ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPA Licensure Examination

AT-15
AUDITING (Auditing Theory) J. IRENEO  E. ARAÑAS  F. TUGAS  C. ALLAUIGAN

AUDIT SAMPLING
REQUIRED READINGS
• PSA 530 (Redrafted) Audit Sampling

The objective of the auditor when using audit sampling is to provide a reasonable basis for the auditor
to draw conclusions about the population from which the sample is selected.

Audit sampling (sampling) – The application of audit procedures to less than 100% of items within a
population of audit relevance such that all sampling units have a chance of selection in order to provide
the auditor with a reasonable basis on which to draw conclusions about the entire population.

Population – The entire set of data from which a sample is selected and about which the auditor wishes
to draw conclusions.

Sampling risk – The risk that the auditor’s conclusion based on a sample may be different from the
conclusion if the entire population were subjected to the same audit procedure. Sampling risk can lead
to two types of erroneous conclusions:
A. In the case of a test of controls, that controls are more effective than they actually are, or in
the case of a test of details, that a material misstatement does not exist when in fact it does.
The auditor is primarily concerned with this type of erroneous conclusion because it affects
audit effectiveness and is more likely to lead to an inappropriate audit opinion.

B. In the case of a test of controls, that controls are less effective than they actually are, or in the
case of a test of details, that a material misstatement exists when in fact it does not. This type
of erroneous conclusion affects audit efficiency as it would usually lead to additional work to
establish that initial conclusions were incorrect.

Statistical sampling – An approach to sampling that has the following characteristics:

1. Random selection of the sample items; and
2. The use of probability theory to evaluate sample results, including measurement of sampling
risk.
A sampling approach that does not have characteristics 1 and 2 is considered non-statistical sampling.

Types of Statistical Sampling

Attribute Sampling: is used to estimate a rate of occurrence (whether or not an attribute is present);
primarily used to test internal controls . this include:
A. Discovery sampling
B. Stop and go sampling
C. Acceptance sampling

Variable Sampling: is used to estimate numerical value; typically used in substantive testing. The
auditor estimates a population’s true value by computing a point estimate of the population and a
precision interval around the estimate, this include
A. Mean-per-unit estimation
B. Ratio estimation
C. Difference estimation
Probability -proportional-to-size sampling is a hybrid method that uses attribute sampling theory to
express a conclusion in peso amounts.
When designing an audit sample, the auditor shall consider the purpose of the audit procedure and
the characteristics of the population from which the sample will be drawn.
The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level
Steps in the Sampling Process.
The auditor shall select items for the sample in such a way that each sampling unit in the population
has a chance of selection.
1. Define the objective: This is the purpose of the test
2. Define the population: This is the aggregate group or set of items about which the auditor wishes
to draw conclusions
3. Define the sampling: This is the actual item or element from which the auditor will collect data.

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AUDIT SAMPLING AT-15
4. Define the attribute of interest: This is the data to be collected
5. Determine the sample size: This is the number of items to be selected for testing. The decision is
based on statistical considerations, plus the auditor’s judgment.
6. Select the sample: The actual selection of a representative set of items for testing
7. Evaluate the sample results: This tells the auditor if the control can be relied on (attribute
sampling) or if the account does not appear to be materially misstated (variable sampling).
8. Document the sampling procedures.
For tests of details, the auditor shall project misstatements found in the sample to the population
Stratification – The process of dividing a population into sub-populations, each of which is a group of
sampling units which have similar characteristics (often monetary value).
Tolerable misstatement – A monetary amount set by the auditor in respect of which the auditor seeks
to obtain an appropriate level of assurance that the monetary amount set by the auditor is not
exceeded by the actual misstatement in the population.
Tolerable rate of deviation – A rate of deviation from prescribed internal control procedures set by the
auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate
of deviation set by the auditor is not exceeded by the actual rate of deviation in the population.
In the extremely rare circumstances when the auditor considers a misstatement or deviation
discovered in a sample to be an anomaly, the auditor shall obtain a high degree of certainty that such
misstatement or deviation is not representative of the population. The auditor shall obtain this degree
of certainty by performing additional audit procedures to obtain sufficient appropriate audit evidence
that the misstatement or deviation does not affect the remainder of the population.

