Free CPA AUD (Auditing & Attestation) Performing Further Procedures and Obtaining Evidence Practice Questions

C is correct. AU-C 530.05 defines sampling risk as the risk that the auditor's conclusion based on a sample may differ from the conclusion that would be reached if the entire population were subjected to the same audit procedure. This is an inherent limitation of sampling — the sample may not be perfectly representative of the population. Selecting items from the wrong population (A) is a nonsampling error related to improper definition of the population, not sampling risk. Client manipulation (B) describes fraud risk, not sampling risk. Failure to detect errors in examined items (D) is nonsampling risk, which relates to auditor error in performing procedures rather than the statistical limitations of sampling.

A is correct. AU-C 560.A2 distinguishes between two types of subsequent events. Type I events (adjusting events) provide additional evidence about conditions that existed at the balance sheet date and require adjustment of the financial statements. Type II events (nonadjusting events) are indicative of conditions that arose after the balance sheet date and require disclosure but not adjustment. A significant lawsuit arising from events that occurred after the balance sheet date is a Type II event — the condition (the event giving rise to the lawsuit) did not exist at year-end, so no adjustment is required, but the lawsuit's potential financial impact warrants disclosure. The customer bankruptcy (A) is a Type I event because the customer's financial difficulty likely existed at the balance sheet date — the receivable should be adjusted to reflect the uncollectible amount at year-end. A pricing error in the cost accounting system (C) represents a condition (the error) that existed at the balance sheet date — this is a Type I event requiring adjustment of inventory and cost of goods sold. A mathematical depreciation error (D) also reflects a condition existing at year-end and requires correction as either a prior-period adjustment or a current-period correction.

A is correct. Under AU-C 450.07-.11, when the auditor identifies misstatements, the auditor should communicate them to management and request correction. If management refuses to correct some or all misstatements, the auditor evaluates whether uncorrected misstatements are material, individually or in the aggregate. When aggregate misstatements exceed performance materiality but are below overall materiality, the auditor may need to perform additional procedures to reduce the risk that remaining undetected misstatements, combined with uncorrected misstatements, could exceed overall materiality. Automatically qualifying (A) is premature; the auditor first requests correction and evaluates the effect. Ignoring because they are below overall materiality (C) fails to consider the cushion that performance materiality provides for undetected misstatements. Withdrawing (B) is an extreme response not warranted by the circumstances described.