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Evidence

5.2 Stratification

Stratification is used in conjunction with sampling. Stratification is the process of
breaking down a population into smaller subpopulations. Each subpopulation is a
group of items (sampling units) which have similar characteristics.

Example 5

Stratifying the population

Payroll costs in Himalaya Co comprise three cost centres:

Cost centre 1 (CC1) is for production workers paid a basic monthly salary,
overtime and a monthly production bonus.

Cost centre 2 (CC2) is for admin staff paid a monthly salary and an annual
discretionary bonus.

Cost centre 3 (CC3) is for management who are paid a monthly salary and an
annual performance related bonus based on the reported profit for the year.

The auditor can stratify the sample by breaking the population of payroll into
three subpopulations of CC1, CC2 and CC3 and test a sample of payroll
transactions from each. Costs within each subpopulation have the same
characteristics therefore stratification is appropriate.

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