1.

Which benchmark would be utilized when considering the materiality of

a single cash transaction?
A. Overall materiality
B. Deminimis
C. None of the answer choices are correct
D. Performance materiality
✅ Correct Answer: B. Deminimis
📌 Explanation: A deminimis threshold is used when evaluating the materiality of
individual cash transactions rather than an entire balance sheet account.

2. For which of the following audit tests would an auditor most likely use
attribute sampling?
A. Examining invoices in support of the valuation of fixed asset additions
B. Making an independent estimate of the amount of a LIFO inventory
C. Selecting accounts receivable for confirmation of account balances
D. Inspecting employee time cards for proper approval by supervisors
✅ Correct Answer: D. Inspecting employee time cards for proper approval
by supervisors
📌 Explanation: Attribute sampling is used to test controls, such as whether
employee time cards have proper approval, by assessing the presence or absence
of specific attributes.

3. What is "non-sampling risk"?

A. Errors caused that are unrelated to the sample
B. The sample size is too large
C. The sample size is too small
D. The auditor will choose an incorrect sample
✅ Correct Answer: A. Errors caused that are unrelated to the sample
📌 Explanation: Non-sampling risk refers to errors in applying audit procedures,
such as misinterpreting evidence, that are not related to the sample itself.

4. In the case of sampling risk, which of the following is true?

A. Controls are more effective than they actually are
B. Controls are less effective than they actually are
C. Both A and B
D. Neither A nor B
✅ Correct Answer: C. Both A and B
📌 Explanation: Sampling risk includes both the possibility of concluding that
controls are more effective or less effective than they truly are.

5. What is stratification in audit sampling?

A. Dividing a population into sub-populations
B. Multiplying a population into alternate populations
C. Increasing the sample size
D. Reducing the sample size
✅ Correct Answer: A. Dividing a population into sub-populations
📌 Explanation: Stratification enhances sampling efficiency by dividing a population
into sub-groups based on similar characteristics.

6. Which factor is most likely to influence sample size for a test of

controls?
A. Tolerable misstatement
B. Expected deviation rate
C. Risk of incorrect acceptance
D. Population variability
✅ Correct Answer: B. Expected deviation rate
📌 Explanation: The higher the expected deviation rate, the larger the required
sample size to provide sufficient evidence.

7. In which situation would an auditor most likely use variables sampling?

A. Testing the operating effectiveness of internal controls
B. Estimating the monetary value of a population
C. Determining the rate of occurrence of a specific characteristic
D. Evaluating the effectiveness of a management control system
✅ Correct Answer: B. Estimating the monetary value of a population
📌 Explanation: Variables sampling is used to estimate numerical values, such as
account balances or transaction amounts.

8. Which statement is true regarding monetary unit sampling (MUS)?

A. MUS is more effective for detecting understatements than overstatements
B. MUS results in a higher likelihood of selecting larger-value items
C. MUS requires population stratification
D. MUS is unsuitable for high expected error rates
✅ Correct Answer: B. MUS results in a higher likelihood of selecting larger-
value items
📌 Explanation: MUS selects sample items based on monetary value, making it
more effective for detecting overstatements.

9. What happens to sample size when tolerable misstatement decreases?

A. Sample size increases
B. Sample size decreases
C. Sample size remains the same
D. Sample size is unrelated to tolerable misstatement
✅ Correct Answer: A. Sample size increases
📌 Explanation: Lowering the tolerable misstatement means greater precision is
needed, which requires a larger sample size.

10. An auditor is concerned about the risk of assessing control risk too
high. What does this mean?
A. The auditor concludes that controls are less effective than they actually are
B. The auditor concludes that controls are more effective than they actually are
C. The auditor incorrectly rejects a valid sample
D. The auditor incorrectly accepts an invalid sample
✅ Correct Answer: A. The auditor concludes that controls are less effective
than they actually are
📌 Explanation: Assessing control risk too high leads to unnecessary substantive
testing, increasing audit effort.

11. An auditor using MUS to test accounts receivable is concerned about

the risk of incorrect acceptance. What does this mean?
A. The auditor incorrectly concludes the balance is materially misstated
B. The auditor incorrectly concludes the balance is fairly stated
C. The auditor selects too many small-value items
D. The auditor ignores control risk assessments
✅ Correct Answer: B. The auditor incorrectly concludes the balance is fairly
stated
📌 Explanation: Incorrect acceptance means the auditor fails to detect a material
misstatement in the population.

12. What is the relationship between sample size and risk of incorrect
acceptance?
A. As risk increases, sample size decreases
B. As risk increases, sample size increases
C. Sample size is independent of risk
D. Sample size and risk are unrelated
✅ Correct Answer: A. As risk increases, sample size decreases
📌 Explanation: Accepting a higher risk of incorrect acceptance allows for a smaller
sample size.

13. When performing tests of controls, an auditor increases control risk

because:
A. Tolerable deviation rate exceeds expected deviation rate
B. Expected deviation rate exceeds tolerable deviation rate
C. Sample deviation rate is less than expected deviation rate
D. Sample deviation rate exceeds tolerable deviation rate
✅ Correct Answer: B. Expected deviation rate exceeds tolerable deviation
rate
📌 Explanation: If the expected deviation rate is too high, the control is ineffective,
requiring a higher assessed control risk.

