An auditor is using 'probability-proportional-to-size' (PPS) sampling. Which of the following is a characteristic of this method?

Answer options:

It is efficient for populations with many zero balances.

It automatically stratifies the population.

It requires an estimate of the standard deviation.

Zero and negative balances require special handling.

How to approach this question

PPS Features: 1. Good for Overstatements. 2. Automatic Stratification. 3. Bad for Understatements/Zero/Negative balances.

Full Answer

D.Zero and negative balances require special handling.✓ Correct

Zero and negative balances require special handling.

PPS sampling uses the dollar unit as the sampling unit. Therefore, items with zero or negative balances have no chance of selection and must be segregated and tested separately. This is a primary disadvantage of PPS.

Common mistakes

Thinking PPS is good for understatements (it's not).

Question 66 All questions Question 68

Practice the full CPA AUD Practice Exam 3

78 questions · hints · full answers · grading

More questions from this exam

Q01A CPA firm is performing an audit of a nonissuer in accordance with GAO Government Auditing Stand...Hard Q02During the audit of an issuer, the engagement partner learns that the firm's tax partner, who pro...Hard Q03An auditor is planning an audit of a nonissuer's financial statements. The auditor decides to use...Medium Q04An auditor is assessing control risk for a nonissuer's revenue cycle. The auditor identifies that...Hard Q05During the audit of a manufacturing company's inventory, the auditor utilizes a variables samplin...Hard

View all 78 questions →