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True / False Questions: Module G Variables Sampling

The document discusses variables sampling methods used in auditing. It includes true/false and multiple choice questions about variables sampling techniques like monetary unit sampling. Key aspects covered include sample size determination, expected error, tolerable misstatement, risk of incorrect acceptance, and evaluating sample results.

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True / False Questions: Module G Variables Sampling

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Module G

Variables Sampling

True / False Questions

1. Variables sampling is used primarily when the auditor uses analytical
procedures.
True

False

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.
True

False

3. A significant advantage of monetary unit sampling (MUS) is that it

typically results in relatively small sample sizes.
True

False

4. Both the expected error and tolerable misstatement have direct

relationships with sample size.
True

False

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.
True

False

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

the auditor.
True

False

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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.
True

False

8. In a first-year engagement, auditors cannot estimate the expected error

because they have no prior historical relationship with the client.
True

False

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

selection.
True

False

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

False

11 The tainting percentage is determined by dividing the recorded amount

. of the sample item by the sampling interval.
True

False

12 The projected misstatement assumes that the sampling interval

. contains a slightly higher percentage of misstatement than the sample
item.
True

False

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

False

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.
True

False

15 If the upper limit on misstatement exceeds the tolerable misstatement,

. the auditor could not initially conclude that the account balance is fairly
recorded.
True

False

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

False

17 The standard deviation has an inverse relationship with sample size in a

. classical variables sampling application.
True

False

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.
True

False

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.
True

False

20 Nonstatistical sampling methods are not permitted under generally

. accepted auditing standards.
True

False

Multiple Choice Questions

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

A.
B.
C.
D.

Analytical procedures risk.

Risk of material misstatement.
Nonsampling risk.
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.
B.
C.
D.

Attributes sampling.
Balance sampling.
Discovery sampling.
Variables sampling.

23 Which of the following would not be estimated using variables

. sampling?

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

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

A.
B.
C.
D.

Projected misstatement.
Tolerable misstatement.
Actual misstatement.
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

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.
B.
C.
D.

Audited value.
Expected error.
Recorded value.
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

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%.

33 The risk of incorrect acceptance relates to the

.
A.
B.
C.
D.

Effectiveness of the audit.

Efficiency of the audit.
Preliminary estimate of materiality.
Allowable risk of tolerable misstatement.

34 When performing substantive procedures, auditors run the sampling

. risk(s) of

A.
B.
C.
D.

Assessing control risk too high or too low.

Incorrect acceptance and incorrect rejection.
Assessing control risk too low only.
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.
B.
C.
D.

material, immaterial
immaterial, material
fairly stated, misstated
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.
B.
C.
D.

Expected error.
Population size.
Risk of incorrect acceptance.
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.
B.
C.
D.

Not be affected.
Increase.
Decrease.
Cannot determine from the information given.

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

. smaller when the

A.
B.
C.
D.

Risk of incorrect acceptance is lower.

Risk of incorrect rejection is lower.
Tolerable misstatement is lower.
Population variability is lower.

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

A.
B.
C.
D.

Tolerable misstatement, yes; expected error, yes.

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

45 How does the auditor establish the level of tolerable misstatement in a

. variables sampling application?

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

A.
B.
C.
D.

Expected error.
Population size.
Risk of incorrect acceptance.
Tolerable misstatement.

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.
B.
C.
D.

Expected error.
Population size.
Risk of incorrect acceptance.
Tolerable misstatement.

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.
B.
C.
D.

Basic allowance for sampling risk.

Incremental allowance for sampling risk.
Projected misstatement.
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.
B.
C.
D.

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

RIA = 5%, TM = $10,000, PS = $200,000.
RIA = 5%, TM = $10,000, PS = $100,000.
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.
B.
C.
D.

sample size, population size

population size, sample size
tolerable misstatement, population size
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.
B.
C.
D.

$500.
$5,000.
$6,000.
$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.
B.
C.
D.

Sample size.
Sampling interval.
Projected misstatement.
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?

A.
B.
C.
D.

Basic allowance for sampling risk.

