CLASSICAL VARIABLES SAMPLING TECHNIQUES

A. Mean-per-unit estimation

A classical variables sampling technique that projects the sample average to the

population by multiplying the sample average by the number of items in the population

B. Difference estimation

It is a classical variables sampling technique that uses the average difference between

audited amounts and individual recorded amounts to estimate the total audited amount of a

population and an allowance for sampling risk.

C. Ratio estimation

A classical variables sampling technique that uses the ratio of audited amounts to

recorded amount in the sample to estimate the total amount of the population and an

allowance for sampling risk

Conditions for using difference and ration estimation

1. Each population item must have a recorded book value

2. Total population book value must be known

3. Expected differences between audited and recorded book values must not be too rare

31Choosing between difference and ratio estimation

Ratio estimation is more appropriate when he differences are nearly proportional to book

values.

Difference estimation is more appropriate when there is little or n relationship between the

absolute amounts of the differences and the book values.

PROBABILITY-PROPROTIONAL-TO-SIZE SAMPLING (PPS)

● PPS uses a peso as the sampling unit

● PPS sampling gives each individual peso in the population an equal chance of selection

● PPS is only useful for TESTS OF OVERSTATEMENTS (e.g., assets) since the sample selection

method dictates that the larger the transaction or amount, the more likely that it will be

selected.

● PPS is inappropriate for testing liabilities because understatement is the primary audit
consideration