What is PPS sampling in auditing?
4.5 Probability Proportional to Size (PPS) sampling assigns higher inclusion probability of selection for population units with higher sizes (size may be total expenditure, total population etc.). In other words, the entities with higher sizes, based on some characteristics, will have higher chances of selection.
What are the two approaches to audit sampling?
There are two general approaches to audit sampling: nonstatistical and statistical.
What exception is in audit sampling procedure?
Audit exceptions are simply deviations from the expected result from testing one or more control activities.
What are the three main phases of audit sampling?
Terms in this set (9)
- plan sample.
- select sample/perform test.
- Evaluate results.
When would you use PPS sampling?
PPS sampling is also used in the early stages of multi-stage samples to achieve equal probability samples of the final-stage sampling units or EPSEM samples. In all cases, suppose one is estimating a population total for a variable F; with N units.
What is PPS sampling with example?
This is known as probability proportional to size (PPS). For example, if one sample had 20,000 members, the probability of a member being selected would be 1/20000 or . 005 percent. If another sample had 10,000 members, the chance of a member being selected would be 1/10000 or .
When should audit sampling not applicable?
Auditors may deem 100% testing appropriate where there are a small number of high value items that make up a population, or when there is a significant risk of material misstatement and other audit procedures will not provide sufficient appropriate audit evidence.
What is target testing in auditing?
Target testing – involves selecting items to be tested based on some specific characteristic (e.g. represents a material risk). The items chosen to be tested are normally stratified based on higher value or higher risk rather than selecting them randomly.
What is block sampling?
Block sampling is a sampling technique used in auditing, where a sequential series of selections is made. This approach is very efficient, since a large cluster of documents can be pulled from one location. However, a more random selection method would do a better job of sampling the entire population.
What is an exception in control testing?
A test exception simply means that the auditor found a discrepancy in how a control (or controls) were either designed or how they are being carried out. It rarely means you failed your audit, but it does mean that you will receive a ‘qualified’ (or less than perfect) audit opinion.
What is the risk of incorrect rejection?
The risk of incorrect rejection is the risk that the sample supports the conclusion that the recorded account balance is materially misstated when it is not materially misstated.
What does ISI mean in auditing?
Selecting individually significant items is the process by which the sampling population is derived. Individually significant items must be audited 100 percent.
What is the accept reject sampling method?
The Accept-Reject Method. The Accept-Reject method is a classical sampling method which allows one to sample from a distribution which is difficult or impossible to simulate by an inverse transformation. Instead, draws are taken from an instrumental density and accepted with a carefully chosen probability.
What is sampling risk in audit?
.10Sampling risk arises from the possibility that, when a test of controls or a substantive test is restricted to a sample, the auditor’s conclusions may be different from the conclusions he would reach if the test were applied in the same way to all items in the account balance or class of transactions.
What is an example of PPS sampling?
Example of PPS Sampling A population consists of 10 villages with a total of 212 households. The second column of the accompanying table shows the number of households corresponding to each village. A sample of 6 villages is to be selected by the PPS method.
What does PPS mean in research?
PPS Sampling: Definition, Examples A probability proportional to size sampling (PPS) procedure is a variation on multi-stage sampling in which the probability of selecting a PSU is proportional to its size, and an equal number of elements is sampled within each PSU.