Computed allowance for sampling risk.
Incremental allowance for sampling risk.
Projected misstatement.

57 Bama's accounts receivable were recorded at $600,000. Assume that

A.
B.
C.
D.

$60.
$250.
$500.
$30,000.

58 Bama's accounts receivable were recorded at $600,000. Assume that

A.
B.
C.
D.

$5,000.
$10,000.
$15,000.
$30,000.

59 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.
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.
B.
C.
D.

$5,000.
$7,900.
$8,700.
$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.
B.
C.
D.

$10,000.
$15,000.
$20,000.
$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.
B.
C.
D.

Attributes.
Classical variables.
Nonstatistical.
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.
B.
C.
D.

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

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

Classification.
Identification.
Sampling.
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.
B.
C.
D.

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

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

sample estimate, accept.

sample estimate, reject.
tolerable misstatement, accept.
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.
B.
C.
D.

$393,600.
$474,500.
$480,000.
$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.
B.
C.
D.

$393,600.
$474,500.
$480,000.
$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.
B.
C.
D.

$393,600.
$474,500.
$450,000.
$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. 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.
B.
C.
D.

Difference estimation.
Mean-per-unit estimation.
Monetary unit sampling.
Ratio estimation.

76 Variables sampling methods can be used to estimate

A.
B.
C.
D.

Option A
Option B
Option C
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.
B.
C.
D.

0.02.
0.20.
0.50.
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.
B.
C.
D.

Audit risk.
Tolerable misstatement.
Expected misstatement.
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.

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

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.
B.
C.
D.

$600.
$900.
$2,000.
$3,000.

85 If the _ is less than the , the

. audit team would conclude that the account balance is fairly stated.

A.
B.
C.
D.

Projected misstatement; tolerable misstatement.

Tolerable misstatement; projected misstatement.
Upper limit on misstatements; tolerable misstatement.
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.
B.
C.
D.

$0.
$2,800.
$15,000.
$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.
B.
C.
D.

$480.
$576,000.
$10,000.
$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?

A.
B.
C.
D.

Basic allowance for sampling risk.

Incremental allowance for sampling risk.
Projected misstatement.
Tolerable misstatement.

90 The projected misstatement is determined by multiplying the sampling

. interval by the

A.
B.
C.
D.

Expansion factor.
Incremental confidence factor.
Confidence factor.
Tainting percentage.

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.
B.
C.
D.

$2,000.
$4,000.
$5,000.
$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

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

A.
B.
C.
D.

Attributes sampling.
Classical variables sampling.
Mean-per-unit sampling.
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.
B.
C.
D.

Risk of overreliance.
Risk of underreliance.
Risk of incorrect acceptance.
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 thirdparty users is the

A.
B.
C.
D.

Tolerable misstatement.
Expected error.
Audited value.
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.
B.
C.
D.

$3,000.
$2,000.
$1,000.
$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.
B.
C.
D.

$196,800.
$237,250.
$240,000.
$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.
B.
C.
D.

$196,800.
$237,250.
$225,000.
$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 Questions

108 _______________________ 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 Questions

128 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.
2.
3.
4.
5.
6.
7.

Population size.
Standard deviation.
Risk of incorrect acceptance.
Expected error.
Tolerable misstatement.
Risk of incorrect rejection.
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 Questions

132 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 Questions

136 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

percentage

Determine
sample size ____
Define the
attribute of
interest ____

2. Calculating the sampling

interval
3. Identifying an example of
what type of response from a
customer constitutes an
exception to an accounts
Select the
receivable confirmation
sample
4. Estimating the expected
error and tolerable
Evaluate
misstatement
sample results
5. Identifying the financial
statement assertion(s) of
interest in the audit of an
Determine
account balance or class of
the objective of
transactions
sampling
6. Calculating the basic
allowance for sampling risk,
projected misstatement, and
incremental allowance for
Define the
sampling risk
population
7. Determining the
completeness of the client's
electronic accounts receivable
Measure
file
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
Expected
balance or class of transactions
error
2. Estimated based on prior
audits or a pilot sample of
Population
current balances
size
3. Determined judgmentally by
the auditor based on the overall
Sample
financial statement materiality
size
4. Calculated by dividing the
recorded balance by the amount
of actual misstatement
Tolerable
detected
misstatement
5. Calculated as the difference
between the recorded value and
the audited value of a logical
unit comprising an account
Tainting
balance or class of transactions
percentage
6. Determined based on
tolerable misstatement,
expected error, and the risk of
Actual
incorrect acceptance
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
observed
2. Determined by multiplying
the projected misstatement
by the incremental change in
the reliability factor minus 1
3. Determined by multiplying
the sampling interval by the
tainting percentage
4. Determined by taking the
difference between the
recorded value and the
audited value

