Auditors use monetary unit sampling, also called probability-proportional-to-size or dollar-unit sampling, to determine the accuracy of financial accounts. With monetary unit sampling, each dollar in a transaction is a separate sampling unit. A transaction for $40, for example, contains 40 sampling units. Auditors usually use monetary unit sampling to sample and test accounts receivable, loans receivable, and inventory.
Here’s an example of how monetary unit sampling works. The audit client’s accounts receivable book value is $300,000, and the sample size is set at 96 records.
Figure the sampling interval by dividing book value by sample size (300,000/96).
Arrange the client’s accounts receivable in an ordered list using some sort of ordering sequence.
For example, you can arrange them alphabetically by customer name or numerically by customer number.
Pick a random number between 1 and 3,125.
For this method to work correctly, the random number has to be less than the sampling interval and greater than the smallest sampling unit. Auditors usually use a random-number-generator computer program to pick the random number. The sampling unit and sampling interval limits are programmed into the software before the task is run. In this case, say the software selects the random number 556.
The following table shows an example.
| Customer Name | Customer Balance | Cumulative Balance | Sampling Item |
|---|---|---|---|
| ABC Electric | $435 | $435 | |
| Best Friend Cat Care | $785 | $1,220 | (1) $556 |
| Brandy’s Grill | $1,510 | $2,730 | |
| Buddy’s Gas Station | $5,000 | $7,730 | (2) $3,681 |
First, pick the records to test: Take the alphabetically ordered list shown in the Customer Name column, which lists every customer balance by dollar amount, and count each dollar until you get to $556 (remember that the random number generator gives you the number 556 in Step 3 in the previous numbered list). The cumulative dollar amount for ABC Electric is under $556.
That tells you that the first sampling item is Best Friend Cat Care, which at a cumulative total of $1,220 is the first customer in the list with a cumulative balance over $556. The client gives you the Best Friend Cat Care file. You go through these ordered invoices (usually the invoices are ordered by date) to find the invoice with the 556th dollar. That invoice is your item to sample.
To select your next invoice to sample, add the sampling interval of $3,125 to your random number of $556. This equal $3,681, which is your next sampled item dollar amount. Brandy’s Grill at $2,730 cumulatively is under $3,681, so skip past Brandy’s to Buddy’s. Follow the same procedure you use for Best Friends to find the Buddy invoice with the 3,681st dollar.
Although the table only goes as far as Buddy’s, your client has many more customers. To pick the next sampling item, add the sampling interval of $3,125 to your prior sampling item of $3,681, which equals $6,806, and so on until you reach the last name in the customer list.
When you’re sampling, you’re looking for misstatements. If an invoice should have been entered for $986, for example, and it was entered as $896, the misstatement is 9 percent of the transaction (the inverse of 896/986). If the total misstatements exceed your assessed tolerance level, you have to decide whether to perform other procedures.