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:

Euros

The Eurozone's official monetary unit, utilized by 19 out of the 27 member states of the European Union.

Canadian Dollars

The currency of Canada, represented by the symbol CAD, and used for all financial transactions within the country.

Euros

The official currency used by 19 of the 27 European Union countries, known collectively as the Eurozone.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, often based on government bonds.