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The Wisdom of Statistics

Learn about Probability Proportionate to Size (PPS) and Variables Sampling methods for audit effectiveness, efficiency, and risk reduction. Discover steps to determine sample size, draw samples, and evaluate results.

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The Wisdom of Statistics

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  1. The Wisdom of Statistics “America's poverty problem is not one of material scarcities but of abundant bad behavior. There are three simple behavioral rules for avoiding poverty: finish high school, produce no child before marrying, and no child before age 20. Only 8% of families who follow these rules are poor; 79% of those who do not are.” -- George Will

  2. Audit Effectiveness, Efficiency, & Risk Lowers Audit Lowers Audit Effectiveness Efficiency BETA RISK ROOR X ROIA X ALPHA RISK ROUR X ROIR X

  3. Substantive Test Sampling TWO COMMON METHODS • Probability Proportionate to Size • sample overstatements & extend results to population • Stats based on 1 tailed test of attribute sampling • Variables sampling • sample account $ values& extend result to population • Mean-per-unit (sample mean x N) • Difference estimation (ave.AV-ave.BV x N)

  4. PPS Sampling Advantages • No Standard Deviation calculation required • Automatic stratification • Smaller sample size

  5. Sample Size Determinants

  6. Steps in PPS Sampling • Determine the relevant population • Calculate the sample size (p. 413) • Draw the sample (p. 413) • Evaluate the results (p.414) • Projected Error • Precision • Upper error limit

  7. Steps in Variables Sampling • Determine the relevant population • Determine the sample size (p. 402-4) • Select the sample • Evaluate the results • Precision (p. 403-4) • Reliability/Confidence level (p.403-5)

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