ExpertMedium1 markMultiple Choice
CPA · Question 67 · Area III: Performing Procedures
An auditor is using 'probability-proportional-to-size' (PPS) sampling. Which of the following is a characteristic of this method?
An auditor is using 'probability-proportional-to-size' (PPS) sampling. Which of the following is a characteristic of this method?
Answer options:
A.
It is efficient for populations with many zero balances.
B.
It automatically stratifies the population.
C.
It requires an estimate of the standard deviation.
D.
Zero and negative balances require special handling.
How to approach this question
PPS Features: 1. Good for Overstatements. 2. Automatic Stratification. 3. Bad for Understatements/Zero/Negative balances.
Full Answer
D.Zero and negative balances require special handling.✓ Correct
PPS sampling uses the dollar unit as the sampling unit. Therefore, items with zero or negative balances have no chance of selection and must be segregated and tested separately. This is a primary disadvantage of PPS.
Common mistakes
Thinking PPS is good for understatements (it's not).
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