An Auditing Firm Has Developed a Set of Criteria for Determining

question 65

Short Answer

An auditing firm has developed a set of criteria for determining whether a particular account (and its balance) is in error. Historically, they know that of balances that were in error, 75 percent were regarded as unusual. Assume Company A shows a history of only 10 percent of the account balances being in error and it also shows that 25 percent of the account balances were unusual. If in an audit, a particular account balance appears unusual, what is the probability that it is in error for Company A?

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Definitions:

Credit

The granting of money or something of value with the expectation of repayment, or the reputation for solvency and reliability that allows an entity to borrow.

Revenue Opportunities

Potential scenarios or strategies that can lead to increased income or profits for a business or organization.

Public Utility Corporation

A company that provides essential public services, such as water, electricity, and natural gas, regulated by government entities.

Legislation

The process of making or enacting laws, or the body of laws that have been enacted by a legislative body.