.The risk of incorrect acceptance has an inverse relationship with sample size.

C.The risk of incorrect acceptance exposes the auditor to an efficiency loss.

D.The risk of incorrect acceptance may occur when the true (but unknown) account balance is fairly stated.

40.How does the auditor typically determine the appropriate level of the risk of incorrect rejection when using classical variables sampling?

A.Based on prior assessments of audit risk, risk of material misstatement, and analytical procedures risk.

B.Based on the recorded amount of the account balance as well as the relationship of the account balance with important financial statement subtotals.

C.Based on the findings in prior audits or based on a small sample taken during the current year.

D.Based on the anticipated cost of conducting additional substantive procedures.

41.Which of the following is not considered in establishing the sample size in a monetary unit sampling (MUS) application?

A.Expected error.

B.Population size.

C.Risk of incorrect acceptance.

D.All of the above are considered.

42.All other factors being equal, as the risk of incorrect acceptance and tolerable misstatement increase, the sample size will

A.Not be affected.

B.Increase.

C.Decrease.

D.Cannot determine from the information given.

43.In a classical variables sampling application, the sample size will be smaller when the

A.Risk of incorrect acceptance is lower.

B.Risk of incorrect rejection is lower.

C.Tolerable misstatement is lower.

D.Population variability is lower.

44.Which of the following factors has a direct relationship with sample size in a variables sampling application?

A.Tolerable misstatement, yes; expected error, yes.

B.Tolerable misstatement, no; expected error, yes.

C.Tolerable misstatement, yes; expected error, no.

D.Tolerable misstatement, no; expected error, no.

45.How does the auditor establish the level of tolerable misstatement in a variables sampling application?





46.Which of the following factors is most likely established based on the results of prior audit examinations?

A.Expected error.

B.Population size.



47.Which of the following factors that affect sample size can be determined by considering the recorded account balance of the account or class of transactions as well as the relationship between the recorded account balance or class of transactions with important financial statement subtotals?

A.Expected error.

B.Population size.



48.Which of the following components of the upper limit on misstatement is determined by multiplying the sampling interval by the reliability factor for the acceptable risk of incorrect acceptance?

A.Basic allowance for sampling risk.

B.Incremental allowance for sampling risk.

C.Projected misstatement.

D.Sampling interval.

49.A number of factors influence the sample size for a variables sampling application. All other factors held constant, which of the following would lead to a larger sample size?

A.A lower assessed level of risk of material misstatement.

B.Increased use of analytical procedures to obtain evidence about particular assertions.

C.Lower frequency and magnitude of misstatements.

D.Lower levels of tolerable misstatement.

50.Which of the following set of conditions would provide the auditor the smallest sample size under monetary unit sampling (MUS) (RIA = risk of incorrect acceptance, TM = tolerable misstatement, PS = population size)?

A.RIA = 5%, TM = $15,000, PS = $200,000.

B.RIA = 5%, TM = $10,000, PS = $200,000.

C.RIA = 5%, TM = $10,000, PS = $100,000.

D.RIA = 5%, TM = $15,000, PS = $300,000.

51.Which of the following expresses the relationship between changes in the factors and changes in sample size in variables sampling?

A.Tolerable misstatement, direct; expected error, inverse; risk of incorrect rejection, direct.

B.Tolerable misstatement, inverse; expected error, direct; risk of incorrect rejection, inverse.

C.Tolerable misstatement, inverse; expected error, inverse; risk of incorrect rejection, inverse.

D.Tolerable misstatement, inverse; expected error, inverse; risk of incorrect rejection, direct.

52.Under MUS sampling, the sampling interval is determined by dividing the _______________________ by the ______________________.

A.sample size, population size

B.population size, sample size

C.tolerable misstatement, population size

D.population size, tolerable misstatement

53.K. Brown, CPA, was using monetary unit sampling (MUS) to audit an inventory of $3,000,000 composed of 6,000 items. A sample size of 500 was determined and a tolerable misstatement of $20,000 was established. The sampling interval would be

A.$500.

B.$5,000.

C.$6,000.

D.$20,000.

54.What is the auditor's normal course of action if a "logical unit" is selected twice in MUS sampling?

A.The auditor should count the logical unit as a single selection and proceed as normal.

B.The auditor should count the logical unit as two selections and proceed as normal.

C.The auditor should not include the logical unit as a selection because the dollar amount of this unit is excessively large.

D.The auditor should replicate the sample using an alternative random start.

55.Which of the following is found by dividing the amount of misstatement noted in a logical unit by the recorded amount of that logical unit?

A.Sample size.

B.Sampling interval.


D.Tainting percentage.

56.Which of the following components of the upper limit on misstatement will exist in all MUS sampling applications, including those for which no misstatements are found?


B.Computed allowance for sampling risk.

C.Incremental allowance for sampling risk.

D.Projected misstatement.

57.Bama's accounts receivable were recorded at $600,000. Assume that the auditor determined a sample size of 20 customer accounts and prepared confirmations to those customers. One misstatement was determined; an account recorded at $10,000 was confirmed to have a balance of $5,000.

What is the appropriate sampling interval?

A.$60.

B.$250.

C.$500.

D.$30,000.


What is the projected misstatement?

A.$5,000.

B.$10,000.

C.$15,000.

D.$30,000.


Using an incremental reliability factor of 1.58 (corresponding to the risk of incorrect acceptance of 5 percent), what is the incremental allowance for sampling risk?

A.$5,000.

B.$7,900.

C.$8,700.

D.$23,700.

60.The amount by which a projected misstatement in an account balance or class of transactions differs from an actual misstatement as a result of the sample not being representative of the population would typically arise from

A.A misunderstanding of accounting principles.

B.Sampling risk.

C.Management override of an internal control policy or procedure.

D.Risk of incorrect acceptance.

