[romo86]

I understand how to use PPS Sampling as shown in the Becker review (2012 A5-19, for convenience), but wanted to see if anyone could shed some additional light. I don’t think this will be a problem if PPS Sampling shows up on the exam though.

A) Account Book Value: $8,500

B) Audit Amount: $6,900

Sample Interval = $5,000

Given the above there is a $1,600 dollar error and because “the account selected has a balance greater than the interval, the actual dollar amount of the error should be used.” Therefore, the $1,600 is used as one of the Projected Errors and evaluated with any other exceptions found.

Question 1: The rule is to use the actual error when “the account selected has a balance greater than the interval”. Per the above is that the Book Value of $8,500 initially observed by the auditor or the True Account Value as Audited at $6,900, which must exceed the interval to use the actual error?

How are these scenarios treated:

A) $5,000 interval, Book Value $8,500, True Account Value as Audited $4,800

B) $5,000 interval, Book Value $4,900, True Account Value as Audited $6,400

If that is confusing I can try to explain my question better.

BEC - 85
REG - 75
AUD - TBD
FAR - 82

CFA Level III Candidate (June 2013)

[homerun07]

i believe you are comparing the initial book value amount to the interval.

Becker didn't really clarify this in the text book but i think it makes sense.

the auditors selected certain accounts and then audited those selected accounts– so if the “selected” account has a balance greater than the interval the actual error amount will be used.

that's how i did it and have gotten all the pps questions right on becker hw.

so for

1. the difference is $3700 but since the selected amount is larger than the interval the error is 3700

2. the difference is 1500- the tainted %= 30% multiplied by the interval= error is 1530

[xibadx]

the difference is 1500- the tainted %= 30% multiplied by the interval= error is 1530

????????????????? 😮

All passed on first try - Licensed CPA Texas
Studying tip: Study throughout the day (short intervals, no more than 3hrs/day total), take exam later in the day and cram before your exam.

[nolifecpa]

use book value (8500) to compare to the sample interval

senario A: projected error is 3700

8500 – 4800 = 3700, because the book value 8500 is more than the sample interval 5000

senario B: projected error 1530

[(4900-6400)/4900] = 30%*5000 = 1530

anyone disagree?

REG-65,71,74,73,70,74,79
BEC-60's,60's,69,71,76*,78
FAR-67,66,65,79
AUD-54,60's,65,83*,69,80
*expired

DONE

[xibadx]

Got it!

But a) how do you know to use the [(4900-6400)/4900] ?

and b) does a negative percent make a diff (i.e. -30%)

All passed on first try - Licensed CPA Texas
Studying tip: Study throughout the day (short intervals, no more than 3hrs/day total), take exam later in the day and cram before your exam.

[homerun07]

@xibadx- you have to use that formula when using PPS sampling every time the book amount differs from the audited amount.

if you pay attention to the formula, it's finding the difference in the amount (the error) and then projecting the % of error to the interval.

however, IF the recorded book amount is GREATER than the sampling interval– the error will just be the difference and you won't need to multiply the %.

and no a negative amount will not impact the % or the projected error.

hope that helps!

[Author]

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