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Probability Proportional to Size Sampling Method

Please refer attached file for tables.

Use the following company data and the PPS Sampling Tables 1 & 2:

The recorded book value of these accounts is $3,460,000.
The company has a tolerable error of $63,460.
The anticipated error is $13,000.
The risk of incorrect acceptance is 5%.
The acceptable number of overstatements of misstatements is 2.

Use probability proportional to size (PPS) sampling to do the following:

A. Determine the reliability factor.
B. Determine the correct expansion factor.
C. Determine the sample size you should use.
D. Determine the sampling interval you should use.

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Solution Preview

A. Determine the reliability factor.
Refer to the given Table 1. Look for the Row with 0 number and column with 5% risk of incorrect acceptance, we get value of 3.00.

Reliability factor=3.00

B. Determine the ...

Solution Summary

Probability Proportional to Size (PPS) sampling is a well known method in auditing. Solution to the given problem describes the steps to determine the important parameters of this technique like reliability factor, expansion factor, sample size and sampling interval.