Question: 1 If the selected 25 transactions are treated as Bernoulli

1. If the selected 25 transactions are treated as Bernoulli trials, the resulting binomial calculations will be in error because of sampling from a finite population.
2. The binomial model for this problem sets n = 25 and p = 0.10.
3. Assuming Bernoulli trials, there is a 1>1,000 chance for at least one error among the first three transactions that the auditor checks.
4. Assuming Bernoulli trials, the auditor should expect to find more than 3 errors among these transactions.
5. A binomial model would be more appropriate for this problem if the auditor picked the first 25 transactions during the three-month period.
6. It would be unlikely for the auditor to discover more than 10 errors among these transactions because such an event lies more than 4 SDs above the mean.
An auditor inspects 25 transactions processed by the business office of a company. The auditor selects these transactions at random from the thousands that were processed in the most recent three months. In the past, the auditor has found 10% of trans-actions at this type of company to have been processed incorrectly (including such errors as wrong amount, incorrect budget code, incomplete records).

  • CreatedJuly 14, 2015
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