What is Sampling
Sampling is a process used in statistical analysis in which a predetermined number of observations are taken from a larger population. The methodology used to sample from a larger population depends on the type of analysis being performed but may include simple random sampling or systematic sampling.
In business, a CPA performing an audit uses sampling to determine the accuracy of account balances in the financial statements, and managers use sampling to assess the success of the firm’s marketing efforts.
BREAKING DOWN Sampling
The sample should be a representation of the entire population. When taking a sample from a larger population, it is important to consider how the sample is chosen. To get a representative sample, the sample must be drawn randomly and encompass the whole population. For example, a lottery system could be used to determine the average age of students in a university by sampling 10% of the student body.
Factoring in Systematic Sampling
Systematic sampling uses a random starting point and a periodic interval to select items for a sample. The sampling interval is calculated as the population size divided by the sample size. Assume that a CPA is auditing the internal controls related to the cash account and wants to test the company policy that stipulates that checks exceeding $10,000 must be signed by two people.
The accountant's population consists of every company check exceeding $10,000 during the fiscal year, which, in this example, was 300. The CPA firm uses probability statistics and determines that the sample size should be 20% of the population or 60 checks. The sampling interval is 5 (300 checks/60 sample checks); therefore, the CPA selects every fifth check for testing. Assuming no errors are found in the sampling test work, the statistical analysis gives the CPA a 95% confidence rate that the check procedure was performed correctly. The CPA tests the sample of 60 checks and finds no errors; the accountant concludes that the internal control over cash is working properly.
Examples of Sample Tests for Marketing
Businesses aim to sell their products and/or services to target markets. Before presenting products to the market, companies generally identify the needs and wants of their target audience. To do so, they may employ using a sample of the population to gain a better understanding of those needs to later create a product and/or service that meets those needs. Gathering the opinions of the sample helps to identify the needs of the whole.