Question

In light of a recent large corporation bankruptcy, auditors are becoming increasingly concerned about the possibility of fraud. Auditors might be helped in determining the chances of fraud if they carefully measure cash flow. To evaluate this possibility, samples of mid-level auditors from CPA firms were presented with cash-flow information from a fraud case, and they were asked to indicate the chance of material fraud on a scale from 0 to 100.

a) True
b) False

Answer 1

The question deals with auditors analyzing cash flow information to assess the risk of fraud. It requires knowledge of business, specifically auditing and accounting, as well as the application of statistical methods to calculate probabilities of audits over a certain period, which cannot be calculated without further data.

Step-by-step explanation:

The question presents a scenario related to auditors assessing the risk of fraud by examining cash flow information. It relates to the field of auditing, a branch of accounting within the Business discipline. The parts of the question that ask about the number of audits in a 20-year period, the probability of not being audited at all, and the probability of being audited more than twice involve applying statistical and probability concepts to evaluate risk.

Estimating audit frequency and calculating probabilities require understanding of the Poisson distribution or other relevant statistical models, assuming that audits are independent events with a constant rate of occurrence. However, the original question does not provide specific rates or data needed to calculate the requested probabilities. Hence, without additional information, the probabilities cannot be determined.

Identifying and measuring the indicators of fraud is critical for auditors, and cash flow analysis is one tool that can aid in this assessment. Understanding the relationship between financial data and potential fraudulent activity is an essential skill in the field of auditing.