An Auditing Firm Has Developed a Set of Criteria for Determining

question 127

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:

Accounts Receivable File

A record or database of all amounts owed to a company by its customers for goods or services delivered.

Tickler File

An organizational system used to remind individuals of upcoming tasks or deadlines, often consisting of a file with dated sections.

Voucher Register

A record keeping system that logs all vouchers issued by a business, detailing the authorization of payments.

Purchases Journal

A ledger in accounting used to record all purchases of goods and services on credit.