CAF-8 · Chapter 4

Evidence and Sampling MCQs with Answers

10 multiple-choice questions on Evidence and Sampling for CAF-8 Audit and Assurance Essentials. Try each one before revealing the answer and explanation.

1. Question 1

   According to ISA 500, audit evidence is considered more reliable when it is:

   • A) Communicated verbally by the client's junior staff.
   • B) Generated internally by a system with very weak internal controls.
   • C) Obtained directly by the auditor from independent external sources.
   • D) Provided as a photocopy rather than an original document.
   Show answer & explanation

   Answer: C) Obtained directly by the auditor from independent external sources.

   Evidence is generally more reliable when it is obtained from independent external sources, generated directly by the auditor, and exists in documentary or original form.

2. Question 2

   An auditor intends to select a sample of sales invoices. To ensure every invoice has an equal chance of being selected, which sampling method should be used?

   • A) Block sampling
   • B) Haphazard sampling
   • C) Random selection
   • D) Specific item selection of invoices over Rs. 1 million
   Show answer & explanation

   Answer: C) Random selection

   Random selection (often using random number generators) ensures that all items in the population have an equal and mathematically calculable chance of being selected.

3. Question 3

   What is the definition of 'Sampling Risk'?

   • A) The risk that the auditor makes a mathematical error while adding up the invoices.
   • B) The risk that the auditor's conclusion based on a sample may differ from the conclusion if the entire population were tested.
   • C) The risk that the client's internal controls fail to prevent a misstatement.
   • D) The risk that the auditor selects the wrong audit procedure for the objective.
   Show answer & explanation

   Answer: B) The risk that the auditor's conclusion based on a sample may differ from the conclusion if the entire population were tested.

   Sampling risk is the inherent danger that the selected sample is not completely representative of the entire population, leading to an erroneous conclusion.

4. Question 4

   To improve audit efficiency, an auditor divides the trade receivables population into three groups based on balance sizes (High, Medium, Low) before sampling. What is this technique called?

   • A) Anomalous separation
   • B) Tolerable rate deviation
   • C) Stratification
   • D) Block selection
   Show answer & explanation

   Answer: C) Stratification

   Stratification is the process of dividing a population into sub-populations (strata) with similar characteristics, allowing the auditor to focus effort on higher-risk or higher-value items.

5. Question 5

   Under what condition is it appropriate for an auditor to use 'Negative Confirmations' for trade receivables?

   • A) When the assessed risk of material misstatement is very high.
   • B) When the population comprises a small number of very large balances.
   • C) When the population comprises a large number of small, homogeneous balances and the assessed risk is low.
   • D) When the auditor suspects widespread fraud in the receivables ledger.
   Show answer & explanation

   Answer: C) When the population comprises a large number of small, homogeneous balances and the assessed risk is low.

   Negative confirmations ask the recipient to reply only if they disagree. They provide less persuasive evidence and are only suitable when risk is low, balances are small, and exception rates are expected to be low.

6. Question 6

   If an auditor is unable to obtain a response to a positive external confirmation request from a major debtor, what is the required next step?

   • A) Assume the balance is correct because the debtor did not object.
   • B) Perform alternative audit procedures to obtain relevant and reliable evidence.
   • C) Immediately issue a qualified audit report.
   • D) Delete the balance from the sample and select a new one.
   Show answer & explanation

   Answer: B) Perform alternative audit procedures to obtain relevant and reliable evidence.

   In the case of non-responses to positive confirmations, the auditor cannot assume the balance is correct and must perform alternative procedures, such as verifying subsequent cash receipts.

7. Question 7

   Within the context of sampling, what does 'Tolerable Misstatement' refer to?

   • A) The amount of fraud the client is legally allowed to commit.
   • B) A monetary amount set by the auditor to obtain an appropriate level of assurance that the actual misstatement does not exceed this amount.
   • C) The minimum misstatement required to issue an adverse opinion.
   • D) The total errors found in the prior year's audit.
   Show answer & explanation

   Answer: B) A monetary amount set by the auditor to obtain an appropriate level of assurance that the actual misstatement does not exceed this amount.

   Tolerable misstatement is the application of performance materiality to a specific sampling procedure to ensure aggregate small errors do not exceed overall materiality.

8. Question 8

   During sample evaluation, an auditor finds an error caused by a one-time computer glitch that has since been fixed and proven not to affect any other transactions. This error is best classified as an:

   • A) Anomaly
   • B) Expected deviation
   • C) Inherent risk failure
   • D) Uncorrected projected error
   Show answer & explanation

   Answer: A) Anomaly

   An anomaly is a misstatement or deviation that is demonstrably not representative of misstatements or deviations in the broader population.

9. Question 9

   ISA 230 requires the auditor to assemble the final audit file on a timely basis after the date of the auditor's report. What is the typical timeframe for this assembly?

   • A) Not more than 14 days
   • B) Not more than 30 days
   • C) Not more than 60 days
   • D) Not more than 120 days
   Show answer & explanation

   Answer: C) Not more than 60 days

   The final audit file must be assembled no later than 60 days after the date of the auditor's report.

10. Question 10

    An auditor notices that 5 massive inventory items account for 60% of the total inventory value, while 10,000 small items account for the rest. What is the most effective approach for the 5 massive items?

    • A) 100% examination of the 5 massive items.
    • B) Haphazardly select 2 of them to test.
    • C) Ignore them as they will skew the statistical sample.
    • D) Use block sampling to test the first 50 items alphabetically.
    Show answer & explanation

    Answer: A) 100% examination of the 5 massive items.

    A 100% examination is appropriate when a population constitutes a small number of large value items that pose a significant risk.