61.If a customer's account was recorded at $45,000, the audited value was $30,000, and the sampling interval was $30,000, the projected misstatement would be

A.$10,000.

B.$15,000.

C.$20,000.

D.$30,000.

62.Which of the following sampling methods uses normal distribution theory and the central limit theorem to provide an estimate range of the account balance or class of transactions or the misstatement in the account balance or class of transactions?

A.Attributes.

B.Classical variables.

C.Nonstatistical.

D.Monetary unit sampling (MUS).

63.In which of the following situations would the auditor be more likely to use monetary unit sampling (MUS) as opposed to classical variables sampling?

A.Larger expected error, yes; concern with overstatements, yes.

B.Larger expected error, yes; concern with overstatements, no.

C.Larger expected error, no; concern with overstatements, yes.

D.Larger expected error, no; concern with overstatements, no.

64.K. Samantha, CPA, used stratified random selection in the statistical sampling plan. Which of the following is the most likely reason this approach was used?

A.It eliminates the need for random selection.

B.The population is relatively homogenous in terms of the dollar amount of components or transactions.

C.It reduces the expected sample size.

D.It eliminates the need for calculating the projected misstatement in the account being examined.

65.The process of subdividing a population into homogeneous subgroups is known as

A.Classification.

B.Identification.

C.Sampling.

D.Stratification.

66.What is one of the primary benefits of stratifying a population?

A.It allows different types of audit procedures to be performed on large and small transactions or components.

B.It allows the auditor to have a higher likelihood of reaching a favorable conclusion with respect to the client's financial statements.

C.It allows the auditor to reduce the necessary sample size.

D.It reduces the auditor's exposure to nonsampling risk.

67.Which of the following is considered in determining the sample size in a classical variables sampling application but not in a monetary unit sampling (MUS) application?

A.Standard deviation, yes; risk of incorrect acceptance, yes.

B.Standard deviation, yes; risk of incorrect acceptance, no.

C.Standard deviation, no; risk of incorrect acceptance, yes.

D.Standard deviation, no; risk of incorrect acceptance, no.

68.In a classical variables sampling application, if the _____________________ exceeds the maximum difference between the recorded balance and any point within the precision interval, the auditor would decide to _____________________ the account balance as fairly stated.

A.sample estimate, accept.

B.sample estimate, reject.

C.tolerable misstatement, accept.

D.tolerable misstatement, reject.

69.N. Green, CPA, performed a mean per unit sampling plan to examine the inventory balances of ABC Company. Green audited 120 items from a sample and found an audited value of $24,600. The sample had a recorded value of $30,000. If the entire inventory contained 2,400 items and the total recorded value of the inventory was $480,000, the estimated account balance using mean-per-unit estimation is

A.$393,600.

B.$474,500.

C.$480,000.

D.$492,000.

70.D. Pujols, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Wieserbud Brewing, Inc. Pujols audited 120 items from a sample and found an audited value of $24,600. The sample had a recorded value of $30,000. If the entire inventory contained 2,400 items and the total recorded value of the inventory was $480,000, the estimated account balance using nonstatistical methods is

A.$393,600.

B.$474,500.

C.$480,000.

D.$500,000.

71.A. Jeter, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Big Apple Company and audited 200 items from a sample and found an audited value of $36,000. The sample had a recorded value of $40,000. If the entire inventory contained 3,000 items and the total recorded value of the inventory was $500,000, the estimated account balance using nonstatistical estimation and projecting the error based on number of items examined was

A.$393,600.

B.$474,500.

C.$450,000.

D.$540,000.

72.V. Solo, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Hope, Inc. In selecting the sample of 70 items, Solo used an expected misstatement of $40,000 and a tolerable misstatement of $65,000. The account balance consisted of 1,050 items totaling $1,200,000. The sample's recorded value was $80,000, and the audited value was $76,000. What conclusion did Solo draw regarding the account balance?

A.To accept it because the estimated misstatement is less than the tolerable misstatement.

B.To reject it because the estimated misstatement is more than the expected misstatement.

C.To accept because the estimated misstatement is less than the expected misstatement.

D.To reject because the estimated misstatement is more than the tolerable misstatement.

73.G. Summitt, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Hero, Inc. Which of the following methods of sample selection are available to Summitt?

A.Random and systematic only.

B.Block and haphazard only.

C.Any method Summitt believes will result in a representative sample.

D.Any method where the results can be probabilistically estimated.

74.Which of the following major stages of the audit is most closely related to variables sampling?

A.Determining preliminary levels of performance materiality.

B.Performing tests of controls procedures.

C.Performing substantive procedures.

D.Searching for the possible occurrence of subsequent events.

75.Which of the following types of variables sampling plans has a tendency to select higher dollar items for examination?

A.Difference estimation.

B.Mean-per-unit estimation.

C.Monetary unit sampling.

D.Ratio estimation.

76.Variables sampling methods can be used to estimate

A.Option A

B.Option B

C.Option C

D.Option D

77.When the audit risk is 0.015, inherent risk is 0.50, control risk is 0.30 (i.e., RMM = 0.15), and analytical procedures risk is 0.50, the risk of incorrect acceptance is

A.0.02.

B.0.20.

C.0.50.

D.2.00.

78.When making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of incorrect acceptance more serious than the risk of incorrect rejection because

A.The incorrect rejection decision impairs the efficiency of the audit.

B.The audit team will do additional work and discover the misstatement of the incorrect decision.

C.The incorrect acceptance decision impairs the effectiveness of the audit.

D.Sufficient appropriate audit evidence will not have been obtained.

79.The unique feature of monetary unit sampling is that

A.Sampling units are not chosen at random.

B.A dollar unit selected in a sample is not replaced before the sample selection is completed.

C.Auditors need not worry about the risk of incorrect acceptance decision.

D.The population is defined as the number of dollar units in an account balance or class of transactions.