1. In which of the following situations would the auditor perform 100% testing (choose the exception)
A. The population constitutes a small number of large volume items.
B. When both inherent and control risks are high and other means do not provide sufficient
appropriate audit evidence.
C. The population constitutes a large number of small volume items.
D. The repetitive nature of a calculation or other process performed automatically by an
information system makes a 100% examination cost effective.
2. Which of the following statements about specific item testing is false?
A. It is selective.
B. It can be an efficient means of gathering audit evidence.
C. It does not constitute sampling.
D. The results of audit procedures applied to items selected in this way can be projected to the
entire population.
3. S1: Audit sampling is the application of audit procedures to less than 100% of items within a class
of transactions or account balances such that all sampling units have a chance of selection.
S2: Sampling unit is the individual items constituting a population
S3: Population is the entire set of data from which a sample is selected and about which the auditor
wishes to draw conclusions.
A. True, false, false
B. False, true, true
C. False, false, true
D. True, true, true
4. S1: Random sample is a sample in which every possible combination of items in the population
has an equal chance of constituting the sample
S2: Representative sample is a sample in which the characteristics in the sample are the same as
those of the population.
A. True, false
B. False, true
C. False, false
D. True, true
5. Which of the following does not involve audit sampling?
A. Test of details of transactions applied as a test of control.
B. Test of details of transactions applied as a substantive test.
C. Test of details of balances.
D. Substantive analytical procedure.

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6. The population from which samples will be drawn:
A. Should be appropriate to the objective of the audit procedure, which will include consideration
of the direction of testing.
B. Should be complete.
C. May be stratified.
D. All of the above.

7. Which of the following explanations best describes the distinguishing feature of statistical
sampling?
A. It allows the auditor to have the same degree of confidence as with judgment sampling but
with substantially less work.
B. It allows the auditor to substitute sampling techniques for audit judgment
C. It provides for measuring mathematically the degree of uncertainty that results from examining
only a part of the data.
D. It provides for measuring the actual misstatements in financial statements in terms of
reliability and precision.

8. A nonstatistical sampling plan can

A. Overstate the estimate of sampling risk
B. Misdirect an auditor to unreliable sampling units
C. Replicate the results of a statistical sampling plan
D. Understate the degree of audit assurance desired
9. Which of the following best illustrates the concept of sampling risk?
A. A randomly chosen sample may not be representative of the population as a whole on the
characteristic of interest.
B. An auditor may select audit procedures that are not appropriate to achieve the specific
objective.
C. An auditor may fail to recognize errors in the documents examined for the chosen sample.
D. The documents related to the chosen sample may not be available for inspection.

10. Non sampling risk arises from the following, except:

A. Use of inappropriate audit procedures
B. Misinterpretation of audit evidence
C. Reliance on persuasive rather than conclusive audit evidence
D. Failure to recognize an error

11. To reduce sampling risk, the auditor should:

A. Increase the sample size
B. Increase the extent of supervision
C. Properly plan the engagement
D. Increase the extent of review

12. The likelihood of assessing control risk too low is the risk that
A. The sample selected to test controls does not support the auditor’s planned assessed level of
control risk, but the true operating effectiveness of the control structure justifies such an
assessment.
B. The sample selected to test controls supports the auditor’s planned assessed level of control
risk, but the true operating effectiveness of the control structure does not justify such an
assessment.
C. While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was materially
misstated. It was, in fact, not materially misstated.
D. While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was not materially
misstated. It was, in fact, materially misstated.

13. Which of the following is true about alpha and beta errors?
A. The alpha error is of greater concern to the auditor than the beta error.
B. The beta error is greater concern to the auditor than the alpha error.
C. The beta error and the alpha error are of equal importance to the auditor.
D. Neither the alpha error nor the beta error need be considered by the auditor.

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14. For which of the following audit tests would an auditor most likely use attribute sampling?
A. Making an independent estimate of the amount of a FIFO inventory.
B. Examining invoices in support of the valuation of fixed asset additions.
C. Selecting accounts receivable for confirmation of account balances.
D. Inspecting employee time cards for proper approval by supervisors.

15. The deviation rate the auditor will permit in the population and still be willing to reduce the
assessed level of control risk is called the
A. Tolerable deviation rate
B. Acceptable risk of over-reliance
C. Estimated population rate
D. Sample deviation rate

16. The objective of the allowance for sampling risk in sampling for tests of controls on internal
control is to
A. Determine the probability of the auditor’s conclusion based upon reliance factors.
B. Determine that financial statements taken as a whole are not materially in error.
C. Estimate the risk of incorrect acceptance of substantive tests.
D. Estimate the range of procedural deviations in the population.