Basic
allowance for
sampling risk ____

Projected
misstatement ____
Actual
misstatement ____
Incremental
allowance for
sampling risk ____

Module G Variables Sampling Answer Key

True / False Questions

Variables sampling is used primarily when the auditor uses analytical

procedures.
FALSE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: G-01 Define variables sampling and understand when it is used in the audit.
Topic: Definitions of Variables Sampling

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.
FALSE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: G-01 Define variables sampling and understand when it is used in the audit.
Topic: Definitions of Variables Sampling

A significant advantage of monetary unit sampling (MUS) is that it

typically results in relatively small sample sizes.
TRUE
Reference: Question also found in study guide

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning 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

Both the expected error and tolerable misstatement have direct

relationships with sample size.
FALSE
Reference: Question also found in study guide

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning 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

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.
TRUE
Reference: Question also found in study guide
AACSB: Analytic
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Risk Analysis

Blooms: Understand
Difficulty: 2 Medium
Learning 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

The risk of incorrect rejection typically results in an efficiency loss for

the auditor.
TRUE
Reference: Question also found in study guide

AACSB: Analytic
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning 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

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.
TRUE
Reference: Question also found in study guide

In a first-year engagement, auditors cannot estimate the expected

error because they have no prior historical relationship with the
client.
FALSE
Reference: Question also found in study guide

Monetary unit samples are selected using a form of systematic

random selection.
TRUE
Reference: 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.
TRUE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making

11.

The tainting percentage is determined by dividing the recorded

amount of the sample item by the sampling interval.
FALSE
Reference: Question also found in study guide

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning 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.
FALSE
Reference: Question also found in study guide

13.

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

AACSB: Analytic
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning 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.
TRUE
Reference: Question also found in study guide

AACSB: Analytic
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning 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.
TRUE
Reference: 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.
TRUE
Reference: Question also found in study guide

AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning 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.
FALSE
Reference: Question also found in study guide

classical variables sampling in an audit.

Topic: Classical Variables Sampling

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.
TRUE
Reference: 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.
FALSE
Reference: Question also found in study guide

20.

Nonstatistical sampling methods are not permitted under generally

accepted auditing standards.
FALSE
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Industry

AICPA FN: Decision Making

Blooms: Understand
Difficulty: 2 Medium
Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Topic: Nonstatistical Sampling

Multiple Choice Questions

21.

Which component of the expanded audit risk model is most closely

associated with the risk of incorrect acceptance?

A.
B.
C.
D.

Analytical procedures risk.

Risk of material misstatement.
Nonsampling risk.
Test of details risk.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: 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

A.
B.
C.
D.

Attributes sampling.
Balance sampling.
Discovery sampling.
Variables sampling.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-01 Define variables sampling and understand when it is used in the audit.
Source: Original
Topic: 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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-01 Define variables sampling and understand when it is used in the audit.
Source: Original
Topic: 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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: AICPA
Topic: Classical Variables Sampling

25.

The total amount of actual monetary misstatement found in a sample

is referred to as the

A.
B.
C.
D.

Projected misstatement.
Tolerable misstatement.
Actual misstatement.
Incremental allowance for sampling risk.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning 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: Original
Topic: 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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: 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.
B.
C.
D.

Audited value.
Expected error.
Recorded value.
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.
B.
C.
D.

upper limit on misstatement, tolerable misstatement.

actual misstatement, tolerable misstatement.
tolerable misstatement, upper limit on misstatement.
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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: 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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

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).
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

33.