80.When determining sample size under monetary unit sampling, an audit team does not need to make a judgment or estimate of

A.Audit risk.


C.Expected misstatement.

D.Standard deviation of error.

81.Which of the following statements is correct about monetary unit sampling?

A.The risk of incorrect acceptance must be specified.

B.Smaller logical units have a higher probability of selection in the sample than larger units.

C.Each logical unit in the population has an equally likely chance of being selected in the sample.

D.The projected misstatement cannot be calculated when one or more misstatements are discovered.

82.One of the primary advantages of monetary unit sampling is the fact that

A.It is an effective method of sampling for evidence of understatement in asset accounts.

B.The sample selection automatically achieves high-value selection and stratification.

C.The sample selection provides for including a representative number of small-value components.

D.Expanding the sample for additional evidence is relatively simple.

83.Which of the following would not cause the audit team to select a larger sample of items under a monetary unit sampling application?

A.A reduction in the risk of incorrect acceptance from 10 percent to 5 percent.

B.An increase in the tolerable misstatement from $30,000 to $60,000.

C.An increase in the expected misstatement from $20,000 to $40,000.

D.All of the above would result in selecting a larger sample.

84.Assume that an account with a recorded balance of $5,000 has an audited balance of $3,000. Using MUS, if the sampling interval is $1,500, the projected misstatement would be

A.$600.

B.$900.

C.$2,000.

D.$3,000.

85.If the _______________________ is less than the ______________________, the audit team would conclude that the account balance is fairly stated.

A.Projected misstatement; tolerable misstatement.

B.Tolerable misstatement; projected misstatement.

C.Upper limit on misstatements; tolerable misstatement.

D.Tolerable misstatement; upper limit on misstatements.

86.If the upper limit on misstatements is calculated at $17,800 and the tolerable misstatement is $15,000, what is the minimum amount of adjustment necessary for the audit team to issue an unqualified opinion on the client's financial statements?

A.$0.

B.$2,800.

C.$15,000.

D.$17,800.

87.Alice Rathermel audited LoHo Company's inventory using sampling. She examined 120 items from an inventory compilation list and discovered net overstatement of $480. The audited items had a book (recorded) value of $48,000. There were 1,200 inventory items listed, and the total recorded inventory amount was $490,000. What is the projected misstatement using mean-per-unit estimation?

A.$480.

B.$576,000.

C.$10,000.

D.$480,000.

88.To determine the sample size for a classical variables sampling application, an audit team should consider the tolerable misstatement, risk of incorrect acceptance, risk of incorrect rejection, population size, population variability, and

A.Expected misstatement in the account.

B.Overall materiality for the financial statements taken as a whole.

C.Risk of assessing control risk too low.

D.Risk of assessing control risk too high.

89.Which of the following components is not used in determining the upper limit on misstatements?





90.The projected misstatement is determined by multiplying the sampling interval by the

A.Expansion factor.

B.Incremental confidence factor.

C.Confidence factor.


91.Which of the following steps involved with determining the upper limit on misstatements is ordinarily performed earliest?

A.Multiply the sampling interval by the tainting percentage.

B.Determine the audited amount of the item and compare it to the recorded amount.

C.Calculate the basic allowance for sampling risk.

D.Calculate the incremental allowance for sampling risk.

92.A component of an account balance has a recorded balance of $10,000 and an audited balance of $8,000. Using MUS, if the sampling interval is $20,000, the projected misstatement would be

A.$2,000.

B.$4,000.

C.$5,000.

D.$10,000.

93.Which of the following statements is not true with respect to the calculation of the upper limit on misstatements?

A.The tainting percentage is determined based on the difference between the recorded balance and the audited balance.

B.A separate incremental allowance for sampling risk is calculated for each misstatement discovered by the auditor.

C.If no misstatements are detected, the basic allowance for sampling risk equals zero.

D.The projected misstatement is determined by multiplying the sampling interval by the tainting percentage.

94.Which of the following courses of action would an audit team most likely follow in planning a sample of cash disbursements if the audit team is aware of several unusually large cash disbursements?

A.Increase the sample size to reduce the effect of the unusually large disbursements.

B.Continue to draw new samples until all unusually large disbursements appear in the sample.

C.Set the tolerable rate of deviation at a lower level than originally planned.

D.Stratify the cash disbursements population so that the unusually large disbursements are selected.

95.A method of variables sampling that defines the population as the number of dollars in an account balance or class of transactions is referred to as


B.Classical variables sampling.

C.Mean-per-unit sampling.

D.Monetary unit sampling.

96.Which of the following is an advantage of monetary unit sampling (MUS)?

A.It provides a conservative (higher) estimate of misstatement in the account balance or class of transactions.

B.Its samples typically include transactions or components reflecting relatively large dollar amounts.

C.It does not require the auditor to estimate the amount of misstatement in the account balance or class of transactions.

D.It is effective in identifying misstatements in accounts for which understatement is a primary concern (such as liabilities).

97.Which of the following sampling risks does the auditor consider in determining the sample size in a monetary unit sampling (MUS) application?

A.Risk of overreliance.

B.Risk of underreliance.


D.Risk of incorrect rejection.

98.The maximum amount by which the account balance or class of transactions can be misstated without influencing the decisions of third-party users is the

A.Tolerable misstatement.

B.Expected error.

C.Audited value.

D.True error.

99.Which of the following factors would not result in a reduced sample size in monetary unit sampling?

A.An increase in the risk of incorrect acceptance from 5 percent to 10 percent.

B.A decrease in the expected misstatement from $5,000 to $3,000.

C.A decrease in the tolerable misstatement from $15,000 to $10,000.

D.A decrease in the recorded balance from $200,000 to $185,000.

100.If the recorded amount of the sample item is $1,000, the audited value is $600, and the sampling interval is $5,000, the projected misstatement would be

A.$3,000.

B.$2,000.

