Inferring About the Average Value of Audit Errors from Sequential Ratio Tests.

Abstract

The book amounts are modeled as values of a random variable, represented by a mixture of distributions of both the correct and error-contaminated amounts. The mixing coefficient represents the proportion of items with non-zero error amounts. This study addresses the problem of determining the sample size needed for testing statistical hypotheses regarding mean accounting errors. The average sample size is estimated using the Sequential Probability Ratio Test (SPRT), applying the Monte Carlo method. Estimating average audit errors is a common challenge in economic research.