An Advantage of Using Statistical Over Nonstatistical Sampling Methods in Tests

question 10

Multiple Choice

An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

• A) Afford greater assurance than a nonstatistical sample of equal size.
• B) Provide an objective basis for quantitatively evaluating sample risks.
• C) Can more easily convert the sample into a dual-purpose test useful for substantive testing.
• D) Eliminate the need to use judgment in determining appropriate sample sizes.

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Definitions:

Common-sized Balance Sheet

A balance sheet in which each line item is expressed as a percentage of total assets, facilitating comparison with other companies regardless of size.

Vertical Analysis

A method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement, allowing for easy comparison and analysis of different-sized companies.

Cost Of Goods Sold

Costs directly linked to the creation of products sold by a company, including expenses for materials, labor, and overhead.

Horizontal Analysis

An analysis technique that evaluates trends over time by comparing financial statement line items or ratios across multiple periods.