C.$1,000.

D.$400.

101.Which of the following statements is not correct if the actual misstatement is $1,000, the upper limit on misstatement is $10,000, and the tolerable misstatement is $12,000?

A.There is a (1 minus the risk of incorrect acceptance) probability that the true misstatement in the account balance exceeds $10,000.

B.The allowance for sampling risk is $9,000.

C.There is a (1 minus the risk of incorrect acceptance) probability that the true misstatement in the account balance is less than $10,000.

D.The account balance appears to be fairly recorded.

102.Which of the following does not represent a difference in the use of monetary unit sampling (MUS) and classical variables sampling?

A.Classical variables sampling incorporates the acceptable risk of incorrect rejection in determining the sample size but MUS does not.

B.The need to formally stratify the sample is more important in MUS than classical variables sampling.

C.MUS is more likely to be used in examining accounts likely to contain overstatement errors than classical variables sampling.

D.The risk of incorrect acceptance is of primary concern to the auditor in MUS but not in classical variables sampling.

103.In which of the following situations would the use of classical variables sampling (as opposed to monetary unit sampling) be most appropriate?

A.When a larger number of misstatements are anticipated.

B.When overstatement errors (as opposed to understatement errors) are of more importance.

C.When individual components and account balances are higher in comparison to the tolerable misstatement established by the auditor.

D.When the auditor wishes to begin sampling during the interim period.

104.W. Blue, CPA, performed a nonstatistical sampling plan to examine the inventory balances of XYZ, Inc. The CPA audited 60 items from a sample and found an audited value of $12,300. The sample had a recorded value of $15,000. If the entire inventory contained 1,200 items and the total recorded value of the inventory was $240,000, the estimated account balance using nonstatistical methods is

A.$196,800.

B.$237,250.

C.$240,000.

D.$250,000.

105.H. Brown, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Big Company. Brown audited 50 items from a sample and found an audited value of $18,000. The sample had a recorded value of $20,000. If the entire inventory contained 250 items and the total recorded value of the inventory was $250,000, the estimated account balance using nonstatistical estimation and projecting the error based on number of items examined was

A.$196,800.

B.$237,250.

C.$225,000.

D.$300,000.

106.Y. Chang, CPA, performed a nonstatistical sampling plan to examine the inventory balances of PHD, Inc. In selecting the sample of 35 items, Chang used an expected misstatement of $20,000 and a tolerable misstatement of $32,000. The account balance consisted of 525 items totaling $600,000. The sample recorded value was $40,000, and the audited value was $38,000. What conclusion did Chang draw regarding the account balance?

A.Accept because the estimated misstatement is less than the tolerable misstatement.

B.Reject because the estimated misstatement is more than the expected misstatement.

C.Accept because the estimated misstatement is less than the expected misstatement.

D.Reject because the estimated misstatement is more than the tolerable misstatement.

107.E. Ewing, CPA, performed a nonstatistical sampling plan to examine the inventory balances of Management, Inc. Which of the following methods of sample selection are available to use?

A.Random and systematic only.

B.Block and haphazard only.

C.Any of the above methods.

D.Any method with which the results can be probabilistically estimated.

Fill in the Blank Questions108._______________________ sampling is used to examine a population when the auditor wants to estimate the amount (or value) of that population.________________________________________

109.Two methods of variables sampling are _______________________ sampling and classical variables sampling.________________________________________

110.A primary advantage of monetary unit sampling is its tendency to select _______________________ dollar components or transactions for examination.________________________________________

111.Monetary unit sampling is most effective when the auditor is concerned with _________________________ errors (when the recorded balance is likely to exceed the audited balance).________________________________________

112.The risk of _____________________________ occurs when the auditor's sample indicates the account balance is fairly stated when, in fact, it is materially misstated.________________________________________

113.The risk of incorrect rejection results in a(n) ___________________ loss to the auditor.________________________________________

114.The ____________________________________ is the maximum amount by which the account balance or class of transactions can be misstated without influencing the decisions of third-party users.________________________________________

115.Expected misstatement has a(n) _______________ relationship with sample size.________________________________________

116.In an MUS application, the population size is equal to the _________________________________ of the account or class of transactions.________________________________________

117.Under monetary unit sampling, the auditor uses a(n) ___________________________________ selection method to select sample items.________________________________________

118.The ______________________________ is the difference between the recorded balance and the audited balance of a component or transaction.________________________________________

119.The _______________________________ consists of three components: projected misstatement, incremental allowance for sampling risk, and basic allowance for sampling risk.________________________________________

120.The __________________________ assumes that the entire sampling interval contains the same percentage of misstatement as the item examined by the auditor.________________________________________

121.The "adjustment" to the projected misstatement that controls the auditor's exposure to sampling risk is referred to as the _________________________________________.________________________________________

122.The basic allowance for sampling risk is determined by multiplying the __________________________ by the reliability factor for the acceptable risk of incorrect acceptance.________________________________________

123.The auditor would decide to accept the account balance as fairly stated when the upper limit on misstatement is less than or equal to the _____________________________.________________________________________

124._________________________________ sampling methods use normal distribution theory and the central limit theorem to provide a range estimate of either the recorded balance of the account balance or class of transactions or the misstatement in the account balance or class of transactions.________________________________________

125.Two factors that are considered by the auditor in determining sample size for classical variables sampling but not MUS are the risk of incorrect rejection and the _______________________________________________.________________________________________

126.The process of subdividing the population into more homogenous subgroups is known as ______________________________.________________________________________

127.__________________________ sampling methods do not allow the auditor to control the exposure to sampling risk.________________________________________

Short Answer Questions128.The following are some of situations in which using either monetary unit sampling (MUS) or classical variables sampling would be preferable. Using the letters M (for monetary unit samplingMUS) or C (for classical variables sampling).

