An internal auditor is testing whether payments to outside contractors have been charged to the proper account. Which of the following sampling methods would be most useful in completing this task?
An internal auditor is testing whether payments to outside contractors have been charged to the proper account. Which of the following sampling methods would be most useful in completing this task?
For the task of testing whether payments to outside contractors have been charged to the proper account, attribute sampling is the most appropriate method. Attribute sampling is a statistical method used to determine the presence or absence of a given characteristic in a population. In this scenario, the internal auditor would be examining if each sampled payment has the characteristic of being correctly charged to the proper account. This method allows the auditor to assess the overall correctness of the account charges based on the sample results, making it suitable for ensuring compliance with accounting practices.
B. Probability-proportional-to-size sampling. When testing whether payments to outside contractors have been charged to the proper account, probability-proportional-to-size (PPS) sampling would be most useful. PPS sampling is a statistical sampling method that gives larger items in a population a higher chance of being selected. In this context, the "size" refers to the amount of the payment. This method is often used in monetary unit sampling. With PPS sampling, the auditor can focus on larger payments, which are more likely to have a significant impact on the financial statements. It helps ensure that the sample is representative of the total population in terms of monetary value, making it an efficient and effective method for testing the accuracy of payments to outside contractors.
B. Probability-proportional-to-size sampling. When testing whether payments to outside contractors have been charged to the proper account, probability-proportional-to-size (PPS) sampling would be most useful. PPS sampling is a statistical sampling method that gives larger items in a population a higher chance of being selected. In this context, the "size" refers to the amount of the payment. This method is often used in monetary unit sampling. With PPS sampling, the auditor can focus on larger payments, which are more likely to have a significant impact on the financial statements. It helps ensure that the sample is representative of the total population in terms of monetary value, making it an efficient and effective method for testing the accuracy of payments to outside contractors.
Attribute sampling involves testing the occurrence of a specific characteristic or attribute within a population. In this case, the internal auditor wants to determine whether payments to outside contractors have been charged to the proper account. Attribute sampling would involve selecting a sample of payments and examining each one to determine whether it has been correctly charged. This method allows the auditor to draw conclusions about the overall accuracy of the charges based on the sample results.