An Auditing Firm Has Developed a Set of Criteria for Determining

question 144

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.If in an audit,a particular account appears unusual,what is the probability that it is in error for Company A.

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