5.70 Caught doctoring the books After the major accounting scandals with Enron,

Question

5.70 Caught doctoring the books After the major accounting scandals with Enron, a large energy company, the question may be posed. "Was there any way to examine Enron's accounting books to determine if they hed been doctored ?" One way uses Benford's law, which states that in a variety of circumstances, numbers as varied as populations of small towns, figures in a newspaper or magazine. and tex retuns and other business records begin with the digit 1 more often than other digits. This law states that the probabilities for the digits 1 through 9 are approxmately obabilitylo 30 0.180 12 0. 100.08lb.o f we were to randomly pick one of tie digits batween T and 9 uaing a random number table or sotware what ia the probability for each digit? b. VWhen people attempt to fake numbers, theres a tendency to use 5 or 0 as the initial selection? digit more often than predicted by Benford's law. what is the probablity of 5 or d as the frst digit by () Benford's law and () random

Explanation / Answer

a. If we were to randomly pick 1 digit from 1 to 9 using random number table/software the probability of each digit = 1/Number of outputs = 1/9 =0.1111

b. Probability of the first number starting with 5 or 6

(i) using Benford's law is nothing but the sum of the probabilities of 5 and 6

i.e. P( 5 or 6) = P(5) + P(6) - P(5 and 6) since this is mutually exclusive event P(5 and 6) =0 as 5 and 6 can not come together

so., P( 5 or 6) = P(5) + P(6) = 0.08+0.07 =0.15

(ii)using Random selection is nothing but the sum of the probabilities of 5 and 6

i.e. P( 5 or 6) = P(5) + P(6) - P(5 and 6) since this is mutually exclusive event P(5 and 6) =0 as 5 and 6 can not come together

so., P( 5 or 6) = P(5) + P(6) = 1/9 + 1/9 =2/9 =0.2222

Hope the above explaination has helped you in understanding the problem Pls upvote the ans if it has really helped you. Good Luck!!

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.