ADA Statistical Sampling and Hypothesis Testing 2 — Questions and Answers
Question 1: Which statistical measure describes the spread of data values around the mean in an audit population?
- Median
- Mode
- Standard deviation (Correct answer)
- Skewness
Correct answer: Standard deviation
Standard deviation quantifies how dispersed individual data points are from the population mean, indicating variability.
Question 2: In audit analytics, a confidence interval of 95% means:
- There is a 5% chance the sample is biased
- 95% of the data falls within one standard deviation
- If the sampling process were repeated, 95% of intervals would contain the true population parameter (Correct answer)
- The auditor is 95% sure no errors exist
Correct answer: If the sampling process were repeated, 95% of intervals would contain the true population parameter
A 95% confidence interval is a range constructed so that 95% of such intervals, under repeated sampling, would capture the true population value.
Question 3: Which test would an auditor use to determine whether the distribution of a numeric field follows Benford's Law?
- t-test
- Chi-square goodness-of-fit test (Correct answer)
- ANOVA
- Mann-Whitney U test
Correct answer: Chi-square goodness-of-fit test
The chi-square goodness-of-fit test compares observed digit frequencies to those expected under Benford's Law to detect anomalies.
Question 4: Tolerable misstatement in a statistical audit sample represents:
- The maximum error the auditor is willing to accept without modifying the opinion (Correct answer)
- The average error found in the sample
- The standard deviation of errors in the population
- The projected total error for the population
Correct answer: The maximum error the auditor is willing to accept without modifying the opinion
Tolerable misstatement is the threshold below which errors would not affect the auditor's conclusions — it drives sample size calculations.
Question 5: A two-tailed hypothesis test is used when the auditor wants to detect:
- Only overstatements in account balances
- Only understatements in account balances
- Deviations in either direction from the expected value (Correct answer)
- The exact mean of the population
Correct answer: Deviations in either direction from the expected value
A two-tailed test checks for significant differences in either direction, making it suitable when both overstatement and understatement are of concern.
Question 6: The risk of incorrect acceptance in audit sampling is most directly related to:
- Type I error
- Type II error (Correct answer)
- Sampling bias
- Non-sampling risk
Correct answer: Type II error
The risk of incorrect acceptance — concluding the balance is fairly stated when it is not — corresponds to a Type II error (false negative).
ADA Statistical Sampling and Hypothesis Testing 2
Which statistical measure describes the spread of data values around the mean in an audit population?