If the probability a firm is being embezzled is 5 percent and the estimated potential cost to the firm from embezzlement is $250,000, what is the expected cost of an audit failure?

Question

Quizplus · Accepted Answer

The expected cost of an audit failure is calculated by multiplying the probability of the event (embezzlement) by the potential cost of that event. Thus, 0.05 (5 percent) times $250,000 equals $12,500.

If the Probability a Firm Is Being Embezzled Is 5