The risk of incorrect acceptance relates to the

A.
B.
C.
D.

Effectiveness of the audit.

Efficiency of the audit.
Preliminary estimate of materiality.
Allowable risk of tolerable misstatement.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: AICPA
Topic: MUS Basics

34.

When performing substantive procedures, auditors run the sampling

risk(s) of

A.
B.
C.
D.

Assessing control risk too high or too low.

Incorrect acceptance and incorrect rejection.
Assessing control risk too low only.
Incorrect acceptance only.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: 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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Remember

Difficulty: 1 Easy
Learning 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: Original
Topic: MUS Evaluate Results

36.

Incorrect rejection occurs when the auditor concludes that the

account balance is _______________________ when in fact it is
______________________.

A.
B.
C.
D.

material, immaterial
immaterial, material
fairly stated, misstated
misstated, fairly stated

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: 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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: 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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: AICPA
Topic: 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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

41.

Which of the following is not considered in establishing the sample

size in a monetary unit sampling (MUS) application?

A.
B.
C.
D.

Expected error.
Population size.
Risk of incorrect acceptance.
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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

43.

In a classical variables sampling application, the sample size will be

smaller when the

A.
B.
C.
D.

Risk of incorrect acceptance is lower.

Risk of incorrect rejection is lower.
Tolerable misstatement is lower.
Population variability is lower.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

44.

Which of the following factors has a direct relationship with sample

size in a variables sampling application?

A.
B.
C.
D.

Tolerable misstatement, yes; expected error, yes.

Tolerable misstatement, no; expected error, yes.
Tolerable misstatement, yes; expected error, no.
Tolerable misstatement, no; expected error, no.
AACSB: Analytic
AICPA BB: Legal

AICPA FN: Research

Blooms: Remember
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

45.

How does the auditor establish the level of tolerable misstatement in

a variables sampling application?

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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

46.

Which of the following factors is most likely established based on the

results of prior audit examinations?

A.
B.
C.
D.

Expected error.
Population size.
Risk of incorrect acceptance.
Tolerable misstatement.

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.
B.
C.
D.

Expected error.
Population size.
Risk of incorrect acceptance.
Tolerable misstatement.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: 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?

A.
B.
C.
D.

Basic allowance for sampling risk.

Incremental allowance for sampling risk.
Projected misstatement.
Sampling interval.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning 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: Original
Topic: 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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
B.
C.
D.

RIA
RIA
RIA
RIA

=
=
=
=

5%,
5%,
5%,
5%,

TM
TM
TM
TM

=
=
=
=

$15,000,
$10,000,
$10,000,
$15,000,

PS
PS
PS
PS

=
=
=
=

$200,000.
$200,000.
$100,000.
$300,000.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: 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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

52.

Under MUS sampling, the sampling interval is determined by dividing

the _______________________ by the ______________________.

A.
B.
C.
D.

sample size, population size

population size, sample size
tolerable misstatement, population size
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.
B.
C.
D.

$500.
$5,000.
$6,000.
$20,000.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: 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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
B.
C.
D.

Sample size.
Sampling interval.
Projected misstatement.
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?

A.
B.
C.
D.

Basic allowance for sampling risk.

Computed allowance for sampling risk.
Incremental allowance for sampling risk.
Projected misstatement.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 1 Easy
Learning 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: Original
Topic: MUS Evaluate Results

57.

Bama's accounts receivable were recorded at $600,000. Assume that

A.
B.
C.
D.

$60.
$250.
$500.
$30,000.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

58.

Bama's accounts receivable were recorded at $600,000. Assume that

A.
B.
C.
D.

$5,000.
$10,000.
$15,000.
$30,000.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning 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: Original
Topic: MUS Evaluate Results

59.

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.
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.
B.
C.
D.

$5,000.
$7,900.
$8,700.
$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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning 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: Original
Topic: MUS Evaluate Results

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.
B.
C.
D.

$10,000.
$15,000.
$20,000.
$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.
B.
C.
D.

Attributes.
Classical variables.
Nonstatistical.
Monetary unit sampling (MUS).

