You are the auditor for a company and need to review the company’s accounts receivable using probability proportional to size (PPS) sampling. In addition, the board of directors has requested that you and your team present an explanation of your PPS process at its next monthly meeting.
Use the following company data and the PPS Sampling Tables 1 & 2:
- The recorded book value of these accounts is $3,460,000.
- The company has a tolerable error of $63,460.
- The anticipated error is $13,000.
- The risk of incorrect acceptance is 5%.
- The acceptable number of overstatements of misstatements is 2.
Use probability proportional to size (PPS) sampling to do the following:
- Determine the reliability factor.
- Determine the correct expansion factor.
- Determine the sample size you should use.
- Determine the sampling interval you should use.
Specifically, how you used PPS to test this company’s account balances