Which of the Following Statements Is Correct Concerning Probability Proportional

question 906

Multiple Choice

Which of the following statements is correct concerning probability proportional to size (PPS) sampling, also known as dollar unit sampling?

• A) The sampling distribution should approximate the normal distribution.
• B) Overstated units have a lower probability of sample selection than units that are understated.
• C) The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.
• D) The sampling interval is calculated by dividing the number of physical units in the population by the sample size.

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Definitions:

Hotelling Rule

A theory in economics that states the net price (price minus extraction costs) of a non-renewable resource should increase at the rate of interest over time.

Exhaustible Resource

A natural resource that can be depleted and is not replenished over a short geological time frame.

Discount Rate

The discount rate is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows, reflecting the time value of money and risk.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period, used in capital budgeting to assess the profitability of an investment.