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: 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.
B.
C.
D.

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

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

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

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: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

65.

The process of subdividing a population into homogeneous subgroups

is known as

A.
B.
C.
D.

Classification.
Identification.
Sampling.
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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

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.
B.
C.
D.

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

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

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

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.
B.
C.
D.

sample estimate, accept.

sample estimate, reject.
tolerable misstatement, accept.
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.
B.
C.
D.

$393,600.
$474,500.
$480,000.
$492,000.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

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.
B.
C.
D.

$393,600.
$474,500.
$480,000.
$500,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Source: Original
Topic: Nonstatistical Variables Sampling

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.
B.
C.
D.

$393,600.
$474,500.
$450,000.
$540,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Source: Original
Topic: Nonstatistical Variables Sampling

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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis

Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Source: Original
Topic: Nonstatistical Variables Sampling

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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Source: Original
Topic: Nonstatistical Variables Sampling

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-01 Define variables sampling and understand when it is used in the audit.
Source: Original
Topic: Variables Sampling

75.

Which of the following types of variables sampling plans has a

tendency to select higher dollar items for examination?

A.
B.
C.
D.

Difference estimation.
Mean-per-unit estimation.
Monetary unit sampling.
Ratio estimation.

Reference: Question also found in textbook

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-01 Define variables sampling and understand when it is used in the audit.
Source: Original
Topic: Variables Sampling

76.

Variables sampling methods can be used to estimate

A.
B.
C.
D.

Option A
Option B
Option C
Option D

Reference: Question also found in textbook

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: G-01 Define variables sampling and understand when it is used in the audit.
Source: Original
Topic: Variables Sampling

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.
B.
C.
D.

0.02.
0.20.
0.50.
2.00.

Reference: Question also found in textbook

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original

Topic: MUS Sample Size

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

80.

When determining sample size under monetary unit sampling, an

audit team does not need to make a judgment or estimate of

A.
B.
C.
D.

Audit risk.
Tolerable misstatement.
Expected misstatement.
Standard deviation of error.

Reference: Question also found in textbook

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.

Source: Original
Topic: MUS Basics

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
B.
C.
D.

$600.
$900.
$2,000.
$3,000.

Reference: Question also found in textbook

Source: Original
Topic: MUS Evaluate Results

85.

If the _ is less than the ,

the audit team would conclude that the account balance is fairly
stated.

A.
B.
C.
D.

Projected misstatement; tolerable misstatement.

Tolerable misstatement; projected misstatement.
Upper limit on misstatements; tolerable misstatement.
Tolerable misstatement; upper limit on misstatements.

Reference: Question also found in textbook

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.
B.
C.
D.

$0.
$2,800.
$15,000.
$17,800.

Reference: Question also found in textbook

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.
B.
C.
D.

$480.
$576,000.
$10,000.
$480,000.

Reference: Question also found in textbook

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of

classical variables sampling in an audit.

Source: Original
Topic: Classical Variables Sampling

89.

Which of the following components is not used in determining the

upper limit on misstatements?

A.
B.
C.
D.

Basic allowance for sampling risk.

Incremental allowance for sampling risk.
Projected misstatement.
Tolerable misstatement.

Reference: Question also found in textbook

90.

The projected misstatement is determined by multiplying the

sampling interval by the

A.
B.
C.
D.

Expansion factor.
Incremental confidence factor.
Confidence factor.
Tainting percentage.

Reference: Question also found in textbook

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning 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: Original
Topic: MUS Evaluate Results

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.
B.
C.
D.

$2,000.
$4,000.
$5,000.
$10,000.

Reference: Question also found in textbook

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning 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: Original
Topic: MUS Evaluate Results

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.
Reference: Question also found in textbook
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis

Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: AICPA
Topic: Classical Variables Sampling

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

A.
B.
C.
D.

Attributes sampling.
Classical variables sampling.
Mean-per-unit sampling.
Monetary unit sampling.

Reference: Question also found study guide

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

96.

Which of the following is an advantage of monetary unit sampling

(MUS)?

