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Since 1977

AT.3510 SOLIMAN/UY/AGUILA/RICAFRENTE
Determining the Extent of Testing October 2023

Means of Selecting Items for Testing Non-sampling risk is the risk that the auditor reaches an
erroneous conclusion for any reason not related to sampling
When designing tests of controls and tests of details, the risk. Non-sampling risk is also an aspect of audit risk not
auditor’s means of selecting items for testing are: attributable to sampling such as human error due to:
• Selecting all items (100% examination), • Use or application of inappropriate audit procedures
• Selecting specific items, and • Misapplication of audit procedures.
• Audit sampling. • Misinterpretation of evidence obtained

Audit Risk and Uncertainty Dealing with non-sampling risks

Audit risk is the likelihood that the auditor expresses an Non-sampling risks cannot be totally eliminated in audit.
inappropriate opinion when the financial statements are There is always a chance of human error in audit as the
materially misstated. Audit risk is a function of the risk of auditor’s judgment may not always be correct. However,
material misstatement and the risk that the auditor will not the auditor can manage non-sampling risks through:
detect those material misstatements. The risk of material • Proper planning
misstatement is comprised of inherent risk and control risk, • Adequate direction and supervision of the audit
while the risk that the auditor will not detect those material team and timely review of their work
misstatements is referred to as detection risk. The risk that
material misstatements may occur and remain undetected
Sampling Approach
may be influenced by two types of uncertainties: sampling
risk and non-sampling risks:
Audit sampling can be applied using either non-statistical or
statistical sampling approaches. These two approaches
Sampling Risks
involve the use of auditor’s professional judgment in
planning and performing the sampling procedure and
Sampling risk is the risk that the auditor’s conclusion based
evaluating the results of the sample. Both approaches can
on a sample may be different from the conclusion if the
be as effective as the other, however, the advantage of
entire population were subjected to the same audit
using statistical sampling approach is that the auditor can
procedure. Sampling risk can lead to two types of
quantify the sampling risk. On the other hand, the
erroneous conclusions, such as:
advantage of using nonstatistical sampling approach is that
it is easy to apply and less costly.
Alpha Risk Beta Risk
(Type I (Type II Audit Sampling Process
Misstatement) Misstatement)
Test of Controls When designing and performing audit sampling, the auditor
Assessing normally observes the following steps:
Assessing control
Sampling risks control risk too
risk too low
high 1. Define the purpose (objective) of the audit test.
less effective 2. Define the exception condition.
more effective than 3. Identify and understand the relevant population.
Controls are: than they
they actually are 4. Determine the relevant sampling unit.
actually are
Reliance on 5. Select an appropriate approach of sampling.
Under-reliance Overreliance 6. Determine the sample size.
internal control
Test of Details 7. Select the sample items.
8. Examine and evaluate the evidence for the sample.
Incorrect Incorrect 9. Evaluate the tests results.
Sampling risks
Rejection Acceptance 10. Document the audit sampling performed.
Material exists when in does not exist when
misstatement: fact it does not in fact it does The steps above are the same regardless of, the sampling
Affects audit: Efficiency Effectiveness approach selected whether statistical or non-statistical, the
type of audit sampling technique utilized and whether the
The auditor is more concerned with beta risk. The test is the performance of test of controls or test of details.
mathematical complements of these two risks are termed
confidence levels. Step 1: Define the purpose (objective) of the audit
test
Dealing with sampling risks
When designing an audit sample, the auditor shall consider
The auditor can eliminate sampling risks by examining the the purpose (objective) of the audit procedure based on the
entire population. However, examining the entire population assessment of risk of material misstatement at the
is normally not possible for the auditor. Instead, the auditor assertion level. The auditor’s consideration includes the
usually manages or controls sampling risk by making the specific purpose (test of controls or test of details) to be
sample more representative of the population by: achieved and the combination of audit procedures that is
• Increasing the sample size likely to best achieve that purpose.
• Using appropriate method of selecting sample items
Step 2: Define the exception condition
Non-sampling Risks

