Reply as to whether you believe the following statements are correct (C) or incorrect (I) concerning PPS sampling.
a. The size of a PPS sample is not based on the estimated variation of audited amounts.
b. PPS sampling results in a stratified sample.
c. Individually significant items are automatically identified.
d. PPS sampling results in a smaller sample size when numerous small misstatements are expected.
e. If few misstatements are expected, PPS sampling will usually result in a smaller sample size than classical variables sampling methods.
f. One does not need a book value for individual items to evaluate a PPS sample.
g. A PPS sample eliminates the need to project results to the overall population.
h. PPS sampling is “preferred” by professional standards.
Use the following information for parts i and j:
Tolerable misstatement ........ $ 50,000
Sample size ............... 100
Expected misstatement ......... $ 5,000
Recorded amount of accounts receivable . $300,000
i. The sampling interval is $500.
j. Increasing the expected misstatement to $10,000 will increase the sample size.