A. It provides a conservative (higher) estimate of misstatement in the

AICPA FN: Risk Analysis

Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-02 Understand the basic process underlying monetary unit sampling (MUS) and when to
use it.
Source: Original
Topic: MUS Basics

97.

Which of the following sampling risks does the auditor consider in

determining the sample size in a monetary unit sampling (MUS)
application?

A.
B.
C.
D.

Risk of overreliance.
Risk of underreliance.
Risk of incorrect acceptance.
Risk of incorrect rejection.

Reference: Question also found study guide

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
B.
C.
D.

Tolerable misstatement.
Expected error.
Audited value.
True error.

Reference: Question also found study guide

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy

Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
Reference: Question also found study guide
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
B.
C.
D.

$3,000.
$2,000.
$1,000.
$400.

Reference: Question also found study guide

Source: Original
Topic: MUS Evaluate Results

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.
Reference: Question also found study guide
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning 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: Original
Topic: MUS Evaluate Results

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.
Reference: Question also found study guide
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: 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.

AICPA BB: Critical Thinking

AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling

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.
B.
C.
D.

$196,800.
$237,250.
$240,000.
$250,000.

Reference: Question also found study guide

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Source: Original
Topic: Nonstatistical Variables Sampling

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.
B.
C.
D.

$196,800.
$237,250.
$225,000.
$300,000.

Reference: Question also found study guide

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.
Reference: Question also found study guide
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Source: Original
Topic: Nonstatistical Variables Sampling

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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard

Learning Objective: G-06 Understand the use of nonstatistical sampling for variables sampling.
Source: Original
Topic: Nonstatistical Variables Sampling

Fill in the Blank Questions

108. _______________________ sampling is used to examine a population
when the auditor wants to estimate the amount (or value) of that
population.
Variables
Reference: Question also found in study guide
109. Two methods of variables sampling are _______________________
sampling and classical variables sampling.
monetary unit
Reference: Question also found in study guide
110. A primary advantage of monetary unit sampling is its tendency to
select _______________________ dollar components or transactions for
examination.
larger
Reference: Question also found in study guide

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).
overstatement
Reference: Question also found in study guide
112. The risk of _____________________________ occurs when the auditor's
sample indicates the account balance is fairly stated when, in fact, it
is materially misstated.
incorrect acceptance
Reference: Question also found in study guide
113. The risk of incorrect rejection results in a(n) ___________________ loss
to the auditor.
efficiency
Reference: Question also found in study guide
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.
tolerable misstatement
Reference: Question also found in study guide

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

sample size.
direct
Reference: Question also found in study guide
116. In an MUS application, the population size is equal to the
_________________________________ of the account or class of
transactions.
recorded amount (or recorded balance)
Reference: Question also found in study guide
117. Under monetary unit sampling, the auditor uses a(n)
___________________________________ selection method to select sample
items.
systematic random
Reference: Question also found in study guide
118. The ______________________________ is the difference between the
recorded balance and the audited balance of a component or
transaction.
actual misstatement
Reference: Question also found in study guide

119. The _______________________________ consists of three components:

projected misstatement, incremental allowance for sampling risk, and
basic allowance for sampling risk.
upper limit on misstatement
Reference: Question also found in study guide
120. The __________________________ assumes that the entire sampling
interval contains the same percentage of misstatement as the item
examined by the auditor.
projected misstatement
Reference: Question also found in study guide
121. The "adjustment" to the projected misstatement that controls the
auditor's exposure to sampling risk is referred to as the
_________________________________________.
incremental allowance for sampling risk
Reference: Question also found in study guide
122. The basic allowance for sampling risk is determined by multiplying
the __________________________ by the reliability factor for the
acceptable risk of incorrect acceptance.
sampling interval
Reference: Question also found in study guide

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 _____________________________.
tolerable misstatement
Reference: Question also found in study guide
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.
Classical variables
Reference: Question also found in study guide
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
_______________________________________________.
population variability (or standard deviation)
Reference: Question also found in study guide
126. The process of subdividing the population into more homogenous
subgroups is known as ______________________________.
stratification
Reference: Question also found in study guide

127. __________________________ sampling methods do not allow the auditor

to control the exposure to sampling risk.
Nonstatistical
Reference: Question also found in study guide

Short Answer Questions

128. 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.

