Probability Proportional to Size (PPS)

Question 1

PPS sampling

Answer 1

enables auditor to directly control risk of incorrect acceptance by requiring the auditor the specify the desired level of risk

number one objective is to identify overstatement errors

Question 2

calculating n

Answer 2

n = Reliability factor (from tables) × Book value
DIVIDED BY
Tolerable misstatement, net of expected misstatements

Question 3

projected error of sample

Answer 3

difference between book value and audit value when the amount of the account examined is greater than the sampling interval

Question 4

what does auditor do when the account examined is greater than the sampling interval?

Answer 4

take difference between recorded and audit value

Question 5

what does auditor do when account examined is less than the sampling interval?

Answer 5

take the “tainting” percentage and apply that percentage to sampling interval

recorded-audit/recorded and multiply this by the projected misstatement (sampling interval)

Question 6

determining sample size

Answer 6

1) reliability
2) population book value ($)
3) tolerable misstatement (net of expected misstatements)

Question 7

sample interval

Answer 7

population book value/ sample size

Question 8

upperlimit

Answer 8

basic precision + projected misstatement + incremental allowance

Question 9

Projected misstatement

Answer 9

book values that are greater than or equal to the sample interval the projected misstatement is the actual misstatement identified (there is no further projection)

“opposite” you take the tainting percentage to the sample interval form which that account was selected

*difference with book value and audit value and divide by book value and multiply by sample interval