Application of PPS Sampling

1) Assume the following: ,

 Sales consists of 250 sales transactions totaling $100,000
The auditor expects only 2 errors
The tolerable misstatement is $6,000
The risk of incorrect acceptance is 10%

The first 10 invoices are in the following amounts:

Cum Cum
Inv# Amt amt Range Inv# Amt amt Range
#1 $600 $600 $0-$600 #6 $2,170 $4,750 2,581-4,750
#2 355 955 601-955 #7 35 4,785 4,751-4,785
#3 170 1,125 956-1,125 #8 20 4,805 4,786-4,805
#4 860 1,985 1,126-1,985 #9 1,625 6,430 4,806-6,430
#5 595 2,580 1,986-2,580 #10 15 6,445 6,431-6,445

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Audit Sampling Module 5 248

2) Reliability factor will be selected from the following table

Risk of incorrect acceptance 1% 5% 10% 15%

Estimated # of errors
0 4.61 3.00 2.31 1.90
1 6.64 4.75 3.89 3.38
2 8.41 6.30 5.33 4.72

Reliability factor will be 5.33

3) Sampling interval = $6,000 + 5.33 = $1,126
4) Sample size = $100,000 + $1,126 = 89 items
5) Selecting sample

Inv #4 includes $1,126

Inv #5 includes $2,252
Inv #6 includes $3,378
Inv #6 includes $4,504 Sample consists of invoices 4, 5, 6, & 9
Inv #9 includes $5,630

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Audit Sampling - Module 5