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The auditor considers what conditions constitute an

exception by reference to the objectives of the test. The decision whether to use a statistical or non-statistical
sampling approach is a matter for the auditor’s judgment;
An exception in attributes sampling (test of controls) is in making that judgment the auditor consider the following:
referred to as a deviation – when the expected attribute of • The choice is based on relative costs and benefits
a control is absent (e.g., absence of approval when one is • Effectiveness
expected). However, the presence of a deviation does not • Need for quantitative estimate of sampling risk
necessarily constitute a misstatement. On the other hand,
an exception in variables sampling (test of details) is However, sample size is not a valid criterion to distinguish
referred to as misstatement – when the amount or between statistical and non-statistical approaches and the
disclosure per financial statements is different from what is choice between the two approaches is independent of audit
required by the applicable financial reporting framework procedures to be performed.
(e.g. the amount of cash per financial statements is
different from what is required by the PFRS). Types of Statistical Sampling

Step 3: Identify and understand the relevant The two commonly used statistical sampling used in
population auditing are:

Population means the entire set of data from which a sample • Attributes sampling–generally used for tests of controls
is selected and about which the auditor wishes to draw § Tests rate of deviation from a prescribed control
conclusions. For example, all of the items in an account procedure
balance or a class of transactions constitute a population. § Estimate frequency of errors in population based on
The auditor needs to identify the relevant population and frequency in sample
consider its characteristics from which the sample will be § Determine whether or not estimated error rate
drawn. Considering the characteristics of the population indicates control is working effectively
would include: § Attribute – a characteristic of control
• Preliminary assessment of expected rate of deviation or § Deviation – absence of the attribute
misstatement and the auditor’s tolerable rate of
deviation or misstatement. • Variables Sampling–generally used for tests of details
• Determining whether stratification or value-weighted § Tests whether recorded account balances are fairly
selection is appropriate. stated
• Ascertaining the completion of population. § Estimate value of population based on value of
items in sample
In addition, it is important that the population is appropriate
to satisfy the established objective of the audit procedures Attributes Sampling
by considering the direction of the test.
• Traditional (Classical) attributes sampling
Assessment of Expected Rate of Deviation or Misstatement § Under traditional attribute sampling, sample size is
and Tolerable Rate of Deviation or Misstatement determined and sample tested to estimate error
rate in population
Tolerable deviation rate or misstatement is the rate of
deviation or monetary amount the auditor is willing to • Stop-or-go (Sequential) sampling
accept on the population. § Performed in stages
§ Auditor decides to stop or continue sampling after
For test of controls, the auditor makes a preliminary each stage
assessment of the expected rate of deviation based on the § Appropriate when expected deviation rate is low
auditor’s understanding of the relevant controls or on the § Sample selected in steps
examination of a small number of items from the § Each step is based on results of previous step
population. This assessment is made in order to design an § No fixed sample size and may result in lower sample
audit sample and to determine sample size. For example, if if few or no errors detected
the expected rate of deviation is unacceptably high than the
auditor’s tolerable rate of deviation, the auditor will
• Discovery sampling
normally decide not to perform tests of controls. Similarly,
§ Sample size is very small
for test of details, the auditor makes an assessment of the
§ Appropriate when expected deviation rate is
expected misstatement in the population. If the expected
extremely low or zero
misstatement is high, 100% examination or use of a large
§ Sample large enough to detect at least one error if
sample size may be appropriate when performing tests of
it exists
details. This is normally the case when the auditor’s
§ Any errors in sample results in rejection
expected misstatement is approximately or higher than
tolerable misstatement.
Variables Sampling
Step 4: Determine the relevant sampling unit
• Traditional (Classical) variables sampling – There are
three approaches to classical variables sampling for
Sampling unit is the individual items constituting a
auditing applications that differ in the way the
population. The sampling units might be physical items (for
misstatement is projected to the population are:
example, checks listed on deposit slips, credit entries on
bank statements, sales invoices or debtors’ balances) or
§ Mean-per-unit approach – The auditor estimates a
monetary units. The total population of the sampling units
total population amount by calculating an average
could be manually prepared documents or lists, documents
audited amount for all items in the sample and
generated from computer systems, or an electronic file
multiplying that average amount by the number of
provided by the entity.
items constituting the population.
Step 5: Select an appropriate approach of sampling

