Question

Smith Jones CPA was auditing the financial statements of Titan Industries. When auditing accounts receivable, he realized the population was diverse and could be divided into two "separate" smaller populations. There were 5 accounts receivable that in total were $10,000. The remaining 45 account receivable balances totalled $17,000. Smith Jones was concerned that a random sample of the entire population would miss many of the 5 balances that totalled $10,000 but did not want to eliminate the possibility of testing many of the other 45. He decided to consider a stratified sample. 1. Why did Smith Jones CPA consider stratifying the population? 2. Why didn't Smith Jones CPA choose to sample from the population as a whole? 3. Why is it important to not "skip" sampling the other 45 balances?

Answer 1

1 When a population diverse, the sample can't be takem from the population, as the sample will not give a proper result, so it is a good decision to devide the population into different groups of similar type data, so that when a sample is taken out of the group each population have equal chance to get selected. 2 The total population consists of 50 accounts receivable, out of that 5 accounts receivable totals 1000, which is a material amount,if sample is taken from whole population there is a maximum chance that the sample will not get selected from the group of 5 accounts receivable, as the group of 5 accounts receivable totals 10000 a material amount it needs to So smith jones CPA didn't choose to sample from the whole population As the 45 accounts receivable groups consists a major of the total accounts receivable, 17000 out of 27000, it is important to not to skip sampling that 45 accounts receivable. i.e