Module E MC Solutions Essay

SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS

E.25 a. Incorrect When sampling, the auditor performs procedures on less than 100 percent of the items in a balance.
b. Correct When sampling, the auditor performs procedures on less than 100 percent of the items in a balance to form a conclusion about the entire balance.
c. Incorrect Becoming familiar with an accounting system is not an application of audit sampling.
d. Incorrect Performing analytical procedures is not an application of audit sampling.

E.26 a. Incorrect Statistical sampling is characterized by mathematical evaluation of the results.
b. Incorrect Statistical sampling is characterized by representative sample selection.
c. Correct Statistical sampling is characterized by both representative sample selection and mathematical evaluation of the results.
d. Incorrect Statistical sampling is characterized by both representative sample selection and mathematical evaluation of the results.

E.27 a. Incorrect Sampling is typically most appropriate for populations consisting of a large number of items. b. Correct Sampling is appropriate when the need for precise information about the population is not important. c. Incorrect More critical decisions would typically increase the need to examine the entire population. d. Incorrect Sampling is not appropriate when the costs of an incorrect decision are extremely high.

E.28 a. Incorrect Audit risk is the likelihood that auditors will unknowingly fail to modify their opinion on financial statements that are materially misstated. b. Incorrect There is no term examination risk.
c. Correct This response represents the correct definition of sampling risk.
d. Incorrect Nonsampling risk is related to errors in judgment and execution, not to the nature of the sample.

E.29

a. Incorrect This method assists in controlling the auditor’s exposure to sampling risk. b. Correct Performing the appropriate audit procedure is related to nonsampling risk, not sampling risk. c. Incorrect This method assists in controlling the auditor’s exposure to sampling risk. d. Incorrect This method assists in controlling the auditor’s exposure to sampling risk.

E.30 a. Incorrect Only statistical sampling methods measure the auditor’s exposure to sampling risk. b. Incorrect Generally accepted auditing standards permit the use of either statistical sampling or nonstatistical sampling methods. c. Incorrect Samples can be selected either randomly or judgmentally under nonstatistical sampling methods. d. Correct Nonstatistical sampling is typically less complex than statistical sampling.

E.31 a. Incorrect Block selection identifies a series of contiguous units for examination. b. Incorrect Haphazard selection is characterized by the auditor’s selection of sample items in an unstructured manner but without any intentional bias. c. Incorrect Systematic random selection uses a random starting point and then bypasses a fixed number of items in selecting sample items. d. Correct Unrestricted random selection uses a series of random numbers to identify sample items. E.32 a. Incorrect The random starting point (10) is the first item selected. The sampling interval would be calculated as 5 (100  20 = 5). Adding the sampling interval to the random starting point would result in item 15 being selected (10 + 5 = 15), followed by item 20 (15 + 5 = 20). b. Incorrect The random starting point (10) is the first item selected. The sampling interval would be calculated as 5 (100  20 = 5). Adding the sampling interval to the random starting point would result in item 15 being selected (10 + 5 = 15), followed by item 20 (15 + 5 = 20). c. Correct The random starting point (10) is the first item selected. The sampling interval would be calculated as 5 (100  20 = 5). Adding the sampling interval to the random starting point would result in item 15 being selected (10 + 5 = 15), followed by item 20 (15 + 5 = 20). d. Incorrect The random starting point (10)

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