An auditor is performing substantive tests of pricing and
extensions of perpetual inventory balances consisting of a large
number of items. Past experience indicates numerous pricing
and extension errors. Which of the following statistical sampling
approaches is most appropriate?

(d) The requirement is to determine the most appropriate
sampling approach for substantive tests of pricing and
extensions of perpetual inventory balances consisting of a large
number of items for which past experience indicates numerous
expected pricing and extension errors. Answer (d) is correct
because ratio estimation is appropriate when testing a population
for which a large number of errors of this nature is expected
(Audit and Accounting Guide, Audit Sampling). Answer (a) is
incorrect because the unstratified mean-per-unit method will
typically provide a larger sample size than the ratio estimation
method to achieve the same level of sampling risk. Thus, the
ratio estimation method would be more appropriate. Answer (b)
is incorrect because probability-proportional-to-size sampling is
most efficient for testing populations with relatively low expected
error rates. Answer (c) is incorrect because “stop or go” or
“sequential” sampling is most frequently used in attribute
sampling.