Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 60

Basic Sampling. You are employed by Northeast Airlines and have been asked to determine the rate of on-time arrivals for competing airlines at a proposed hub location. Northeast is known for its outstanding customer service and constantly ranks in the top three among all airlines in on-time arrivals with an average rate of 82 percent of all flights. Because it would be a new entrant in this particular airport, Northeast does not believe it can compete unless its on-time arrival rate can surpass that of the airlines currently serving this hub.
Because each of the four major competitors has hundreds of flights arriving at the hub on a daily basis, you are considering the use of sampling to estimate an on-time arrival rate.
Required:
a. Define sampling. What are the primary advantages and primary disadvantages of using sampling in this application?
b. Briefly describe how you would identify the population of flights from which you intend to sample.
c. Define sampling risk and nonsampling risk. Provide an example of how each could be present in this situation.
d. List some characteristics of various flights that could give you increased exposure to sampling risk in this application.
e. Once you have estimated an on-time arrival rate for its competitors, what information can you provide to Northeast Airlines to assist it in its decision process?