Q.1 What is audit sampling?
Examining every transaction in detail
Applying audit procedures to less than 100% of items
Randomly choosing only one transaction
Ignoring small transactions
Explanation - Audit sampling means selecting and testing a subset of items from a population to draw conclusions about the entire population.
Correct answer is: Applying audit procedures to less than 100% of items
Q.2 Which of the following is a key objective of audit sampling?
To reduce audit fees
To form a conclusion about the population
To avoid responsibility
To test irrelevant data
Explanation - Sampling helps auditors conclude about the entire data set without testing every item.
Correct answer is: To form a conclusion about the population
Q.3 In audit sampling, the population refers to:
A group of auditors
The entire set of data from which samples are drawn
The country’s population
The company’s employees
Explanation - Population is the complete set of data relevant to the audit procedure.
Correct answer is: The entire set of data from which samples are drawn
Q.4 Which type of risk is directly associated with audit sampling?
Sampling risk
Business risk
Market risk
Liquidity risk
Explanation - Sampling risk is the chance that the sample does not represent the population correctly, leading to a wrong conclusion.
Correct answer is: Sampling risk
Q.5 What is non-sampling risk?
Risk due to sample size
Risk of auditor error not related to sampling
Risk from market fluctuations
Risk of fraud
Explanation - Non-sampling risk arises from factors like misinterpretation of evidence, not from the selection of the sample.
Correct answer is: Risk of auditor error not related to sampling
Q.6 Which sampling method ensures every item has an equal chance of selection?
Haphazard sampling
Judgmental sampling
Random sampling
Convenience sampling
Explanation - Random sampling ensures each item in the population has an equal probability of selection.
Correct answer is: Random sampling
Q.7 Stratified sampling involves:
Choosing samples based on auditor’s convenience
Dividing the population into groups and sampling each group
Testing only one stratum
Selecting all items above a threshold
Explanation - Stratified sampling enhances representativeness by dividing the population into subgroups.
Correct answer is: Dividing the population into groups and sampling each group
Q.8 Which is NOT a statistical sampling method?
Random sampling
Systematic sampling
Judgmental sampling
Stratified sampling
Explanation - Judgmental sampling relies on auditor’s judgment, not statistical principles.
Correct answer is: Judgmental sampling
Q.9 Systematic sampling selects items based on:
Auditor’s preference
A fixed interval
Random convenience
Only large items
Explanation - Systematic sampling chooses every nth item from a population.
Correct answer is: A fixed interval
Q.10 Which factor most affects the sample size in audit sampling?
Audit fees
Population size
Desired confidence level
Auditor’s personal opinion
Explanation - A higher confidence level requires a larger sample size to reduce sampling risk.
Correct answer is: Desired confidence level
Q.11 What is tolerable misstatement in sampling?
The smallest misstatement in the population
The acceptable level of misstatement in the population
The maximum misstatement in one transaction
The total misstatement found
Explanation - Tolerable misstatement sets the threshold for acceptable errors in the population.
Correct answer is: The acceptable level of misstatement in the population
Q.12 What is the main disadvantage of non-statistical sampling?
It is too costly
It lacks objectivity and measurability
It requires software
It is legally prohibited
Explanation - Non-statistical sampling may be biased since it is based on auditor judgment without statistical measurement.
Correct answer is: It lacks objectivity and measurability
Q.13 Which method is best for ensuring representativeness of large populations?
Judgmental sampling
Random sampling
Convenience sampling
Block sampling
Explanation - Random sampling ensures each item has an equal chance, avoiding bias in large populations.
Correct answer is: Random sampling
Q.14 Attribute sampling is mainly used to test:
Internal controls
Account balances
Revenue recognition
Depreciation calculations
Explanation - Attribute sampling helps assess compliance with control procedures.
Correct answer is: Internal controls
Q.15 Variable sampling is used to test:
Controls compliance
Monetary misstatements
Employee behavior
Fraud detection
Explanation - Variable sampling estimates the value of misstatements in account balances.
Correct answer is: Monetary misstatements
Q.16 Block sampling selects:
Every nth item
A cluster of consecutive items
Only large items
Items based on judgment
Explanation - Block sampling involves testing a group of items occurring together.
Correct answer is: A cluster of consecutive items
Q.17 Which sampling method is most prone to selection bias?
Random sampling
Systematic sampling
Haphazard sampling
Stratified sampling
Explanation - Haphazard sampling can introduce bias since selection is not systematic or random.
Correct answer is: Haphazard sampling
Q.18 What is the main purpose of statistical sampling?
To reduce audit costs
To provide quantifiable measurement of risk
To avoid auditing difficult areas
To ignore small transactions
Explanation - Statistical sampling allows auditors to measure and control sampling risk.
Correct answer is: To provide quantifiable measurement of risk
Q.19 In audit sampling, an anomaly is:
A fraud case
A rare misstatement not representative of the population
A systematic error
An auditor’s mistake
Explanation - An anomaly refers to an unusual misstatement not expected to recur.
Correct answer is: A rare misstatement not representative of the population
Q.20 Which factor increases the required sample size?
Higher tolerable misstatement
Lower risk of material misstatement
Higher expected error rate
Larger audit fees
Explanation - When errors are expected to be higher, auditors need a larger sample to assess them.
Correct answer is: Higher expected error rate
Q.21 What is the key advantage of stratified sampling?
Saves auditor time
Ensures each subgroup is represented
Requires no planning
Eliminates all risks
Explanation - Stratification ensures that key groups in the population are included in the sample.
Correct answer is: Ensures each subgroup is represented
Q.22 What is an example of systematic sampling?
Selecting every 10th invoice
Choosing invoices with the highest value
Selecting invoices auditor prefers
Testing invoices from only one month
Explanation - Systematic sampling involves a fixed interval, such as every 10th item.
Correct answer is: Selecting every 10th invoice
Q.23 Which risk arises if the sample incorrectly indicates controls are effective when they are not?
Risk of underreliance
Risk of overreliance
Business risk
Market risk
Explanation - Risk of overreliance occurs when the sample suggests controls are stronger than they are.
Correct answer is: Risk of overreliance
Q.24 What is the risk of underreliance in sampling?
Concluding controls are weaker than they are
Accepting too much risk
Testing too many transactions
Fraud going undetected
Explanation - Risk of underreliance leads to unnecessary extra audit work.
Correct answer is: Concluding controls are weaker than they are
Q.25 Which of the following best describes monetary-unit sampling?
Sampling based on control attributes
Selecting items proportional to their size
Testing small-value items only
Sampling based on judgment
Explanation - Monetary-unit sampling increases the chance of selecting high-value items for testing.
Correct answer is: Selecting items proportional to their size