17. The tolerable rate of deviations for a compliance test is generally

A. Lower than the expected rate of errors in the related accounting records.
B. Higher than the expected rate of errors in the related accounting records.
C. Identical to the expected rate of errors in the related accounting records.
D. Unrelated to the expected rate of errors in the related accounting records.

18. To determine whether accounts payable are complete, an auditor performs a test to verify that all
merchandise received is recorded. The population of documents for this test consists of all
A. Vendors’ invoices
B. Purchase orders.
C. Receiving reports.
D. Canceled checks.

19. Which of the following will result in a decrease in sample size in test of controls?
A. An increase in the extent to which the risk of material misstatement is reduced by the operating
effectiveness of controls.
B. An increase in the rate of deviation from the prescribed control activity that the auditor is willing
to accept (tolerable deviation rate)
C. An increase in the rate of deviation from the prescribed control activity that the auditor expects
to find in the population (expected deviation rate)
D. An increase in the auditor’s required confidence level (or conversely, a decrease in the risk that
the auditor will conclude that the risk of material misstatement is lower than the actual risk of
material misstatement in the population - risk of assessing control risk too low)

20. Which of the following statements is correct concerning statistical sampling in tests of controls?
A. The expected population deviation rate has little or no effect on determining sample size except
for very small populations.
B. As the population size doubles, the sample size also should double.
C. For a given tolerance rate, a larger sample size should be selected as the expected population
deviation rate decreases.
D. The population size has little or no effect on determining sample size except for a very small
population.

21. Which of the following contains incorrect description of the methods of sampling/selection
described?
A. Random selection is applied through random number generators, for example, random
number tables.
B. Monetary Unit Sampling is a type of value-weighted selection in which sample size, selection
and evaluation results in a conclusion in monetary amounts.
C. Haphazard selection is a statistical sampling technique in which the auditor selects the sample
without following a structured technique.
D. Block selection involves selection of a block(s) of contiguous items from within the population.

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22. Which of the following sampling plan varies sample size?
A. Attribute estimation
B. Systematic sampling
C. Sequential sampling
D. Stratified sampling
23. An auditor plans to examine a sample of 20 purchase orders for proper approvals as prescribed by
the client’s internal control procedures. One of the purchase orders in the chosen sample of 20
cannot be found, and the auditor is unable to use alternative procedures to test whether that
purchase order was properly approved. The auditor should
A. Choose another purchase order to replace the missing purchase order in the sample.
B. Consider this test of control invalid and proceed with substantive tests since internal control
cannot be relied upon.
C. Treat the missing purchase order as a deviation for the sample.
D. Select a completely new set of 20 purchase orders.
24. An auditor is testing internal control procedures that are evidenced on an entity’s voucher by
matching random numbers with voucher numbers. If a random number matches the number of a
voided voucher, the voucher should ordinarily be replaced by another voucher in the random
sample if the voucher
A. Constitutes deviation
B. Cannot be located
C. Has been properly voided
D. Represents an immaterial peso amount
25. What is an auditor’s evaluation of a statistical sample for attributes when a test of fifty documents
results in three deviations if tolerable rate is 7%, the expected population deviation rate is 5%,
and the allowance for sampling risk is 2%?
A. Modify the planned assessed level of control risk because the tolerable rate plus the allowance
for sampling risk exceeds the expected population deviation rate.
B. Accept the sample results as support for the planned assessed level of control risk because the
sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
C. Accept the sample results as support for the planned assessed level of control risk because the
tolerable rate less the allowance for sampling risk equals the expected population deviation
rate.
D. Modify the planned assessed level of control risk because the sample deviation rate plus the
allowance for sampling risk exceeds the tolerable deviation rate.
26. The final step in the evaluation of the audit results in tests of controls is the decision to:
A. Determine the error in each sample.
B. Conclude whether the control tested is effective or is not effective.
C. Determine sampling error and calculate the estimated total population error.
D. Project the point estimate.
27. In applying variables sampling, an auditor attempts to:
A. Estimate a qualitative characteristic of interest
B. Determine various rates of occurrence for specified attributes
C. Discover at least one instance of a critical deviation
D. Predict a monetary population value within a range of precision
28. Which of the following statement does not pertain to stratification?
A. This method involves dividing a population into subpopulations, each of which is a group of
sampling units which have similar characteristics (often monetary value).
B. It increases the effect of variance in the population.
C. The strata must be explicitly defined so that each sampling unit can belong to only one stratum.
D. This method enables the auditor to direct his efforts towards the items he considers would
potentially contain the greater monetary error.
29. To determine the number of items to be selected in a sample for a particular substantive test of
details, the auditor should consider all of the following, except
A. Tolerable misstatement.
B. Allowable risk of incorrect acceptance.
C. Deviation rate.
D. Characteristics of the population.

