Evaluating the accounts payable of a certain firm

Reference no: EM13690994

An auditor wishes to determine a rule to use in evaluating the accounts payable of a certain firm. There are 5000 such accounts. The auditor considers the accounts as satisfactory if there are mistakes in only 1% of them. On the other hand, if 5% or more are in error, the auditor would require a thorough investigation. Since there are a large number of accounts the auditor plans to take a random sample of 200 accounts and investigate these. His decision to certify the accounts payable or to require further investigation will depend upon the outcome of the sample. The auditor decides to certify the accounts if 8 or less of the accounts sampled are found in error. if, in fact 500 accounts are in error, what is the probability that the auditor will require further investigation?

Reference no: EM13690994

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