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).