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CMA Intermediate · Corporate Accounting and Auditing · Application of Technology in Audit and Audit Trail

A CMA audit team uses software to scan 40,000 sales invoices of a company. The software flags 600 invoices as exceptions (duplicate numbers, weekend postings, values just below an approval limit). On manual review, 90 of the flagged invoices are found to be genuine misstatements. What percentage of flagged items were actual misstatements, and what is the appropriate conclusion?

The hit rate is 90 divided by 600, which is 15%. Flagged items are leads needing investigation; the tool neither proves fraud nor guarantees the unflagged invoices are error-free. Using 40,000 as the base gives the wrong 0.225%.

  1. A0.225%; the flags are irrelevant to the audit
  2. B15%; flagged items are useful leads but must be investigated, and unflagged items are not proven free of errorCorrect
  3. C15%; since the remainder are clean, the whole population is confirmed accurate
  4. D22.5%; the tool should be treated as conclusive evidence of fraud

Explanation

90/600 = 15%. The figure 0.225% is 90/40,000, the wrong base. Analytics output gives leads that need follow-up; it does not prove the unflagged population correct or prove fraud. 22.5% is wrong arithmetic.

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