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§ Difference approach – The auditor calculates the selection. Sample selection methods are classified into
average difference between audited and recorded probabilistic (statistical) and non-probabilistic (non-
amounts of the sample items and projects that statistical).
average difference to the population.
Probabilistic Sample Selections
§ Ratio approach – The auditor calculates the ratio
between the sum of the audited amounts and the • Random-number Selection
sum of the recorded amounts of the sample items § Every sampling unit has the same probability of
and projects this ratio to the population. The auditor being selected as every other sampling unit in the
estimates the total population amount by population.
multiplying the total recorded amount for the § Uses computer-generated numbers to select
population by the same ratio. sampling units.
§ Match number to prenumbered documents.
Using normal distribution theory based on the variability § Appropriate for both statistical and nonstatistical
of the audited amounts in the sample, the auditor also sampling.
calculates an allowance for sampling risk.
• Systematic Selection
• Monetary unit sampling (a.k.a., Probability Proportional
§ The number of sampling units in the population is
to Size (PPS) or Value-weighted selection) divided by the sample size to give a sampling
§ Uses attributes sampling theory to express a interval, for example 50, and having determined a
conclusion in amounts rather than as a rate of
starting point within the first 50, each 50th
occurrence.
sampling unit thereafter is selected. Starting point
§ Probability of selecting an item is proportional to its may be determined haphazardly or randomly.
recorded amount.
§ Determine that sampling units within the
§ Automatically stratifies an audit population population are not structured in such a way that
§ Appropriate for testing for overstatement and few the sampling interval corresponds with a particular
or no errors are expected
pattern in the population.
§ Useful when identification numbers lacking
Step 6: Determine the sample size
§ Appropriate for both statistical and nonstatistical
The auditor shall determine a sample size sufficient to sampling
reduce sampling risk to an acceptably low level. The sample
size can be determined by the application of a statistically- • Stratified Selection
based formula or through the exercise of professional § Stratification is the process of dividing a population
judgment (non-statistical). into sub-populations, each of which is a group of
sampling units which have similar characteristics
The tables below list the factors affecting sample size for (often monetary value).
test of controls and test of details. § Subdivide population into homogeneous strata
§ Select separate sample for each strata by on of
Test of Controls (Attribute Sampling) prior methods

Factor Relationship Non-probabilistic Sample Selections

Tolerable deviation rate Inverse
• Block Selection
Allowable risk of assessing control § Involves selection of a block(s) of contiguous items
Inverse
risk too low/Sampling risk (beta risk) from within the population.
Expected population deviation rate Direct § Inefficient & not generalizable
Population size Negligible effect § Should not be used for statistical or nonstatistical
sampling without care in controlling sampling risk
Test of Details (Variables Sampling)
• Haphazard Selection
Factor Relationship § The auditor selects the sample without following a
structured technique.
Assessment of the risk of material
Direct § Sampling units selected without special reason or
misstatement/level of control risk
conscious bias
Other substantive tests Inverse § Inappropriate for statistical sampling
Tolerable misstatement Inverse § Useful for nonstatistical sampling
Allowable risk of incorrect
Inverse
acceptance/Sampling risk (beta risk)
Expected amount of misstatement Direct
Population size Negligible effect

Step 7: Select the sample items

The auditor shall select items for the sample in such a way
that each sampling unit in the population has a chance of
selection. It is important that the auditor selects a
representative sample, so that bias is avoided.

Sample Selection Methods

The principal methods of selecting samples are the use of

random selection, systematic selection and haphazard

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• Direct sample selection controls detected in the sample by performing tests of

§ Auditor selects items based on judgmental criteria controls. SDR = # of sample deviations / sample size. PDR,
such as likelihood of misstatement, characteristics a.k.a., upper deviation or precision limit, is the rate of
such as different time periods, or large amounts. deviation that the auditor estimates to be in the population.
PDR = SDR + allowance for sampling risk (Beta risk). An
Step 8: Examine and evaluate the evidence for the allowance for sampling risk can only be calculated where the
sample auditor has used statistical sampling.

