ICAEW ARF · Chapter 9
Sampling and audit documentation MCQs with Answers
11 multiple-choice questions on Sampling and audit documentation for ICAEW ARF Assurance and Risk Fundamentals. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following best describes audit sampling?
- A) Testing all items above a set value and ignoring the rest of the population
- B) Selecting the items the auditor considers most interesting
- C) Testing every item in a population using computer software
- D) Applying audit procedures to less than 100% of items in a population so that every sampling unit has a chance of selection
Show answer & explanation
Answer: D) Applying audit procedures to less than 100% of items in a population so that every sampling unit has a chance of selection
Audit sampling allows the auditor to draw conclusions about a whole population from a selection, provided each unit has a chance of being selected. Testing only high-value items is a targeted approach, not sampling, and leaves the remainder untested. Testing 100% of items is not sampling at all.
Question 2
Which of the following is a feature of statistical sampling?
- A) Selection based on the auditor's judgement of which items are most likely to be misstated
- B) Testing only items processed in the last month of the year
- C) Selection of items without any defined method
- D) Random selection of items and the use of probability theory to evaluate the results
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Answer: D) Random selection of items and the use of probability theory to evaluate the results
Statistical sampling requires random selection and the use of probability theory to evaluate results, including measuring sampling risk. Any approach without both features is non-statistical. Judgemental selection and selecting only year-end items do not meet these requirements.
Question 3
An auditor wishes to select a sample of 60 sales invoices from a population of 2,400 invoices using systematic selection. What is the sampling interval?
- A) 40
- B) 60
- C) 24
- D) 400
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Answer: A) 40
Sampling interval = population size / sample size = 2,400 / 60 = 40. The auditor would choose a random starting point between 1 and 40 and then select every 40th invoice. 60 is the sample size, and 24 and 400 result from misplacing the decimal point.
Question 4
Which of the following describes haphazard selection?
- A) The auditor selects items without following a structured technique, while trying to avoid any conscious bias
- B) Every nth item is selected after a random start
- C) Items are selected using random number generator software
- D) Items are selected in proportion to their monetary value
Show answer & explanation
Answer: A) The auditor selects items without following a structured technique, while trying to avoid any conscious bias
Haphazard selection involves picking items without a structured method, trying to avoid bias such as always choosing large or easily located items. Because it is not truly random, it is not suitable for statistical sampling. The other options describe systematic, random and monetary unit selection.
Question 5
When testing controls, which of the following would increase the required sample size?
- A) An increase in the tolerable rate of deviation
- B) A decrease in the level of reliance the auditor plans to place on the control
- C) An increase in the expected rate of deviation in the population
- D) An increase in the size of an already large population
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Answer: C) An increase in the expected rate of deviation in the population
The more deviations the auditor expects to find, the larger the sample needed to conclude that the actual rate does not exceed the tolerable rate. A higher tolerable rate or lower planned reliance reduces the sample size. For large populations, increasing the population size has little effect on sample size.
Question 6
Which of the following is an example of non-sampling risk?
- A) The sample selected happens not to be representative of the population
- B) The auditor concludes controls are effective when the population deviation rate is higher than in the sample
- C) The auditor examines a document but fails to recognise a misstatement in it
- D) The auditor concludes a balance is not materially misstated because the sample contained fewer errors than the population
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Answer: C) The auditor examines a document but fails to recognise a misstatement in it
Non-sampling risk arises from factors other than sampling, for example using inappropriate procedures or misinterpreting evidence. Sampling risk is the risk that the auditor's conclusion based on a sample differs from the conclusion if the whole population were tested, which the other three options describe.
Question 7
An auditor tests a sample of receivables balances with a total value of £50,000 from a population of £800,000. Misstatements found in the sample total £1,500. Using ratio projection, what is the projected misstatement for the population?
- A) £1,500
- B) £22,500
- C) £30,000
- D) £24,000
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Answer: D) £24,000
Misstatement rate = £1,500 / £50,000 = 3%. Projected misstatement = 3% x £800,000 = £24,000. £1,500 is only the actual misstatement found and ignores the untested items. £22,500 applies the rate to the untested £750,000 only and omits the misstatement already found in the sample.
Question 8
Which of the following is NOT a purpose of audit documentation?
- A) To provide the client with a copy of all working papers for its own records
- B) To provide evidence of the basis for the auditor's conclusions
- C) To provide evidence that the audit was planned and performed in accordance with auditing standards
- D) To help the engagement team plan and perform the audit and allow its work to be reviewed
Show answer & explanation
Answer: A) To provide the client with a copy of all working papers for its own records
Audit documentation records the work done, the evidence obtained and the conclusions reached, and supports direction, supervision and review. It belongs to the audit firm and is not prepared for the client's use. Giving the client all working papers could also make future audits predictable.
Question 9
Which of the following must be recorded on audit working papers documenting the testing of a sample of purchase invoices?
- A) The name of every employee who processed each invoice
- B) Who performed the work and the date, who reviewed it and the date, and identifying characteristics of the invoices tested
- C) The auditor's opinion on the financial statements as a whole
- D) The total fee charged for the audit
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Answer: B) Who performed the work and the date, who reviewed it and the date, and identifying characteristics of the invoices tested
Auditing standards require documentation of the identifying characteristics of items tested, who performed and reviewed the work, and when. This allows the work to be reviewed and repeated if needed. Employee names for each invoice, the overall opinion and the audit fee are not required on a working paper for a sample test.
Question 10
Who owns the audit working papers prepared during a statutory audit?
- A) The client company
- B) The audit firm
- C) The client's shareholders
- D) The Registrar of Companies
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Answer: B) The audit firm
Working papers are the property of the audit firm. The firm may make parts of them available to the client at its discretion, provided this does not undermine the independence or effectiveness of the audit. The firm must also keep them confidential and secure.
Question 11
After the final audit file has been assembled, the auditor finds it necessary to add new documentation. Which of the following is permitted?
- A) Deleting earlier working papers that are no longer considered relevant
- B) Replacing working papers with revised versions without recording the change
- C) Adding the documentation, provided the auditor records the reasons and when and by whom it was added and reviewed
- D) Discarding the audit file once the client has accepted the auditor's report
Show answer & explanation
Answer: C) Adding the documentation, provided the auditor records the reasons and when and by whom it was added and reviewed
After the final file is assembled, documentation must not be deleted or discarded before the end of the retention period. If it is necessary to add to or modify the file, the auditor must document the specific reasons, when the changes were made and reviewed, and by whom. Silent replacement would undermine the integrity of the audit record.