____ 1. Several sampling units in the population have a zero or negative balance.____ 2. The auditor would like to examine a smaller number of items.____ 3. The account balance is susceptible to understatement error.____ 4. The account balance includes a few logical units with very large dollar balances.____ 5. The auditor is able to form a reasonable estimate of the variability of the population.____ 6. The auditor would like to ensure that the sampling method provides a conservative (higher) estimate of misstatement in the account balance.____ 7. The account balance is susceptible to overstatement error.

129.Indicate how each of the following conditions affects sample size in a monetary unit sampling (MUS) application by using the letters I (increase), D (decrease), or N (no effect), assuming that all other factors are held constant.

____ 1. An increase in the expected error from $5,000 to $10,000.____ 2. A decrease in the population size from $1,500,000 to $1,350,000.____ 3. An increase in the tolerable misstatement from $25,000 to $35,000.____ 4. An increase in the risk of incorrect rejection from 5 percent to 10 percent.____ 5. A decrease in the risk of incorrect acceptance from 5 percent to 1 percent.

130.Indicate whether each of the following factors is considered in determining sample size in monetary unit sampling (M), classical variables sampling (C), both (B), or neither (N).

_____ 1. Population size._____ 2. Standard deviation._____ 3. Risk of incorrect acceptance._____ 4. Expected error._____ 5. Tolerable misstatement._____ 6. Risk of incorrect rejection._____ 7. Tainting percentage.

131.W. Fire, CPA is examining the accounts receivable (which were recorded at $500,000) for TBB, Inc., using a monetary unit sampling application. Using a risk of incorrect acceptance of 5% and a tolerable misstatement of $50,000, Fire has determined a sample size of 100 items and found the following three misstatements

a. What sampling interval did Fire use?b. Based on the preceding information, calculate the (1) actual misstatement, (2) projected misstatement, (3) incremental allowance for sampling risk, and (4) basic allowance for sampling risk.c. What is the upper limit on misstatement?d. Based on the preceding information, what would Fire's conclusion be with respect to TBB's accounts receivable balance?

Essay Questions132.P. Roberts, CPA, decided to use monetary unit sampling (MUS) in the audit of a client's accounts receivable balance. The recorded amount of the accounts receivable control account totaled $2,000,000 and consisted of approximately 5,000 accounts. Roberts established a tolerable misstatement of $100,000, a risk of incorrect acceptance of 5 percent, and an expected error of $10,000.

a. Calculate the sample size.b. Calculate the sampling interval.

133.You are planning to use monetary unit sampling (MUS) to evaluate Violet Company's accounts receivable. The accounts receivable account totals $3,000,000. You have assessed a risk of incorrect acceptance of 5 percent, a tolerable misstatement of $120,000, and an expected error of $24,000.

a. Calculate the sample size and sampling interval.b. Regardless of your answer to (a), use a sample size of 125 and the related sampling interval and calculate the upper limit on misstatement, assuming that you found the following differences.

134.You are planning to use monetary unit sampling (MUS) to evaluate accounts receivable for Rose Company. The accounts receivable account totals $4,000,000. You have assessed a risk of incorrect acceptance of 10 percent, a tolerable misstatement of $200,000, and an expected error of $40,000.

a. Calculate the sample size and sampling interval.b. Regardless of your answer to (a), use a sample size of 66 and the related sampling interval to calculate the upper limit on misstatement assuming you found the following differences.

135.D. Rome, CPA is conducting a classical variables sampling application on a client's accounts receivable recorded at $3,000,000. These receivables are composed of 5,000 customer accounts. Assume that Rome identified an acceptable level of the risk of incorrect acceptance of 5 percent, determined a sample size of 100, and confirmed the accounts with the client's customers. Rome's substantive procedures indicated that the average audited value was $590 per account.

a. Determine the sample estimate of the client's accounts receivable.b. If the standard deviation of sample estimates is $30, calculate the precision.c. Calculate the precision interval.

Matching Questions136.The following are some of the specific activities performed in a monetary unit sampling (MUS) application. Using the correct letter, indicate which major step in an MUS sampling application is most closely associated with the specific activity. Each step is associated with only one activity.

1.Calculating the tainting percentageDetermine sample size____

2.Calculating the sampling intervalDefine the attribute of interest____

3.Identifying an example of what type of response from a customer constitutes an exception to an accounts receivable confirmationSelect the sample____

4.Estimating the expected error and tolerable misstatementEvaluate sample results____

5.Identifying the financial statement assertion(s) of interest in the audit of an account balance or class of transactionsDetermine the objective of sampling____

6.Calculating the basic allowance for sampling risk, projected misstatement, and incremental allowance for sampling riskDefine the population____

7.Determining the completeness of the client's electronic accounts receivable fileMeasure sample items____

137.The following are descriptions of the way that key parameters are determined in a monetary unit sampling (MUS) plan. Using the correct letter, indicate which parameter is most closely associated with the description. Each parameter is associated with only one description.

1.Determined based on the recorded amount of the account balance or class of transactionsExpected error____

2.Estimated based on prior audits or a pilot sample of current balancesPopulation size____

3.Determined judgmentally by the auditor based on the overall financial statement materialitySample size____

4.Calculated by dividing the recorded balance by the amount of actual misstatement detectedTolerable misstatement____

5.Calculated as the difference between the recorded value and the audited value of a logical unit comprising an account balance or class of transactionsTainting percentage____

6.Determined based on tolerable misstatement, expected error, and the risk of incorrect acceptanceActual misstatement____

138.The following are descriptions of components of the upper limit on misstatement. Using the correct letter, indicate which component is most closely associated with the description. Each component is associated with only one description.

