Misstatement and Probability: Difference between pages

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1. ''Financial reporting - audit.''
The study of chance providing an objective measure of uncertainty.


In financial reporting, misstatements are differences between amounts reported - or other disclosures - in financial statements, and the amounts or disclosures required by relevant accounting standards.


Misstatements may be a result of error or of fraud.
Probabilities range between 1 (=100%) and 0 (=0%).


A probability of 100% means that an event is considered certain to occur.


Types of misstatement include factual misstatements and judgmental misstatements.
A probability of 0% means that an event is considered certain not to occur.


Misstatements include omissions.


For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.


In cases of identifying material misstatements, auditors will be unable to give an unqualified audit report.


This simple model of a coin flip assumes that the only two possibilities are a head or a tail.  Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:


2. ''Law.''
#The coin landing on its edge 'more often than it's supposed to'.
 
#The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.
Any false statement, not necessarily one made between two parties forming a contract together.




== See also ==
== See also ==
* [[Accounting standards]]
* [[Black swan]]
* [[Audit]]
* [[Conditional probability]]
* [[Auditors’ report]]
* [[Confidence interval]]
* [[Contract]]
* [[Frequency distribution]]
* [[Disclosure]]
* [[Mutually exclusive]]
* [[Factual misstatement]]
* [[Poisson distribution]]
* [[Financial reporting]]
* [[Fraud]]
* [[Fraudulent misrepresentation]]
* [[Innocent misrepresentation]]
* [[Judgmental misstatement]]
* [[Law]]
* [[Material]]
* [[Misrepresentation]]
* [[Negligent misrepresentation]]
* [[Negligent misstatement]]
* [[Qualified audit report]]
* [[Unqualified audit report]]
* [[Window-dressing]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]

Revision as of 15:19, 8 June 2016

The study of chance providing an objective measure of uncertainty.


Probabilities range between 1 (=100%) and 0 (=0%).

A probability of 100% means that an event is considered certain to occur.

A probability of 0% means that an event is considered certain not to occur.


For example, flipping an unbiased coin, the probability of getting a head is often modelled as 50%.


This simple model of a coin flip assumes that the only two possibilities are a head or a tail. Applying such simple models to financial situations, and treating financial outcomes as simple coin flips, may lead to errors resulting from:

  1. The coin landing on its edge 'more often than it's supposed to'.
  2. The underlying assumption of an unbiased coin not being a valid one. This kind of assumption is usually much too simple.


See also