Fraud detection has become an indispensable tool for banks and credit card companies to combat fraudulent credit card transactions. A fraud detection firm has detected minor fraudulent activities in 1.40% of transactions, and serious fraudulent activities in 0.95% of transactions. Assume that fraudulent transactions remain stable. a. What is the probability that there are minor fraudulent activities in fewer than 2 out of 100 transactions? Note: Do not round intermediate calculations. Round your final answer to 4 decimal places. Probability b. What is the probability that there are serious fraudulent activities in fewer than 2 out of 100 transactions? Note: Do not round intermediate calculations. Round your final answer to 4 decimal places. Probability

Fraud detection has become an indispensable tool for banks and credit card companies to combat fraudulent credit card transactions. A fraud detection firm has detected minor fraudulent activities in 1.40% of transactions, and serious fraudulent activities in 0.95% of transactions. Assume that fraudulent transactions remain stable. a. What is the probability that there are minor fraudulent activities in fewer than 2 out of 100 transactions? Note: Do not round intermediate calculations. Round your final answer to 4 decimal places. Probability b. What is the probability that there are serious fraudulent activities in fewer than 2 out of 100 transactions? Note: Do not round intermediate calculations. Round your final answer to 4 decimal places. Probability

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter8: Specialized Audit Tools: Attributes Sampling, Monetary Unit Sampling, And Data Analytics Tools

