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Stratified Sampling

Read the overview below and complete the activities that follow.

Stratification is the technique of dividing a population into relatively homogenous populations that are called "strata." These strata can be sampled separately in a technique called stratified sampling.

CONCEPT REVIEW:

Stratified sampling allows results to be evaluated separately to provide an estimate of the characteristics of each population. When combined, they provide an estimate of the population as a whole.

Read the case. Then answer the questions based on it.

BACKGROUND:

Stratification can be used in audit sampling to divide a population into homogenous subgroups called "strata." The auditor can sample these strata separately, examine the results separately, or combine the results to provide an estimate of the total population characteristics.

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?