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:

Alcohol

A psychoactive substance that is commonly consumed in beverages and can affect the central nervous system, leading to altered mood, behavior, and cognitive functions.

Posttraumatic Stress Disorder

A mental health condition triggered by experiencing or witnessing a terrifying event, leading to symptoms like flashbacks, nightmares, and severe anxiety.

Battle Fatigue

An outdated term for what is now often referred to as PTSD, related to psychological distress from combat.

Shell Shock

An outdated term once used to describe the psychological trauma experienced by soldiers during war, now understood as a form of post-traumatic stress disorder (PTSD).