The auditor shall perform audit procedures, appropriate to Projecting Misstatements for Tests of Details
the purpose, on each item selected, and evaluate the audit
evidence obtained. For tests of details, the auditor shall project misstatements
found in the sample to the population. Sample
Voided Sample misstatement is the monetary misstatement detected in the
sample by performing tests of details.
The auditor shall perform the procedure on a replacement
item. If the auditor is satisfied that the sample has been Projected misstatement is the monetary misstatement that
properly voided such that it does not constitute a deviation, the auditor estimates to be in the population, and is
and the chosen replacement is examined. calculated by adjusting the sample misstatement by an
allowance for sampling risk. An allowance for sampling risk
Missing or Lost Sample can only be calculated where the auditor has used statistical
sampling. The methods for calculating an allowance for
If the auditor is unable to apply the designed audit sampling risk and projecting the sample error differ
procedures, or suitable alternative procedures, to a selected between classical variables sampling and Monetary Unit
item, the auditor shall treat that item as a deviation from Sampling (MUS). This is discussed below.
the prescribed control, in the case of tests of controls, or a
misstatement, in the case of tests of details. When a misstatement has been established as an anomaly,
it may be excluded when projecting misstatements to the
Stopping the Test Before Completion population.

Occasionally the auditor might find a large number of Evaluate Sample Results and Reach an Overall Conclusion
deviations in auditing the first part of a sample. As a result,
the auditor might believe that even if no additional errors Overall Conclusion for Tests of Controls
were to be discovered in the remainder of the sample, the
results of the sample would not support the planned There are two generally accepted approaches for evaluating
assessed level of control risk. the sample results for tests of controls:
• Compare PDR to tolerable deviation rate. If the PDR <
Step 9: Evaluate the tests results tolerable deviation rate = the control is operating
effectively. If the PDR = or > tolerable deviation rate
The auditor uses judgment in evaluating the results and = the control is not operating effectively as designed.
reaching an overall conclusion. In evaluating the sample • Compare SDR to expected deviation rate. If the SDR <
results, the auditor: expected deviation rate = control is operating
• Considers the nature and causes of deviations and effectively. If the SDR = or > expected deviation rate
misstatements, = control is not operating effectively as designed.
• Calculates and projects the sample deviations and
misstatements, and Overall Conclusion for Tests of Details
• Reaches an overall conclusion.
When the projected misstatement plus anomalous
Nature and Cause of Deviations and Misstatements misstatement, if any, exceeds tolerable misstatement, the
sample does not provide a reasonable basis for conclusions
The auditor shall investigate the nature and cause of any about the population that has been tested. The closer the
deviations or misstatements identified, and evaluate their projected misstatement plus anomalous misstatement is to
possible effect on the purpose of the audit procedure and tolerable misstatement, the more likely that actual
on other areas of the audit. misstatement in the population may exceed tolerable
misstatement.
In the extremely rare circumstances the auditor considers a
misstatement or deviation discovered in a sample to be an If the auditor concludes that audit sampling has not
anomaly (not representative of population). The auditor provided a reasonable basis for conclusions about the
shall obtain a high degree of certainty that such population that has been tested, the auditor may:
misstatement or deviation is not representative of the • Request management to investigate
population. For example is an error that is found to be misstatements identified and the potential for
caused by use of an incorrect formula in calculating all further misstatements and to make any necessary
inventory values at one particular branch. adjustments; or
• Tailor the nature, timing and extent of those
Projecting Sample Deviations and Misstatements further audit procedures to best achieve the
required assurance.
Projecting Deviations for Tests of Controls
Step 10: Document the Audit Sampling Performed
For tests of controls, no explicit projection of deviations is
necessary since the sample deviation rate (SDR) is also the The auditor should document the sampling application and
projected deviation rate (PDR) for the population as a related audit procedures.
whole. SDR is the rate of deviation in the operation of