1. C; 2. M; 3. C; 4. M; 5. C; 6. M; 7. M
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.

Source: Original
Topic: Classical Variables Sampling

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.

1. I; 2. D; 3. D; 4. N; 5. I
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.
2.
3.
4.
5.
6.
7.

Population size.
Standard deviation.
Risk of incorrect acceptance.
Expected error.
Tolerable misstatement.
Risk of incorrect rejection.
Tainting percentage.

1. B; 2. C; 3. B; 4. B; 5. B; 6. C; 7. N
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Learning Objective: G-05 Understand the basic process underlying classical variables sampling and the use of
classical variables sampling in an audit.
Source: Original
Topic: Classical Variables Sampling
Topic: MUS Sample Size

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?

a. Sampling interval = $500,000 100 items = $5,000

b. Calculations for
(1) Actual Misstatement

(2) Projected Misstatement

Note: Because account 526 is larger than the sampling interval, it

does not need to be projected to the sampling interval.
(3) Incremental Allowance for Sampling Risk

(4) Basic allowance for sampling risk = $5,000 3.00 = $15,000

e. Because the upper limit on misstatement ($22, 313) is less than

the tolerable misstatement ($50,000), Fire would conclude that TBB's
accounts receivable were not materially misstated.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning 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: Original
Topic: MUS Evaluate Results

Essay Questions
132. 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.

a. Ratio of expected to tolerable misstatement = 0.10

Tolerable misstatement as a percentage of population = 5%
Sample size from MUS table for risk of incorrect acceptance of 5 % =
74
b. Sampling interval = $2,000,000/74 = $27,027
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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.

a. Ratio of expected to tolerable misstatement = 0.20

Tolerable misstatement as a percentage of population = 4%
Sample size from MUS table for risk of incorrect acceptance of 5 %
=116
Sampling interval = $3,000,000/116 = $25,862
b. Tainting percentages
Account 102 $1,400 $2,000 = 0.70
Account 235 $1,280 $3,200 = 0.40

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning 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: Original
Topic: MUS Evaluate Results

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.

a. Ratio of expected to tolerable misstatement = 0.20

Tolerable misstatement as a percentage of population = 5%
Sample size from MUS table for risk of incorrect acceptance of 10 %
= 69
Sampling interval = $4,000,000/69 = $57,971
b. Tainting percentages
Account 201: $200 $1,000 = 0.20
Account 532: $1,400 $2,000 = 0.70

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.

N = number of accounts in population, n = sample size, R(IA) =

reliability factor for risk of incorrect acceptance, SD = standard
deviation

Matching Questions
136. 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

percentage

Determine
sample size 4
Define the
attribute of
interest 3

2. Calculating the sampling

interval
3. Identifying an example of
what type of response from a
customer constitutes an
exception to an accounts
Select the
receivable confirmation
sample
4. Estimating the expected error
Evaluate
and tolerable misstatement
sample results
5. Identifying the financial
statement assertion(s) of
interest in the audit of an
Determine
account balance or class of
the objective of
transactions
sampling
6. Calculating the basic
allowance for sampling risk,
projected misstatement, and
incremental allowance for
Define the
sampling risk
population
7. Determining the
completeness of the client's
electronic accounts receivable
Measure
file
sample items

2
6

1
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium

Learning Objective: G-03 Identify the factors affecting the size of an MUS sample and calculate the sample size
for an MUS application.
Source: Original
Topic: MUS Sample Size

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
Expected
balance or class of transactions
error
2. Estimated based on prior audits
or a pilot sample of current
Population
balances
size
3. Determined judgmentally by
the auditor based on the overall
Sample
financial statement materiality
size
4. Calculated by dividing the
recorded balance by the amount
Tolerable
of actual misstatement detected misstatement
5. Calculated as the difference
between the recorded value and
the audited value of a logical unit
comprising an account balance or
Tainting
class of transactions
percentage
6. Determined based on tolerable
misstatement, expected error,
and the risk of incorrect
Actual
acceptance
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 observed
2. Determined by multiplying
the projected misstatement by
the incremental change in the
reliability factor minus 1
3. Determined by multiplying
the sampling interval by the
tainting percentage
4. Determined by taking the
difference between the
recorded value and the audited
value

