FYI: Probability-Proportional-to-Size (PPS) Sampling ** PPS sampling defines the “sampling unit” to be an individual dollar associated with the financial statement element involved. (Variations of this approach are referred to as dollar-unit sampling or monetary-unit sampling.) For example, suppose accounts receivable consists of 7500 customer accounts having a total balance of $3,000,000. The population is viewed as consisting of 3,000,000 individual items (dollars) rather than 7500 accounts. However, when an individual dollar is selected as part of the sample, it attaches to the related account or logical record, which is then examined in its entirety. Accordingly, the probability that an individual account will be selected is “proportional” to that individual account's balance relative to the total for all accounts. **

** The sampling unit is an individual dollar (when a given dollar is selected for the sample, it attaches to the related account or item which is then examined in its entirety); note that individually material items are automatically selected.** 1. PPS is useful if there are relatively few differences between audit and book values; otherwise, the sample size can become very large and the PPS application then becomes inefficient. 2. The main advantage is efficiency—it can achieve the maximum possible stratification (which then minimizes the effects of variability on sample size). 3. The main disadvantage is that PPS does not work very well in auditing negative balances (understatements) or zero (unrecorded) balances. Applies best to audit concerns involving overstatements (e.g., accounts receivable or inventory when few misstatements are expected).