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DISCUSSION QUESTIONS
Introduction a. Efficiency of the audit
b. Effectiveness of the audit
1. In performing tests of controls and tests of details, the c. Preliminary estimates of materiality levels
extent and selection of items to test include d. Allowable risk of tolerable misstatements
a. All items.
b. Specific non-representative items. 10. Sampling risk may be controlled by:
c. Audit sampling. Increasing the sample Using an appropriate
d. All of the above. size sample selection
method
Testing All Items (100%) a. Yes Yes
b. Yes No
2. Performing 100% testing is least likely possible in which c. No Yes
of the following? d. No No
a. Large value but small in number accounts.
b. Assertions with assessed significant risks. 11. The risk that the auditor does not recognize
c. Testing customer credit approvals. misstatements or deviations included in the sample for
d. Use of CAATs. what they are
a. Sampling risk
Testing Specific Non-representative Items b. Confidence levels
c. Statistical sampling
3. Testing specific items does not include selecting d. Nonsampling risk
a. High value or key items.
b. Items to obtain certain information. 12. Which of the following is not an element of nonsampling
c. Items to test the operation of certain control risk?
activities. a. The auditor uses inappropriate procedures in auditing
d. Representative sample to conclude for an entire accounts receivable
population. b. The use of unreasonable small sample size
c. Misinterpretations of audit evidence
Audit Sampling d. Auditor fails to recognize the error in the sample

4. Which of the following causes an inappropriate The 10-Step Audit Sampling Process
conclusion or audit risk?
a. Sampling risk. 13. Which of the following is not one of the basic phases in
b. Non-sampling risk. audit sampling?
c. Both a and b. a. Planning the sample.
d. Neither a nor b. b. Selecting the sample and performing the tests.
c. Evaluating the results of the sample.
5. A sample in which the characteristics of the sample are d. Each of the above is a phase in audit sampling.
the same as those of the population is a(n):
a. variables sample. Step 1—Define the objective (purpose) of test
b. representative sample. 14. In defining the objective of tests of controls or tests of
c. attributes sample. details, an auditor should consider which of the
d. random sample. following to perform the appropriate audit procedures
and obtain relevant audit evidence?
6. The risk that the auditor’s conclusion based on a sample a. Financial statements assertions.
may be different from the conclusion if the entire b. Materiality.
population were subjected to the same audit procedure c. Population.
a. Sampling risk d. Sampling risk.
b. Confidence levels
c. Statistical sampling Step 2—Define the deviation or misstatement
d. Tolerable rate and the expected rate of deviation
15. In performing tests of controls, a deviation refers to
7. At times a sample may indicate in the case of a test of a. A departure from adequate control performance.
controls, that controls are more effective than they b. A difference between the recorded amount and the
actually are. This situation illustrates the risk of amount the auditor determines to be appropriate.
a. Over-reliance. c. A voided sample.
b. Under-reliance. d. The presence of characteristics of control.
c. Incorrect precision.
d. Incorrect rejection. Step 3—Identify the relevant population

8. At times a sample may indicate in the case of a test of Step 4—Determine the relevant sampling unit
details that a material misstatement does not exist
when in fact it does. This situation illustrates the risk of 16. Population is
a. Incorrect rejection a. A process that divides population into sub-
b. Incorrect acceptance populations which have an identifying characteristic
c. Over reliance and reduces the variability of items within each
d. Under reliance stratum and allows sample size to be reduced
without increasing sampling risk
9. The risk likelihood of assessing control risk too low (risk b. A selection that treats each sampling unit as the
of over reliance) and risk of incorrect acceptance relate individual monetary units that make up the
to the population.

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c. The individual items constituting a population. b. Attribute estimation/sampling.

