Q.What is sampling?

Discuss the various types of probability of

sampling?

Ans:

What Is Sampling?

Sampling is a process used in statistical analysis in which a

predetermined number of observations are taken from a larger
population. The methodology used to sample from a larger population
depends on the type of analysis being performed, but it may include
simple random sampling or systematic sampling.

Key Takeaways

 Certified Public Accountants use sampling during audits to

determine the accuracy and completeness of account balances.
 Types of sampling include random sampling, block sampling,
judgement sampling, and systematic sampling.
 Companies use sampling as a marketing tool to identify the needs
and wants of their target market.

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Sampling

How Sampling is Used

A Certified Public Accountant (CPA) performing a financial audit uses

sampling to determine the accuracy and completeness of account
balances in the financial statements. Sampling performed by an auditor
is referred to as "audit sampling." It is necessary to perform audit
sampling when the population, in this case account transaction
information, is large. Additionally, managers within a company may use
customer sampling to assess the demand for new products or the
success of marketing efforts.

The chosen sample should be a fair representation of the entire

population. When taking a sample from a larger population, it is
important to consider how the sample is chosen. To get a
representative sample, it must be drawn randomly and encompass the
whole population. For example, a lottery system could be used to
determine the average age of students in a university by sampling 10%
of the student body.

Types of Audit Sampling

Random Sampling

With random sampling, every item within a population has an equal

probability of being chosen. It is the furthest removed from any
potential bias because there is no human judgement involved in
selecting the sample. For example, a random sample may include
choosing the names of 25 employees out of a hat in a company of 250
employees. The population is all 250 employees, and the sample is
random because each employee has an equal chance of being chosen.

Judgement Sampling

Auditor judgement may be used to select the sample from the full
population. An auditor may only be concerned about transactions of a
material nature. For example, assume the auditor sets the threshold for
materiality for accounts payable transactions at $10,000. If the client
provides a complete list of 15 transactions over $10,000, the auditor
may just choose to review all transactions due to the small population
size.

Alternatively, an auditor may identify all general ledger accounts with a

variance greater than 10% from the prior period. In this case, the
auditor is limiting the population from which the sample selection is
being derived. Unfortunately, human judgement used in sampling
always comes with the potential for bias, whether explicit or implicit.

Block Sampling

Block sampling takes a consecutive series of items within the

population to use as the sample. For example, a list of all sales
transactions in an accounting period could be sorted in various ways,
including by date or by dollar amount. An auditor may request that the
company's accountant provide the list in one format or the other in
order to select a sample from a specific segment of the list. This
method requires very little modification on the auditor's part, but it is
likely that a block of transactions will not be representative of the full
population.

Systematic Sampling

Systematic sampling begins at a random starting point within the

population and uses a fixed, periodic interval to select items for a
sample. The sampling interval is calculated as the population size
divided by the sample size. Despite the sample population being
selected in advance, systematic sampling is still considered random if
the periodic interval is determined beforehand and the starting point is
random.

Assume that an auditor is reviewing the internal controls related to a

company's cash account and wants to test the company policy that
stipulates that checks exceeding $10,000 must be signed by two
people. The population consists of every company check exceeding
$10,000 during the fiscal year, which, in this example, was 300. The
auditor uses probability statistics and determines that the sample size
should be 20% of the population or 60 checks. The sampling interval is
5 (300 checks / 60 sample checks).
Therefore, the auditor selects every fifth check for testing. Assuming no
errors are found in the sampling test work, the statistical analysis gives
the auditor a 95% confidence rate that the check procedure was
performed correctly. The auditor tests the sample of 60 checks and
finds no errors, so he concludes that the internal control over cash is
working properly.

Example of Marketing Sampling

Businesses aim to sell their products and/or services to target

markets. Before presenting products to the market, companies
generally identify the needs and wants of their target audience. To do
so, they may employ sampling of the target market population to gain a
better understanding of those needs to later create a product and/or
service that meets those needs. In this case, gathering the opinions of
the sample helps to identify the needs of the whole.

Sampling takes on two forms in statistics: probability sampling and non-

probability sampling:

 Probability sampling uses random sampling techniques to create

a sample.
 Non-probability samplingtechniques use non-random processes
like researcher judgment or convenience sampling.

Probability sampling is based on the fact that every member of a

population has a known and equal chance of being selected. For
example, if you had a population of 100 people, each person would
have odds of 1 out of 100 of being chosen. With non-probability
sampling, those odds are not equal. For example, a person might have a
better chance of being chosen if they live close to the researcher or
have access to a computer. Probability sampling gives you the best
chance to create a sample that is truly representative of the population.
Using probability sampling for finding sample sizes means that you can
employ statistical techniques like confidence intervals and margins of
error to validate your results.

Types of Probability Sampling

 Simple random sampling is a completely random method of

selecting subjects. These can include assigning numbers to all
subjects and then using a random number generator to choose
random numbers. Classic ball and urn experiments are another
example of this process (assuming the balls are sufficiently
mixed). The members whose numbers are chosen are included in
the sample.
 Stratified Random Sampling involves splitting subjects into
mutually exclusive groups and then using simple random sampling
to choose members from groups.
 Systematic Sampling means that you choose every “nth”
participant from a complete list. For example, you could choose
every 10th person listed.
 Cluster Random Sampling is a way to randomly select participants
from a list that is too large for simple random sampling. For
example, if you wanted to choose 1000 participants from the
entire population of the U.S., it is likely impossible to get a
complete list of everyone. Instead, the researcher randomly
selects areas (i.e. cities or counties) and randomly selects from
within those boundaries.
 Multi-Stage Random sampling uses a combination of techniques.

Advantages and Disadvantages

Each probability sampling method has its own unique advantages and
disadvantages.

Advantages
  Cluster sampling: convenience and ease of use.
 Simple random sampling: creates samples that are highly
representative of the population.
 Stratified random sampling: creates strata or layers that are
highly representative of strata or layers in the population.
 Systematic sampling: creates samples that are highly
representative of the population, without the need for a random
number generator.

Disadvantages

 Cluster sampling: might not work well if unit members are not
homogeneous (i.e. if they are different from each other).
 Simple random sampling: tedious and time consuming, especially
when creating larger samples.
 Stratified random sampling: tedious and time consuming,
especially when creating larger samples.
 Systematic sampling: not as random as simple random sampling,