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On a Test of Hypothesis to Verify the Operating Risk Due to Accountancy Errors

Author

Listed:
  • Paola Maddalena Chiodini

    (Università degli Studi di Milano-Bicocca - Italy)

  • Silvia Facchinetti

    (Università Cattolica del Sacro Cuore, Milano - Italy)

Abstract

According to the Statement on Auditing Standards (SAS) No. 39 (AU 350.01), audit sampling is defined as “the application of an audit procedure to less than 100 % of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class”. The audit system develops in different steps: some are not susceptible to sampling procedures, while others may be held using sampling techniques. The auditor may also be interested in two types of accounting error: the number of incorrect records in the sample that overcome a given threshold (natural error rate), which may be indicative of possible fraud, and the mean amount of monetary errors found in incorrect records. The aim of this study is to monitor jointly both types of errors through an appropriate system of hypotheses, with particular attention to the second type error that indicates the risk of non-reporting errors overcoming the upper precision limits.

Suggested Citation

  • Paola Maddalena Chiodini & Silvia Facchinetti, 2014. "On a Test of Hypothesis to Verify the Operating Risk Due to Accountancy Errors," Statistica, Department of Statistics, University of Bologna, vol. 74(1), pages 41-60.
    • Handle: RePEc:bot:rivsta:v:74:y:2014:i:1:p:41-60
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