1.Provides an estimate of the amount of misstatement that may exist in sampling intervals in which no misstatements were observedBasic allowance for sampling risk____

2.Determined by multiplying the projected misstatement by the incremental change in the reliability factor minus 1Projected misstatement____

3.Determined by multiplying the sampling interval by the tainting percentageActual misstatement____

4.Determined by taking the difference between the recorded value and the audited valueIncremental allowance for sampling risk____

Module G Variables Sampling Answer Key

True / False Questions1.Variables sampling is used primarily when the auditor uses analytical procedures.FALSEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-01 Define variables sampling and understand when it is used in the audit.Topic: Definitions of Variables Sampling

2.Classical variables sampling methods are unique in that they define the population as a number of dollars in an account balance or class of transactions.FALSEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-01 Define variables sampling and understand when it is used in the audit.Topic: Definitions of Variables Sampling

3.A significant advantage of monetary unit sampling (MUS) is that it typically results in relatively small sample sizes.TRUEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to use it.Topic: Sampling in Substantive Procedures: Monetary Unit Sampling

4.Both the expected error and tolerable misstatement have direct relationships with sample size.FALSEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Topic: MUS: Determining Sample Size

5.In a monetary unit sampling (MUS) application, the auditor has a higher level of concern with the risk of incorrect acceptance than the risk of incorrect rejection.TRUEReference: Question also found in study guide

AACSB: AnalyticAACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA BB: IndustryAICPA FN: Decision MakingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Topic: MUS: Determining Sample Size

6.The risk of incorrect rejection typically results in an efficiency loss for the auditor.TRUEReference: Question also found in study guide


7.The level of tolerable misstatement assessed by the auditor is based on the recorded balance of the account balance or class of transactions as well as the relationship of the account balance to important financial statement subtotals.TRUEReference: Question also found in study guide


8.In a first-year engagement, auditors cannot estimate the expected error because they have no prior historical relationship with the client.FALSEReference: Question also found in study guide


9.Monetary unit samples are selected using a form of systematic random selection.TRUEReference: Question also found in study guide


10.One logical unit can account for more than one sample selection in a monetary unit sampling (MUS) application.TRUEReference: Question also found in study guide


11.The tainting percentage is determined by dividing the recorded amount of the sample item by the sampling interval.FALSEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Topic: MUS: Evaluating Sample Results

12.The projected misstatement assumes that the sampling interval contains a slightly higher percentage of misstatement than the sample item.FALSEReference: Question also found in study guide


13.The basic allowance for sampling risk should only be calculated if the auditor identifies a misstatement.FALSEReference: Question also found in study guide

AACSB: AnalyticAACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA BB: IndustryAICPA FN: Decision MakingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Topic: MUS: Evaluating Sample Results

14.If the upper limit on misstatement is less than or equal to the tolerable misstatement, the auditor would conclude that the account balance or class of transactions is fairly recorded.TRUEReference: Question also found in study guide

AACSB: AnalyticAACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA BB: IndustryAICPA FN: Decision MakingAICPA FN: Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Topic: MUS: Evaluating Sample Results

15.If the upper limit on misstatement exceeds the tolerable misstatement, the auditor could not initially conclude that the account balance is fairly recorded.TRUEReference: Question also found in study guide


16.Stratifying the sample allows the auditor to reduce the overall sample size required in a classical variables sampling application.TRUEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of classical variables sampling in an audit.Topic: Classical Variables Sampling

17.The standard deviation has an inverse relationship with sample size in a classical variables sampling application.FALSEReference: Question also found in study guide


18.In a classical variables sampling application, the precision interval has a (1 minus the risk of incorrect acceptance) probability of including the true population value.TRUEReference: Question also found in study guide


19.If the auditor's estimate of the recorded amount of the account balance falls within the precision interval, the auditor will decide to accept the account balance as fairly recorded.FALSEReference: Question also found in study guide


20.Nonstatistical sampling methods are not permitted under generally accepted auditing standards.FALSEReference: Question also found in study guide

AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.Topic: Nonstatistical Sampling

Multiple Choice Questions21.Which component of the expanded audit risk model is most closely associated with the risk of incorrect acceptance?

A.Analytical procedures risk.

B.Risk of material misstatement.

C.Nonsampling risk.

D.Test of details risk.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

22.The sampling method used to examine a population when the auditor wants to estimate a continuous amount (or value) of the population is


B.Balance sampling.

C.Discovery sampling.

D.Variables sampling.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: G-01 Define variables sampling and understand when it is used in the audit.Source: OriginalTopic: Variables Sampling

23.Which of the following would not be estimated using variables sampling?

A.The balance in the client's accounts receivable.

B.The extent to which an internal control procedure is not functioning as intended.

C.The amount of misstatement in a client's inventory.

D.All of the above would be estimated using variables sampling.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: G-01 Define variables sampling and understand when it is used in the audit.Source: OriginalTopic: Variables Sampling

24.Which of the following courses of action would an auditor who is aware of several unusually large cash disbursements most likely follow in planning a sample of cash disbursements?

A.Set the tolerable misstatement at a lower level than originally planned.

B.Stratify the cash disbursements population so that the unusually large disbursements are selected.

C.Increase the sample size to reduce the effect of the unusually large disbursements.

D.Continue to draw new samples until all the unusually large disbursements appear in the sample.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of classical variables sampling in an audit.Source: AICPATopic: Classical Variables Sampling

25.The total amount of actual monetary misstatement found in a sample is referred to as the

A.Projected misstatement.


C.Actual misstatement.

D.Incremental allowance for sampling risk.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Source: OriginalTopic: MUS Evaluate Results

26.Which of the following is not an advantage associated with monetary unit sampling (MUS)?

A.Its methods typically include transactions or components reflecting relatively large dollar amounts.

B.Its methods are more effective in identifying overstatement errors.

C.Its methods provide a conservative (higher) estimate of misstatement in the account balance or class of transactions.

D.Its methods typically result in relatively small sample sizes.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to use it.Source: OriginalTopic: MUS Basics

27.The amount at which an item would be recorded assuming no mistakes in judgment or incorrect applications of generally accepted accounting principles were made is the

A.Audited value.