d. The entire set of data from which a sample is c. Variable sampling.
selected and about which the auditor wishes to draw d. Unrestricted random sampling with replacement.
conclusions.
24. It refers to the statistical sampling plan that does not
17. The sampling units might be use a fixed sample size for tests of controls. It is
a. Physical items (for example, checks listed on sometimes called “stop-or-go” sampling because the
deposit slips, credit entries on bank statements, plan allows the audit team to stop after examining a
sales invoices or debtors’ balances). relatively small sample and evaluate the results. If the
b. Monetary units. results are clearly acceptable or clearly unacceptable,
c. Either a or b. the audit team can draw its conclusion; if the results are
d. Neither a nor b. inconclusive, the audit team can go forward and
examine additional items.
18. In identifying the relevant population, an auditor should a. Ratio estimation sampling
consider b. Sequential sampling
a. Direction of testing. c. MUS sampling
b. Completeness. d. Variables sampling
c. For tests of details, stratification or value-weighted
selection. 25. If the auditor is concerned that a population may
d. All of the above. contain exceptions, the determination of a sample size
sufficient to include at least one such exception is a
19. To ensure completeness of a population in audit characteristic of
sampling, an auditor may test boundaries and totality a. Discovery sampling.
of population by b. Variables sampling.
a. The first and last numbers of prenumbered c. Random sampling.
documents, or the beginning and ending days of an d. PPS sampling.
audit period.
b. Accounting for numerical sequence of prenumbered Test of Details
documents.
c. Footing population items and comparing to control 26. Which of the following sampling methods would be used
total. to estimate a numerical measurement of a population,
d. All of the above. such as a peso value?
a. Attributes sampling
20. In statistical sampling methods used in substantive b. Stop-or-go sampling
testing, an auditor most likely would stratify a c. Variables sampling
population into meaningful groups which have similar d. Random sampling
characteristics (often monetary value) if
a. Probability proportional to size (PPS) sampling is Step 6—Determine the sufficient sample size
used
b. The population has highly variable recorded Test of Controls
amounts
c. The auditor’s estimated tolerable misstatement is 27. Which of the following statements is correct concerning
extremely small. statistical sampling in tests of controls?
d. The standard deviation of recorded amount is a. There is an inverse relationship between the sample
relatively small. size and the expected control deviation rate.
b. As the population size doubles, the sample size
Step 5—Select the appropriate sampling approach should also double.
c. The qualitative aspects of deviations are not
21. An advantage of statistical sampling—which applies the considered by the auditor.
laws of probability to selecting sample items for d. There is an inverse relationship between the sample
examination and evaluating sample results—over size and the tolerable rate of deviation.
nonstatistical sampling is that statistical sampling helps
an auditor to 28. The tolerable rate of deviation is the maximum rate of
a. Minimize the failure to detect errors and deviations permissible by the audit team without
irregularities. modifying the planned assessed level of control risk. In
b. Eliminate the risk of nonsampling errors. determining the tolerable rate of deviation, the audit
c. Reduce the level of audit risk and materiality to a team should consider
relatively low amount. a. The planned assessed level of control risk.
d. Mathematically measures sampling risk. b. The degree of assurance desired by the audit
evidence in the sample.
22. A nonstatistical sampling plan can: c. If a control is judged to be more important and
a. Overstate the estimate of sampling risk would result in a more significant reduction in
b. Misdirect an auditor to unreliable sampling units substantive testing, the tolerable rate of deviation
c. Replicate the results of a statistical sampling should be established at lower levels.
plan d. All of the above.
d. Understate the degree of audit assurance
desired Test of Details

Test of Controls 29. Determine which of the following would lead to a larger
sample size for substantive test of details of an account
23. Which of the following sampling methods is most useful balance. Assume all other factors being equal.
to auditors when performing tests of controls? a. Smaller measure of tolerable misstatement
a. Discovery sampling. b. Greater reliance of analytical procedures

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c. Greater reliance on internal controls b. An deviation or misstatement (error) that the