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30. Which of the following will result in a decrease in sample size in substantive testing?
A. An increase in the auditor’s assessment of inherent risk
B. An increase in the auditor's assessment of control risk (or a decrease in reliance on internal
controls)
C. An increase in the use of other substantive procedures directed at the same assertion
D. An increase in the auditor’s required confidence level (or conversely, a decrease in the risk that
the auditor will conclude that a material error does not exist, when in fact it does exist - risk
of incorrect acceptance)
31. Which of the following will result in an increase in sample size in substantive testing?
A. An increase in the total error that the auditor is willing to accept (tolerable error)
B. A decrease in the amount of error the auditor expects to find in the population (expected error)
C. Increase in variance in the population (standard deviation)
D. Stratification of the population when appropriate
32. An auditor may use either of two statistical sampling approaches in substantive testing, probability-
proportional-to-size (PPS) sampling and classical variables sampling. PPS sampling is primarily
applicable in testing for
A. The number of errors in a year-end sales cutoff.
B. An overstatement of accounts receivable.
C. A credit balance in accounts receivable.
D. An understatement of accounts payable.
33. An error that arises from an isolated event that has not recurred other than on specifically
identifiable occasions and is therefore not representative of errors in the population.
A. Tolerable Error
B. Anomalous Error
C. Sample Error
D. Expected Population Error
34. An auditor is evaluating the results of a variables sampling plan. Which of the following is relevant
to the auditor’s judgment about the sample?
A. Nature and cause of the errors
B. Qualitative information that lends insight into errors found
C. The effects of sampling risk
D. All of these are relevant
35. The final step in the evaluation of the audit results in substantive tests is the decision to:
A. Accept the population as fairly stated or to require further action
B. Determine sampling error and calculate the estimated total population error
C. Project the point estimate
D. Determine the error in each sample
36. The size of a sample designed for dual purpose testing should be
A. The larger of the samples that would otherwise have been designed for the two separate
purposes.
B. The smaller of the samples that would otherwise have been designed for the two separate
purposes.
C. The combined total of the samples that would otherwise have been designed for the two
separate purposes.
D. More than the larger of the samples that would otherwise have been designated for the two
separate purposes, but less than the combined total of the samples that would otherwise have
been designed for the two separate purposes.
37. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that
the statistical methods:
A. Can more easily convert the sample into a dual-purpose test useful for substantive testing
B. Eliminate the need to use judgement in determining appropriate sample sizes
C. Afford greater assurance than a nonstatistical sample of equal size
D. Provide an objective basis for quantitatively evaluating sampling risk
38. An auditor is likely using attribute sampling when he or she selects a sample of:
A. Receivables and sends confirmation to client customers
B. Purchase orders and examines them for indication of proper approval
C. Invoices to verify proper extensions and footings
D. Cash receipts and traces them to the accounts receivable subsidiary ledgers

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39. In discussing his desire to make use of statistical sampling methods, a newly hired auditor made
the following statements to the audit manager on the job. Which of the following statements is/are
correct?
I. Statistical sampling will always result in a smaller sample size than nonstatistical sampling
II. Statistical sampling allows a greater quantification of risk and reliability than does nonstatistical
sampling
III. Statistical sampling eliminates subjectivity in evaluating sample results
A. Both I and II
B. I only
C. II only
D. Both II and III

40. The auditor selects a sample consisting of fifty purchases exceeding P25,000, and notes that two
purchases have only one approval signature out of the two required signatures. Both purchases
occurred during the same week. Management states that the second signature was not obtained
due to the unexpected illness of the appropriate manager that week, but that the purchases were
still appropriate. The auditor’s tolerable deviation rate for all tests of controls is 5%, and his
allowance for sampling risk is 2%. Which of the following is true?
A. The auditor may rely on this control because the two purchases were appropriate, and therefore
they should not be considered deviations
B. The auditor may rely on this control because the sample deviation rate is less than the tolerable
rate
C. The auditor did not select an appropriate population for this audit test
D. The auditor should not rely on this control

“There is no comparison between that which is lost by not succeeding and that which is lost by not
trying.” – Francis Bacon
"If you believe, you will receive whatever you ask for in prayer." - Matthew 21:22
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