ACCA AA · Chapter 10
Sampling, automated tools and using the work of others MCQs with Answers
10 multiple-choice questions on Sampling, automated tools and using the work of others for ACCA AA Audit and Assurance. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under ISA 530, what is sampling risk?
- A) The risk that the auditor uses an inappropriate procedure for the assertion being tested
- B) The risk that the client selects the sample items for the auditor
- C) The risk that the population contains no errors
- D) The risk that the auditor's conclusion based on a sample may differ from the conclusion if the entire population were tested
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Answer: D) The risk that the auditor's conclusion based on a sample may differ from the conclusion if the entire population were tested
Sampling risk arises from testing less than 100% of a population. Non-sampling risk is the risk of reaching a wrong conclusion for other reasons, such as using inappropriate procedures or misinterpreting evidence. The auditor, not the client, must select the sample.
Question 2
The auditor wishes to select a sample of 60 items from a population of 2,400 sequentially numbered sales invoices using systematic selection. What is the sampling interval?
- A) 24
- B) 40
- C) 60
- D) 144
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Answer: B) 40
Sampling interval = population size / sample size = 2,400 / 60 = 40. The auditor selects a random starting point between 1 and 40 and then every 40th invoice. The figure 24 incorrectly divides by 100, and 144 is 2,400 x 0.06.
Question 3
The auditor tests a sample of receivable balances with a total book value of $400,000 from a population of $4,800,000. The sample contains misstatements totalling $7,200 (overstatements). Using the ratio method, what is the projected misstatement for the population?
- A) $7,200
- B) $72,000
- C) $86,400
- D) $93,600
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Answer: C) $86,400
Misstatement rate = $7,200 / $400,000 = 1.8%. Projected misstatement = 1.8% x $4,800,000 = $86,400 (equivalently $7,200 x 12). $7,200 ignores projection, $72,000 multiplies by 10 rather than 12, and $93,600 double-counts the known misstatement on top of the projection.
Question 4
Which of the following sample selection methods is NOT appropriate when using statistical sampling?
- A) Haphazard selection
- B) Monetary unit selection
- C) Random selection
- D) Systematic selection with a random start
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Answer: A) Haphazard selection
Statistical sampling requires random selection of items so that probability theory can be used to evaluate results. Haphazard selection, where the auditor picks items without a structured technique, is acceptable only for non-statistical sampling because it cannot guarantee every item has a known chance of selection.
Question 5
In which situation would the auditor most likely test 100% of a population rather than use sampling?
- A) The population has a low risk of material misstatement
- B) The population consists of a large number of small, similar items
- C) Controls over the population have been tested and found effective
- D) The population consists of a small number of high-value items
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Answer: D) The population consists of a small number of high-value items
Examining all items is appropriate when the population is made up of a small number of large items, when there is a significant risk and other means do not provide sufficient evidence, or when automated tools make it cost-effective. A large number of small items is the classic situation for sampling.
Question 6
What is 'test data' as a computer-assisted audit technique?
- A) Software used by the auditor to extract and analyse data from the client's files
- B) Data provided by the client's bank for the bank confirmation
- C) A sample of the client's transactions selected for vouching to source documents
- D) Dummy transactions processed through the client's system to check that programmed controls operate as expected
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Answer: D) Dummy transactions processed through the client's system to check that programmed controls operate as expected
Test data involves entering data, including deliberately invalid items, into the client's system and comparing the results with expected outcomes; it is mainly used to test application controls. Audit software, by contrast, interrogates the client's data files to perform substantive work such as recalculations and exception reports.
Question 7
Which of the following is a key benefit of using data analytics in an audit?
- A) It removes the need for the auditor to exercise professional judgement
- B) Entire populations can be analysed to identify unusual items rather than relying on a sample
- C) It guarantees that the financial statements are free from fraud
- D) It eliminates the need to understand the client's IT systems
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Answer: B) Entire populations can be analysed to identify unusual items rather than relying on a sample
Data analytics tools allow the auditor to analyse whole populations, identify anomalies and focus work on higher-risk items. The auditor must still exercise judgement over results, needs to understand the IT environment to rely on the data, and cannot obtain absolute assurance.
Question 8
Under ISA 620, which of the following must the auditor evaluate before using the work of an auditor's expert, such as a property valuer?
- A) The expert's competence, capabilities and objectivity
- B) Whether the expert has previously worked for the client
- C) Whether the client's directors approve of the expert
- D) Whether the expert is a member of ACCA
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Answer: A) The expert's competence, capabilities and objectivity
ISA 620 requires the auditor to evaluate whether the expert has the necessary competence, capabilities and objectivity, to obtain an understanding of the expert's field, to agree the nature and scope of the work, and to evaluate the adequacy of the findings. Previous work for the client is one factor relevant to objectivity, not the full evaluation.
Question 9
An audit firm used an independent actuary to evaluate a client's defined benefit pension obligation and is issuing an unmodified opinion. Which of the following is correct regarding reference to the expert in the auditor's report?
- A) The auditor must include an Emphasis of Matter paragraph describing the expert's work
- B) The auditor may refer to the expert only if the expert was appointed by the client
- C) The auditor should not refer to the work of the expert, because the auditor has sole responsibility for the opinion
- D) The auditor must name the expert in the Opinion section to share responsibility
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Answer: C) The auditor should not refer to the work of the expert, because the auditor has sole responsibility for the opinion
ISA 620 states that the auditor has sole responsibility for the opinion, and that responsibility is not reduced by using an expert. In an unmodified report, the auditor does not refer to the expert's work unless law or regulation requires it. Any reference made in a modified report must make clear that it does not reduce the auditor's responsibility.
Question 10
Pintle Co outsources its payroll processing to a service organisation. Under ISA 402, which type of service organisation report would provide evidence on the operating effectiveness of controls over a period?
- A) The service organisation's own audited financial statements
- B) A written representation from Pintle Co's management
- C) A Type 2 report covering the design, implementation and operating effectiveness of controls
- D) A Type 1 report covering the description and design of controls at a specified date
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Answer: C) A Type 2 report covering the design, implementation and operating effectiveness of controls
A Type 1 report only describes the system and the design of controls at a point in time. A Type 2 report also includes the service auditor's tests of operating effectiveness over a specified period, so it can support the user auditor's reliance on controls. The service organisation's own accounts and client representations do not address those controls.