B.Expected error.

C.Recorded value.



28.The auditor's sample would indicate that the client's account balance is fairly stated when the _______________________ is less than the ______________________.

A.upper limit on misstatement, tolerable misstatement.

B.actual misstatement, tolerable misstatement.

C.tolerable misstatement, upper limit on misstatement.

D.tolerable misstatement, actual misstatement.


29.How does monetary unit sampling (MUS) ensure that larger dollar components are selected for examination?

A.It requires the auditor to identify all items having a balance higher than performance materiality prior to beginning the sample selection process.

B.It requires the auditor to stratify the sample into larger and smaller dollar components prior to beginning the sample selection process.

C.It defines the sampling unit as an individual dollar within an account balance or class of transactions.

D.It selects components having large balances in the prior audit.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to use it.Source: OriginalTopic: MUS Basics

30.Why is the auditor more concerned with controlling the exposure to the risk of incorrect acceptance than with the risk of incorrect rejection?

A.Only the risk of incorrect acceptance results in an incorrect decision by the auditor.

B.The risk of incorrect rejection is not related to the auditor's substantive procedures.

C.The risk of incorrect rejection can be controlled by performing substantive procedures during the interim period.

D.The risk of incorrect acceptance may ultimately result in the auditor's incorrectly issuing an unqualified opinion on the client's financial statements.


31.Which of the following is not true with respect to the risk of incorrect acceptance?

A.This risk provides the auditor an efficiency loss.

B.This risk results in the auditor's making an incorrect conclusion about the client's account balance or class of transactions.

C.This risk occurs when the sample results suggest that the account balance is fairly stated.

D.This risk is controlled by the auditor in determining sample size under monetary unit sampling (MUS).


32.Which of the following would not result in a lower level of the risk of incorrect acceptance?

A.An increase in the acceptable level of audit risk from 5% to 10%.

B.The inability of the auditor to rely on the internal control as planned.

C.An increase in the susceptibility of the account balance to misstatement.

D.A reduction in the utilization of analytical procedures in the audit examination.


33.The risk of incorrect acceptance relates to the

A.Effectiveness of the audit.

B.Efficiency of the audit.

C.Preliminary estimate of materiality.

D.Allowable risk of tolerable misstatement.

AACSB: AnalyticAICPA BB: LegalAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to use it.Source: AICPATopic: MUS Basics

34.When performing substantive procedures, auditors run the sampling risk(s) of

A.Assessing control risk too high or too low.

B.Incorrect acceptance and incorrect rejection.

C.Assessing control risk too low only.

D.Incorrect acceptance only.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 1 EasyLearning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to use it.Source: OriginalTopic: MUS Basics

35.When the _______________________ exceeds the ______________________, the audit team risks incorrect acceptance.

A.upper limit on misstatement, tolerable misstatement

B.tolerable misstatement, expected error

C.tolerable misstatement, upper limit

D.upper limit, expected error

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Source: OriginalTopic: MUS Evaluate Results

36.Incorrect rejection occurs when the auditor concludes that the account balance is _______________________ when in fact it is ______________________.

A.material, immaterial

B.immaterial, material

C.fairly stated, misstated

D.misstated, fairly stated

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to use it.Source: OriginalTopic: MUS Basics

37.Which of the following is not true with respect to the risk of incorrect rejection?

A.Incorrect rejection occurs when the auditor concludes that the account balance is not fairly stated.

B.The risk of incorrect rejection has an inverse relationship with sample size.

C.The risk of incorrect rejection exposes the auditor to an efficiency loss.

D.Incorrect rejection occurs when the true (but unknown) account balance is materially misstated.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of classical variables sampling in an audit.Source: OriginalTopic: Classical Variables Sampling

38.An auditor may decide to increase the risk of incorrect rejection when

A.Increased reliability from the sample is desired.

B.Many differences are expected.

C.Initial sample results do not support the planned level of control risk.

D.The cost and effort of selecting additional items is low.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to use it.Source: AICPATopic: MUS Basics

39.Which of the following is true with respect to the risk of incorrect acceptance?

A.The risk of incorrect acceptance is determined in the planning stages of the audit prior to the study of internal control.

B.The risk of incorrect acceptance has an inverse relationship with sample size.

C.The risk of incorrect acceptance exposes the auditor to an efficiency loss.

D.The risk of incorrect acceptance may occur when the true (but unknown) account balance is fairly stated.


40.How does the auditor typically determine the appropriate level of the risk of incorrect rejection when using classical variables sampling?






41.Which of the following is not considered in establishing the sample size in a monetary unit sampling (MUS) application?

A.Expected error.

B.Population size.


D.All of the above are considered.


42.All other factors being equal, as the risk of incorrect acceptance and tolerable misstatement increase, the sample size will

A.Not be affected.

B.Increase.

C.Decrease.

D.Cannot determine from the information given.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 1 EasyLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

43.In a classical variables sampling application, the sample size will be smaller when the

A.Risk of incorrect acceptance is lower.

B.Risk of incorrect rejection is lower.

C.Tolerable misstatement is lower.

D.Population variability is lower.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 1 EasyLearning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of classical variables sampling in an audit.Source: OriginalTopic: Classical Variables Sampling

44.Which of the following factors has a direct relationship with sample size in a variables sampling application?

A.Tolerable misstatement, yes; expected error, yes.

B.Tolerable misstatement, no; expected error, yes.

C.Tolerable misstatement, yes; expected error, no.

D.Tolerable misstatement, no; expected error, no.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 2 MediumLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

45.How does the auditor establish the level of tolerable misstatement in a variables sampling application?





AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

46.Which of the following factors is most likely established based on the results of prior audit examinations?

A.Expected error.

B.Population size.




