An Auditing Firm Has Developed a Set of Criteria for Determining

question 48

Essay

An auditing firm has developed a set of criteria for determining whether a particular account (and its balance)is in error.Historically,at companies where the gross sales are under $25 million,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.What are the states of nature and the experimental outcomes?

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Definitions:

Average

A statistical measure representing the central or typical value in a set of data, calculated as the sum of all values divided by the number of values.

Social Desirability Scales

Psychological tools used to assess the extent to which people's responses are influenced by the desire to be seen favorably by others.

Research

The organized examination and analysis of materials and sources to discover facts and form new conclusions.

Discriminant Validity

A measure of the degree to which a construct is truly distinct from other constructs by correlating minimally or not at all with measures from which it is theoretically supposed to differ.