Section: Chapter Questions

Problem 31RQSC

See similar textbooks

Similar questions

Which of the following statements is correct? Select one: a. Account receivable turnover is equal to net credit sales divided by average net accounts receivable. b. Buying aged receivables from businesses and then collects the payments directly from the customers is called Allowance for uncollectible accounts. c. Auto generated document numbers is a fraud preventive method which is more efficient than physical controls. d. If the same people are responsible for a series of related accounting activities is called Segregation of Duties.
Suppose you incorrectly recorded a deposit as $450. The bank discovered the correct amount was $480. The bank will send a debit memo to inform you of the error. (True or False)
1. Using the quick tests for locating errors, find the error in each of the two questions below. Describe the type of error, explain how you discovered it, and make corrections. a) GENERAL JOURNAL PARTICULARS DEBIT 6 0 00 31 ol ol ol - CREDIT Bank Equipment Сapital 90 0 0 Supplies 10 0 Accounts Payable 10 0 25o Expense Bank 250 Accounts Receivable 16 8 - Revenue 16 8 Bank 50 Accounts Receivable 50 Drawings Bank Bank Accounts Receivable Supplies 6 000 - 250 168 50- 100 50 72 6 050- 122- 118 5 728 Equipment 3 000 Accounts Payable Capital 100 – 9 000 Drawings Revenue Experse 72 - 168 - 205
What is the overall reliability that bank loans will be processed accurately if each of the 5 clerks shown in the chart has the reliability shown? .95 .95 .95 .95 .95 PX Hint: The three paths are done in parallel, followed by an addi- tional independent step.
V4. Hayden Corporation uses an enterprise resource planning (ERP) system. In their audit of receivables and revenues, the auditors have identified the following data elements in the corporation’s database that may be used for data analytics applications: Customer balance Customer credit limit and credit rating Customer total annual sales Customer purchases by date Customer returns by date Customer name Customer shipping address Required: a. Describe two data analytic applications that might be used to audit the existence of receivables and occurrence of sales. b. Describe one data analytic application that might be used to audit the valuation of receivables.
Which one of the following would NOT be considered as a substantive procedure? O a. Estimating payroll expense O b. Taking a sample of purchase orders to check orders over OMI 10,000 O c. Using software to identify outstanding receivables O d. Obtaining letter from bank to confirm account balance
Investigating a Fraud. Suppose you are auditing cash disbursements and discover severalpayments to a company you are unfamiliar with and cannot find information about this company on the Internet or in the local telephone directory. The invoices from this company have numbers very close to each other in the sequence, there is no phone number on the invoice, and each bill is for a dollar amount just under the amount that would require additional approvals before payment. Based on this information, you now suspect this may be a fraud.Required:Based on your suspicions, how would you change the audit procedures you would perform, and how might you change the evidence you gather?
From industry statistics, a credit card company knows that 0.8 of its potential card holders are good credit risks and 0.2 are bad credit risks. The company uses discriminant analysis to screen credit card applicants and determine which ones should receive credit cards. The company awards credit cards to 70% of those who apply. The company has found that of those awarded credit cards, 95% turn out to be good credit risks. What is the probability that an applicant who is a bad credit risk will be denied a credit card?
Consider again the example introduced in Section 4.5 of a credit card company that has a database of information provided by its customers when the customers apply for credit cards. An analyst has created a multiple regression model for which the dependent variable in the model is credit card charges accrued by a customer in the data set over the past year (y), and the independent variables are the customers annual household income (x1), number of members of the household (x2), and number of years of posthigh school education (x3). Figure 4.23 provides Excel output for a multiple regression model estimated using a data set the company created. a. Estimate the corresponding simple linear regression with the customers annual household income as the independent variable and credit card charges accrued by a customer over the past year as the dependent variable. Interpret the estimated relationship between the customers annual household income and credit card charges accrued over the past year. How much variation in credit card charges accrued by a customer over the past year does this simple linear regression model explain? b. Estimate the corresponding simple linear regression with the number of members in the customers household as the independent variable and credit card charges accrued by a customer over the past year as the dependent variable. Interpret the estimated relationship between the number of members in the customers household and credit card charges accrued over the past year. How much variation in credit card charges accrued by a customer over the past year does this simple linear regression model explain? c. Estimate the corresponding simple linear regression with the customers number of years of posthigh school education as the independent variable and credit card charges accrued by a customer over the past year as the dependent variable. Interpret the estimated relationship between the customers number of years of posthigh school education and credit card charges accrued over the past year. How much variation in credit card charges accrued by a customer over the past year does this simple linear regression model explain? d. Recall the multiple regression in Figure 4.23 with credit card charges accrued by a customer over the past year as the dependent variable and customers annual household income (x1), number of members of the household (x2), and number of years of posthigh school education (x3) as the independent variables. Do the estimated slopes differ substantially from the corresponding slopes that were estimated using simple linear regression in parts a, b, and c? What does this tell you about multicollinearity in the multiple regression model in Figure 4.23? e. Add the coefficients of determination for the simple linear regression in parts a, b, and c, and compare the result to the coefficient of determination for the multiple regression model in Figure 4.23. What does this tell you about multicollinearity in the multiple regression model in Figure 4.23? f. Add age, a dummy variable for gender, and a dummy variable for whether a customer has exceeded his or her credit limit in the past 12 months as independent variables to the multiple regression model in Figure 4.23. Code the dummy variable for gender as 1 if the customers gender is female and 0 if male, and code the dummy variable for whether a customer has exceeded his or her credit limit in the past 12 months as 1 if the customer has exceeded his or her credit limit in the past 12 months and 0 otherwise. Do these variables substantially improve the fit of your model?
Q1-1 What risks are present if you take too long to col- lect our accounts receivable? Q1-2. What are some analyses you could perform that would provide insight into how efficiently your company is collecting cash from customers? Are there any KPIS that would be appropriate here? Q1-3. In your opinion, what would be an appropriate benchmark for the average number of days sales outstanding (i.e., Accounts receivable/Sales x 365)? Would management want this number higher or lower?
Bank reconciliations are typically prepared for... A. Savings Accounts B. Current Accounts C. Time Deposits D.Credit Accounts The cash ledger showed a balance of P2M, while the bank statement showed a balance of P800,000. What item must be reconciled to balance the cash ledger and bank statement? A. P1.2M deposit in transitB. P1.2M outstanding check C. P1.2M book error D. P1.2M debit memo Which of the following is not a bank reconciling items? A. Deposit in Transit B. Credit Memo C. Bank Error D. Outstanding Checks
9. When preparing a check and you commit an error, what should you do? a. Get a pencil eraser and erase the error. b. Get a white ink pen and erase the error. 6. c. Cancel the check and prepare a new one. d. Call an ambulance. 10. It is a report issued by a bank (on a monthly basis) which shows the deposits and withdrawals during the period and the cumulative balance of a depositor's bank account. a. Credit card billing statement b. ATM card c. Bank statement d. T- account