d. Smaller expected frequency of errors auditor expects to be present in the population.
c. Rate of deviation from prescribed internal control
Step 7—Select the representative sample items procedures set by the auditor in respect of which
the auditor seeks to obtain an appropriate level of
30. Identify the sample selection method used, following assurance that the rate of deviation set by the
the same order: auditor is not exceeded by the actual rate of
I. Selecting items using a constant interval between deviation in the population.
selections; the first interval having a random start. d. Monetary amount set by the auditor in respect of
II. Selecting items from the entire population with no which the auditor seeks to obtain an appropriate
intention to include or exclude specific units level of assurance that the monetary amount set by
III. All items in the population or within each stratum the auditor is not exceeded by the actual
have a known chance of selection misstatement in the population.
a. Systematic, random, haphazard.
b. Systematic, haphazard, random. 36. Which of the following statements regarding projecting
c. Haphazard, systematic, random. the results of audit sampling is incorrect?
d. Random, systematic, haphazard. a. For tests of details, the auditor shall project
misstatements found in the sample to the
31. An underlying feature of random-based selection of population.
items is that each b. When a misstatement has been established as an
a. Stratum of the accounting population be given equal anomaly, it may be excluded when projecting
representation in the sample. misstatements to the population.
b. Item in the accounting population be randomly c. Projected misstatement may not be sufficient to
ordered. determine an amount to be recorded.
c. Item in the accounting population should have an d. For tests of controls, projection of deviations is
opportunity to be selected. necessary.
d. Item must be systematically selected using
replacement.
Test of Controls
32. If certain forms are not consecutively numbered
a. Selection of a random sample probably is not Use the following information for the next two questions:
possible.
b. Systematic sampling may be appropriate. An auditor desired to test credit approval on 10,000 sales
c. Stratified sampling should be used. invoices processed during the year. The auditor designed a
d. Random number tables cannot be used. statistical sample that would provide 1% risk of assessing
control risk too low (99% confidence) that not more than
Step 8—Perform the testing and evaluate evidence 7% of the sales invoices lacked approval. The auditor
estimated from previous experience that about 2 ½% of the
33. An auditor is testing internal control procedures that are sales invoices lacked approval. A sample of 200 invoices
evidenced on an entity’s vouchers by matching random was examined and 7 of them were lacking approval. The
numbers with voucher numbers. If a random number auditor then determined the achieved upper precision limit
matches the number of a voided voucher, that voucher to be 8%.
ordinarily should be replaced by another voucher in the
random sample if the voucher 37. The allowance for sampling risk was
a. Constitutes a deviation. a. 5 ½% c. 3 ½%
b. Has been properly voided. b. 4 ½% d. 1%
c. Cannot be located.
d. Represents an immaterial peso amount. 38. In the evaluation of this sample, the auditor decided to
increase the level of preliminary assessment of control
34. An auditor plans to examine a sample of 20 purchase risk (CR is high) because the
orders for proper approvals as prescribed by the client’s a. Tolerable rate (7%) was less than the achieved
internal control procedures. One of the purchase orders upper precision limit (8%).
in the chosen sample of 20 cannot be found, and the b. Expected deviation rate (7%) was more than the
auditor is unable to use alternative procedures to test percentage of errors in the sample (3 ½%).
whether that purchase order was properly approved. c. Achieved upper precision limit (8%) was more than
The auditor should the percentage of error in the sample 3-1/2%).
a. Chose another purchase order to replace the d. Expected deviation rate (2 - ½ %) was less than the
missing purchase order in the sample. tolerable rate (7%).
b. Consider this test of control invalid and proceed with
substantive tests since internal control cannot be 39. When the upper precision limit exceeds the tolerable
relied upon. rate of deviation, the auditor may
c. Treat the missing purchase order as a deviation for a. Reduce reliance on internal control.
the purpose of evaluating the sample. b. Expand the sample to examine a larger number of
d. Select a completely new set of 20 purchase orders. items by at least the number of items in the original
sample, as a rule of thumb.
Step 9—Evaluate the test results and reach conclusion c. Either a or b.
d. Neither a nor b.
35. Anomalous error means
a. An error (deviation or misstatement) that arises Test of Details
from an isolated event that has not recurred other
than on specifically identifiable occasions and is 40. Which one of the following is a proper course of action
therefore not representative of errors in the for the auditor when the upper misstatement limit
population. exceeds the tolerable misstatement?

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a. Analyze the detected misstatements for some limit on misstatements could fall below the tolerable
common problems. misstatement to enable the audit team could
b. The auditor can ask the client to correct the known conclude that the financial statements were not
misstatements or investigate misstatements that materially misstated
have been identified and the potential for further d. All of the above.
misstatements and to make any necessary
adjustments. Step 10—Complete documentation
c. The auditor can expand the sample. If enough
additional items are examined and no additional ***End***
misstatements are detected, the recalculated upper

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