1. What is the primary objective of targeted audit sampling?

A. o randomly select a representative sample of transactions.
B. o focus on specific items that are expected to be error-prone or significant.
C. o ensure every transaction has an equal chance of selection.
D. o reduce the overall sample size by selecting fewer items.
Correct Answer: . To focus on specific items that are expected to be error-prone or
significant. Explanation: argeted audit sampling involves selecting specific items
within a population that the auditor believes are more likely to contain
misstatements or are of significant importance, thereby enhancing audit efficiency
and effectiveness.
2. In which scenario would an auditor most likely employ targeted audit
sampling?
A. hen the population is homogeneous with low variability.
B. hen certain transactions are identified as high-risk or material.
C. hen the auditor aims to provide equal representation of all transaction types.
D. hen statistical sampling methods are not feasible.
Correct Answer: . When certain transactions are identified as high-risk or material.
Explanation: uditors use targeted sampling to focus on transactions that are either
high-risk or material to the financial statements, ensuring that these critical areas
are thoroughly examined.

3. Which of the following is a potential drawback of targeted audit

sampling?
A. t may lead to over-auditing low-risk areas.
B. t can result in bias, as the selection is based on auditor judgment.
C. t requires complex statistical calculations.
D. t increases the overall time required for the audit.
Correct Answer: . It can result in bias, as the selection is based on auditor
judgment.
Explanation: ince targeted sampling relies on the auditor's judgment to select
specific items, there is a risk of bias, which may affect the audit's objectivity and the
representativeness of the sample.
4. How does targeted audit sampling differ from random sampling?
A. argeted sampling selects items based on specific criteria, while random sampling
gives all items an equal chance of selection.
B. argeted sampling requires statistical tools, whereas random sampling does not.
C. andom sampling focuses on high-risk areas, whereas targeted sampling does not.
D. here is no significant difference between the two methods.
Correct Answer: . Targeted sampling selects items based on specific criteria, while
random sampling gives all items an equal chance of selection.
Explanation: n targeted sampling, the auditor deliberately selects items that meet
certain criteria, such as high value or high risk, whereas random sampling involves
selecting items without bias, giving each item in the population an equal chance of
being chosen.

5. When might an auditor choose not to use targeted audit sampling?

A. hen the population consists of a few large transactions.
B. hen the auditor seeks to make a generalization about the entire population.
C. hen specific transactions are known to be error-prone.
D. hen the auditor has limited knowledge about the client's operations.
Correct Answer: . When the auditor seeks to make a generalization about the
entire population. Explanation: f the auditor's goal is to draw conclusions about
the entire population, random or statistical sampling methods are more appropriate,
as they provide a basis for generalization, unlike targeted sampling, which focuses
on specific items. hese questions aim to enhance your understanding of targeted
audit sampling, its applications, advantages, and limitations within the context of
audit procedures.

1. Which of the following best describes a situation where targeted audit

sampling would be most appropriate?
A. he auditor wants to ensure that every transaction has an equal chance of being
selected.
B. he auditor aims to test a representative sample of all transactions within an
account.
C. he auditor identifies specific transactions that are unusually large or have a
higher risk of misstatement.
D. he auditor needs to comply with regulatory requirements mandating random
sampling.
Correct Answer: . The auditor identifies specific transactions that are unusually
large or have a higher risk of misstatement.
Explanation: argeted audit sampling is used when the auditor focuses on specific
transactions that are either significant in size or have a higher likelihood of
containing errors, thereby enhancing the effectiveness of the audit.

2. How does targeted audit sampling enhance audit efficiency?

A. y reducing the need for professional judgment in selecting samples.
B. y allowing auditors to focus on high-risk areas, potentially reducing the overall
number of samples needed.
C. y ensuring that all transactions have an equal probability of selection.
D. y eliminating the need for substantive testing in low-risk areas.
Correct Answer: . By allowing auditors to focus on high-risk areas, potentially
reducing the overall number of samples needed.
Explanation: y concentrating on high-risk or significant transactions, auditors can
allocate their resources more effectively, often reducing the total number of
samples required while still obtaining sufficient audit evidence. 3. In targeted
audit sampling, which of the following factors is least likely to influence
the auditor's selection of specific items?
A. he monetary value of transactions.
B. he date on which transactions occurred.
C. he complexity of transactions.
D. he auditor's personal familiarity with the client's staff.
Correct Answer: . The auditor's personal familiarity with the client's staff.
Explanation: hile factors such as transaction value, timing, and complexity are
relevant in selecting items for targeted sampling, the auditor's personal
relationships with client personnel should not influence the selection process, as this
could introduce bias.

4. When might an auditor choose not to use targeted audit sampling?

A. hen the population of transactions is homogeneous with low variability.
B. hen specific transactions are identified as having a higher risk of misstatement.
C. hen the auditor has limited knowledge about the client's operations.
D. hen regulatory standards require the use of statistical sampling methods.
Correct Answer: . When regulatory standards require the use of statistical
sampling methods.
Explanation: n situations where regulations mandate the use of statistical
sampling, auditors may be required to use methods that ensure randomness and
allow for quantification of sampling risk, rather than judgmental approaches like
targeted sampling.
5. What is a potential risk associated with targeted audit sampling?
A. t may lead to over-reliance on internal controls.
B. t can result in overlooking material misstatements in non-targeted areas.
C. t increases the time and cost of the audit.
D. t diminishes the auditor's professional skepticism.
Correct Answer: . It can result in overlooking material misstatements in non-
targeted areas.
Explanation: hile targeted sampling focuses on high-risk or significant items,
there's a risk that misstatements in other areas may go undetected if they are not
included in the targeted sample. hese questions aim to deepen your understanding
of targeted audit sampling and its application in the audit process.