Question

When conducting an audit, accountants check invoices by drawing random samples for inspection. In one case, the accountants failed to include any of 17 fraudulent invoices in their sample of 100 invoices. When the company failed, after the accountants had certified its financial statements, a creditor who had relied on the statements sued, claiming that the accountants had been negligent. The probability that none of the 17 invoices would be included in a random sample of 100 if there were 1,000 invoices in all, equals 0.16. Is there sufficient evidence to justify holding the accountants liable for failing to draw a larger sample?

Answer 1

(Please give positive rating)

In one case, the accountants failed to include any of 17 fraudulent invoices in their sample of 100 invoices and The probability that none of the 17 invoices would be included in a random sample of 100 if there were 1,000 invoices in all, equals 0.16. It means out of a hundred 16 times fraudulent invoices would not be included in the sample. So the probability that all of the 17 invoices included in the sample = 1-.16 = .84. Which is a very high probability. And If result sample results in not including the fraudulent invoices then the account should collect a large sample. So there is sufficient evidence to justify holding the accountants liable for failing to draw a larger sample.