47.Which of the following factors that affect sample size can be determined by considering the recorded account balance of the account or class of transactions as well as the relationship between the recorded account balance or class of transactions with important financial statement subtotals?

A.Expected error.

B.Population size.



AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

48.Which of the following components of the upper limit on misstatement is determined by multiplying the sampling interval by the reliability factor for the acceptable risk of incorrect acceptance?




D.Sampling interval.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: RememberDifficulty: 1 EasyLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Source: OriginalTopic: MUS Evaluate Results

49.A number of factors influence the sample size for a variables sampling application. All other factors held constant, which of the following would lead to a larger sample size?

A.A lower assessed level of risk of material misstatement.

B.Increased use of analytical procedures to obtain evidence about particular assertions.

C.Lower frequency and magnitude of misstatements.

D.Lower levels of tolerable misstatement.


50.Which of the following set of conditions would provide the auditor the smallest sample size under monetary unit sampling (MUS) (RIA = risk of incorrect acceptance, TM = tolerable misstatement, PS = population size)?

A.RIA = 5%, TM = $15,000, PS = $200,000.

B.RIA = 5%, TM = $10,000, PS = $200,000.

C.RIA = 5%, TM = $10,000, PS = $100,000.

D.RIA = 5%, TM = $15,000, PS = $300,000.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

51.Which of the following expresses the relationship between changes in the factors and changes in sample size in variables sampling?

A.Tolerable misstatement, direct; expected error, inverse; risk of incorrect rejection, direct.

B.Tolerable misstatement, inverse; expected error, direct; risk of incorrect rejection, inverse.

C.Tolerable misstatement, inverse; expected error, inverse; risk of incorrect rejection, inverse.

D.Tolerable misstatement, inverse; expected error, inverse; risk of incorrect rejection, direct.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

52.Under MUS sampling, the sampling interval is determined by dividing the _______________________ by the ______________________.

A.sample size, population size

B.population size, sample size

C.tolerable misstatement, population size

D.population size, tolerable misstatement


53.K. Brown, CPA, was using monetary unit sampling (MUS) to audit an inventory of $3,000,000 composed of 6,000 items. A sample size of 500 was determined and a tolerable misstatement of $20,000 was established. The sampling interval would be

A.$500.

B.$5,000.

C.$6,000.

D.$20,000.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: ResearchBlooms: ApplyDifficulty: 1 EasyLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size

54.What is the auditor's normal course of action if a "logical unit" is selected twice in MUS sampling?

A.The auditor should count the logical unit as a single selection and proceed as normal.

B.The auditor should count the logical unit as two selections and proceed as normal.

C.The auditor should not include the logical unit as a selection because the dollar amount of this unit is excessively large.

D.The auditor should replicate the sample using an alternative random start.


55.Which of the following is found by dividing the amount of misstatement noted in a logical unit by the recorded amount of that logical unit?

A.Sample size.

B.Sampling interval.




56.Which of the following components of the upper limit on misstatement will exist in all MUS sampling applications, including those for which no misstatements are found?


B.Computed allowance for sampling risk.

C.Incremental allowance for sampling risk.

D.Projected misstatement.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 1 EasyLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Source: OriginalTopic: MUS Evaluate Results


What is the appropriate sampling interval?

A.$60.

B.$250.

C.$500.

D.$30,000.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 1 EasyLearning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size for an MUS application.Source: OriginalTopic: MUS Sample Size


What is the projected misstatement?

A.$5,000.

B.$10,000.

C.$15,000.

D.$30,000.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Source: OriginalTopic: MUS Evaluate Results


Using an incremental reliability factor of 1.58 (corresponding to the risk of incorrect acceptance of 5 percent), what is the incremental allowance for sampling risk?

A.$5,000.

B.$7,900.

C.$8,700.

D.$23,700.


60.The amount by which a projected misstatement in an account balance or class of transactions differs from an actual misstatement as a result of the sample not being representative of the population would typically arise from

A.A misunderstanding of accounting principles.

B.Sampling risk.

C.Management override of an internal control policy or procedure.

D.Risk of incorrect acceptance.


61.If a customer's account was recorded at $45,000, the audited value was $30,000, and the sampling interval was $30,000, the projected misstatement would be

A.$10,000.

B.$15,000.

C.$20,000.

D.$30,000.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 1 EasyLearning Objective: G-04 Evaluate the sample results for an MUS by calculating the projected misstatement; incremental allowance for sampling risk; and basic allowance for sampling risk.Source: OriginalTopic: MUS Evaluate Results

62.Which of the following sampling methods uses normal distribution theory and the central limit theorem to provide an estimate range of the account balance or class of transactions or the misstatement in the account balance or class of transactions?

A.Attributes.

B.Classical variables.

C.Nonstatistical.

D.Monetary unit sampling (MUS).

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of classical variables sampling in an audit.Source: OriginalTopic: Classical Variables Sampling

63.In which of the following situations would the auditor be more likely to use monetary unit sampling (MUS) as opposed to classical variables sampling?

A.Larger expected error, yes; concern with overstatements, yes.

B.Larger expected error, yes; concern with overstatements, no.

C.Larger expected error, no; concern with overstatements, yes.

D.Larger expected error, no; concern with overstatements, no.


64.K. Samantha, CPA, used stratified random selection in the statistical sampling plan. Which of the following is the most likely reason this approach was used?

A.It eliminates the need for random selection.

B.The population is relatively homogenous in terms of the dollar amount of components or transactions.

C.It reduces the expected sample size.

D.It eliminates the need for calculating the projected misstatement in the account being examined.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of classical variables sampling in an audit.Source: OriginalTopic: Classical Variables Sampling

65.The process of subdividing a population into homogeneous subgroups is known as

A.Classification.

B.Identification.

C.Sampling.

D.Stratification.

AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms: RememberDifficulty: 1 EasyLearning Objective: G-05 Understand the basic proc