Accountants often use stratified samples during audits to...

Accountants often use stratified samples during audits to verify a company's records of such things as accounts receivable. The stratification is based on the dollar amount of the item and often includes $100 \%$ sampling of the largest items. One company reports 5000 accounts receivable. Of these, 100 are in amounts over 50,000 ; 500 are in amounts between 1000 and 50,000 ; and the remaining 4400 are in amounts under 51000 .$Using these groups as strata, you decide to verify all the largest accounts and to sample 5% of the midsize accounts and 1 % of the small accounts. Describe a method for using 'Table D to select a stratified random sample of the midsize and small accounts. Then use line 115 to select only the first 3 accounts from each of these strata.

Key Concepts

Systematic Sampling

Systematic sampling is a sampling method where elements are selected from an ordered list at regular intervals. After using a random number table to determine a starting point, an auditor can choose subsequent items by following a fixed rule, such as selecting the first few entries or every kth entry. This approach simplifies the sampling process while retaining the benefits of randomness.

Stratified Sampling

Stratified sampling is a method of sampling that involves dividing the population into distinct subgroups, or strata, which share similar characteristics. In audit contexts, these strata might be defined by factors such as the dollar amount of accounts receivable. This allows the auditor to allocate their sampling efforts based on risk, size, or importance, ensuring that more attention is given to critical segments of the data.

Random Number Tables

Random number tables are a tool used to facilitate random sampling by providing a pre-generated list of random digits. In the context of sampling procedures, an auditor can use a random number table—often starting at a specified point—to systematically select a sample from each stratum. This helps to eliminate selection bias and ensures that every item in the population has an equal chance of being included.

Percentage Sampling in Auditing

Percentage sampling involves selecting a fixed proportion of items from a specific group or stratum to review. For example, auditing procedures might require that a certain percentage of items, based on their value or risk level, are sampled. This method allows auditors to focus resources on more significant or potentially error-prone accounts while still obtaining a representative overview of the entire population.

Transcript

00:01 For question 20, we have some information that says accountants use stratified samples during audits to verify a company's records.

00:09 So there's a specific company here they're talking about, and they have grouped the records into three different categories.

00:15 There's a large group and mid -sized group and a small group in terms of purchases.

00:24 It says there are 100 purchases in the $50 ,000 in uprange.

00:31 There's $500 between $1 ,000 and $50 ,000 range, and there's $4 ,400 purchases under $1 ,000.

00:42 So we're going to use these groups as strata.

00:45 So we have three different groups here.

00:48 It says that the company is going to audit 100 % of the large group, so we don't have to worry about those.

00:52 We're not going to select a sample from the large group.

00:54 We're going to select a sample from the mid -size group and one sample from the small group, but they're going to be in different sizes.

01:00 So for the mid -size group, again, the mid -size group told us that there were 500 between 1 ,000 and 50 ,000.

01:30 So for this group, we need to choose a sample of 5%, which is 25 in total.

01:50 So we're going to label these as 0 -0 -1 through 500.

02:06 Because there's 500 total accounts here, 500 being a three -digit value, we're going to assign every single thing, even the number one, the number 50, the number 99.

02:18 Every single value needs to be the same width...

Please give Ace some feedback