Basic
allowance for
sampling risk 1

Projected
misstatement 3
Actual
misstatement 4
Incremental
allowance for
sampling risk 2

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Remember
Difficulty: 2 Medium
Learning 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: Original
Topic: MUS Evaluate Results

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True / False Questions: Module G Variables Sampling

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True / False Questions: Module G Variables Sampling

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Module G

True / False Questions

3. A significant advantage of monetary unit sampling (MUS) is that it

4. Both the expected error and tolerable misstatement have direct

5. In a monetary unit sampling (MUS) application, the auditor has a higher

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

7. The level of tolerable misstatement assessed by the auditor is based on

8. In a first-year engagement, auditors cannot estimate the expected error

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

11 The tainting percentage is determined by dividing the recorded amount

12 The projected misstatement assumes that the sampling interval

14 If the upper limit on misstatement is less than or equal to the tolerable

15 If the upper limit on misstatement exceeds the tolerable misstatement,

17 The standard deviation has an inverse relationship with sample size in a

18 In a classical variables sampling application, the precision interval has a

19 If the auditor's estimate of the recorded amount of the account balance

20 Nonstatistical sampling methods are not permitted under generally

Multiple Choice Questions

Analytical procedures risk.

22 The sampling method used to examine a population when the auditor

23 Which of the following would not be estimated using variables

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

24 Which of the following courses of action would an auditor who is aware

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

26 Which of the following is not an advantage associated with monetary

A. Its methods typically include transactions or components reflecting

27 The amount at which an item would be recorded assuming no mistakes

A. upper limit on misstatement, tolerable misstatement.

A. It requires the auditor to identify all items having a balance higher

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

A. This risk provides the auditor an efficiency loss.

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

33 The risk of incorrect acceptance relates to the

Effectiveness of the audit.

34 When performing substantive procedures, auditors run the sampling

Assessing control risk too high or too low.

35 When the _______________________ exceeds the ______________________,

A. upper limit on misstatement, tolerable misstatement

A. Incorrect rejection occurs when the auditor concludes that the

A. The risk of incorrect acceptance is determined in the planning stages

A. Based on prior assessments of audit risk, risk of material

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

Risk of incorrect acceptance is lower.

Tolerable misstatement, yes; expected error, yes.

45 How does the auditor establish the level of tolerable misstatement in a

A. Based on prior assessments of audit risk, risk of material

47 Which of the following factors that affect sample size can be

48 Which of the following components of the upper limit on misstatement

Basic allowance for sampling risk.

49 A number of factors influence the sample size for a variables sampling

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

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

51 Which of the following expresses the relationship between changes in

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

sample size, population size

53 K. Brown, CPA, was using monetary unit sampling (MUS) to audit an

54 What is the auditor's normal course of action if a "logical unit" is

56 Which of the following components of the upper limit on misstatement

Basic allowance for sampling risk.

57 Bama's accounts receivable were recorded at $600,000. Assume that

58 Bama's accounts receivable were recorded at $600,000. Assume that

59 Bama's accounts receivable were recorded at $600,000. Assume that

60 The amount by which a projected misstatement in an account balance

A. A misunderstanding of accounting principles.

62 Which of the following sampling methods uses normal distribution

63 In which of the following situations would the auditor be more likely to

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

64 K. Samantha, CPA, used stratified random selection in the statistical

A. It eliminates the need for random selection.

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

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

68 In a classical variables sampling application, if the _____________________

sample estimate, accept.

69 N. Green, CPA, performed a mean per unit sampling plan to examine

70 D. Pujols, CPA, performed a nonstatistical sampling plan to examine the

71 A. Jeter, CPA, performed a nonstatistical sampling plan to examine the

35 When the _ exceeds the ,

85 If the _ is less than the , the