T7-Collection of Information

Everyone knows that collecting useful information is a benefit for companies to plan,control and decision-making,but let's discuss about where can we get information that is useful.At first,let's talk about internal sources of information.One of the examples are accounting system of the organisations,we collect data from source documents such as invoices,time-sheets and journal entries.Reports of direct and indirect costs compared to budgets may be produced at regular intervals to help managers plan and control costs.Ad hoc reports such as aged receivables report,wastage report may be produced to help managers make specific decision.Appart from accounting system,we can get useful information from payroll system too which provide information concerning detailed labour costs.

Well in practice we really can't get much information from internal sources to help in planning,since then let's get some information from external sources!An organisation is difficult to succeed if they ignore external environment(can be analyse using PESTEL) which will influence their activities.Process known as environmental scanning or environmental monitor is becoming a more important part of the role of mangement accountant.Main sources of external information includes government sources(which may not always be true),business contacts(customers and suppliers),trade associations and trade journals,financial and business press and other media.Most of the information collected externally are known as secondary data which for us,is not as accurate as primary data which we generated ourselves.

Although collecting information is useful,but what if an overload of information are available?It may costs us a lot of time to analyse whether the information available are accurate and relevant or not.For example,an auditor will not have time to check all the invoices of a company.So we must consider different types of sampling techniques depending on what information we need.Before going into detail,first understand two words:
Population-group of people or objects of interest to the data collector.
Sample-small proportion of that population.
The purpose of sampling is to gain as much information as possible about the population by observing only a sample.There are a lot of sampling techniques,I will explain some of them.

Random sampling-Sample is taken in the way that every item of the population has an equal chance of being selected.Normal way of achieving this is by numbering each item in the population.For example,if a sample size(the number of sample) of 20 items is needed,first number each items of the population,then randomly pick 20 numbers maybe by drawing from box and then these 20 items are the samples.This is used when the population is known and with random sampling,we can avoid bias.

Systematic sampling-This is a bit similar to random sampling,just that only the first item is selected randomly. For example,if the population has 100 items and sample size of 10 is required,first item will be determined randomly eg.if choose 5th,then second item will the 15th,third will be 25th...up to 95th item.Then these 10 choosen items are samples.But there is danger of bias if the population has a repetitive pattern.For example,if a street has five types of house arranged in the order,A B C D E A B C D E.....an interviewer visiting every 5th home would only visit one type of house.

Stratified sampling-Random sample is taken from well defined group(eg.men and women,adults and children).This is done in such a way that the number in each sample is the proportional to the size of the group in the population.For example,in selecting a sample of people in order to discover their leisure habits,age could be an important factor,so if 50% of the population are over 40 years old and 50% are under 40 years old,when a sample size of 200 people is needed,50 should be people who are over 40 years old and 50 are under 50 years old.This method is often used by auditors to choose a sample to confirm receivables balances,in this case a greater proportion of larger balances will be selected.

Multi-stage sampling-Population is splitted into groups and random samples are taken from these groups,then the random samples are investigated.This method often applied if the population is large,for example all TV viewers in UK,the process involved would be first:country is divided into areas and random sample of areas is taken,second:each area chosen is then subdivided into towns and a random sample of these is taken,third:each town choosen is further divided into roads and random sample of roads is taken,forth:from each road choosen a random sample of houses is taken and people in the houses are interviewed.

Cluster sampling-Similar to multi-stage sampling,is just that in the final,every items in the final random samples are investigated.This is also like a more detail version of multi-stage sampling.This is a non-random sampling method because finally all items in the random samples are investigated.

Quota sampling-This is a non-probability sampling method because randomness is forfeited in the interests of cheapness and administrative simplicity.Investigators are told to interview all the people they meet up to a certain quota.This is thus very biased because for example,males investigors may be more interested to take females as their samples for interview.

Ideally the sample would be chosen at random and would be large enough because the larger the sample the more reliable will be the results and also avoiding bias.In order to use different sampling methods effectively,it is often necessary to have some knowledge of the population.Systematic sampling should not be used if the population follows a repetitive pattern.Quota sampling must be used with caution.The data collector may introduce bias because they choose how to fill the quota.

In conclusion,there are a lot of information available to us,but to determine which information is more useful for us,we can use sampling techniques to reduce time and costs.These sampling methods are important in practice especially for auditors.