1. The Wisdom of Statistics “America's poverty problem is not one of material scarcities but of abundant bad behavior. There are three simple behavioral rules for avoiding poverty: finish high school, produce no child before marrying, and no child before age 20. Only 8% of families who follow these rules are poor; 79% of those who do not are.” -- George Will

2. Audit Effectiveness, Efficiency, & Risk Lowers Audit Lowers Audit Effectiveness Efficiency BETA RISK ROORX ROIAX ALPHA RISK ROUR X ROIR X

3. Substantive Test Sampling TWO COMMON METHODS  Probability Proportionate to Size –sample overstatements & extend results to population –Stats based on 1 tailed test of attribute sampling  Variables sampling –sample account $ values& extend result to population –Mean-per-unit (sample mean x N) –Difference estimation (ave.AV-ave.BV x N)

4. PPS Sampling Advantages  No Standard Deviation calculation required  Automatic stratification  Smaller sample size

5. Sample Size Determinants

6. Steps in PPS Sampling  Determine the relevant population  Calculate the sample size (p. 413)  Draw the sample (p. 413)  Evaluate the results (p.414) –Projected Error –Precision –Upper error limit

7. Steps in Variables Sampling  Determine the relevant population  Determine the sample size (p. 402-4)  Select the sample  Evaluate the results –Precision (p. 403-4) –Reliability/Confidence level (p.403-5)