on bayesian tests in auditing

CONFERENCE PROCEEDINGS FULL TEXT PAPERS edited by Zofia Rusnak and Beata Zmyślona

Scientific Committee Richard Hindls, Stanislava Hronová, Rudolf Zimka, Walenty Ostasiewicz, Emília Zimková, Zofia Rusnak, Martin Boďa

Organizing Committee Beata Zmyślona, Cyprian Kozyra, Grzegorz Rogoziński, Kristýna Vltavská Reviewers Milan Bašta, Diana Bílková, Martin Boďa, Joanna Dębicka, Tomáš Fiala, Jakub Fischer, Stanisław Heilpern, Karel Helman, Lenka Hudrlíková, Miroslav Hužvár, Nikola Kaspříková, Alena Kaščáková, Kamil Kladívko, Jindřich Klůfa, Pavol Kráľ, Katarzyna Kuziak, Jana Langhamrová, Ivana Malá, Tomáš Marcinko, Luboš Marek, Miloš Maryška, Petr Mazouch, Zofia Mielecka-Kubień, Witold Miszczak, Petr Musil, Gabriela Nedelová, Walenty Ostasiewicz, Iva Pecáková, Viera Roháčová, Zofia Rusnak, Mária Stachová, Jana Špirková, Šárka Šustová, Jana Tepperová, Vladimír Úradníček, Kristýna Vltavská, Michal Vrabec, Dariusz Wawrzyniak, Henryk Zawadzki, Jaroslav Zbranek, Tomáš Zeithamer, Martin Zelený, Jan Zeman, Rudolf Zimka, Emília Zimková, Pavel Zimmermann, David Žižka

Layout Martin Boďa, Beata Zmyślona, Grzegorz Rogoziński Front page design Grzegorz Rogoziński

CD cover design Beata Dębska Articles published in the form submitted by the authors All rights reserved. No part of this book may be reproduced in any form or in any means without the prior permission in writing of the Publisher © Copyright by Wrocław University of Economics Wrocław 2014

ISBN 978-83-7695-421-9 Wydawnictwo Uniwersytetu Ekonomicznego we Wrocławiu 53-345 Wrocław, ul. Komandorska 118/120 www.ue.wroc.pl Sprzedaż książek tel./fax 71 36-80-602 e-mail: [email protected] www.ksiegarnia.ue.wroc.pl

Contents Foreword ...................................................................................................................................................

Diana Bílková: TL-Moments: Analogy of Classical L-Moments..........................................

5

7

Dagmar Blatná: Application of Robust Regression in the Analysis of Internet Access in European Countries ....................................................................................................

17

Martin Boďa, Viera Roháčová: Application of Six Sigma Ideas to Timing Decisions at Financial Markets ..................................................................................................

36

Martin Boďa, Mária Kanderová: Rebalancing Issues in Tracking Error Variance Minimization ..................................................................................................................................... Anton Dekrét, Rudolf Zimka: On the Price Hartwick´s Task and Its Inverse in a Dynamic Model of an Economy with Exhaustible Resources .....................................

Joanna Dębicka, Agnieszka Marciniuk: Comparison of Reverse Annuity Contract and Reverse Mortgage on the Polish Market ........................................................................

Petra Dotlačilová, Jitka Langhamrová: The Influence of Mortality Models for the Expected Future Life-time of Older People ................................................................... Marek Ďurica, Lucia Švábová: Delta and Gamma for Chooser Options ........................

Vlastimil Farkašovský: New Concept of Pension Funds Performance Evaluation ............

Albert Gardoń: The Normality of Weekly Relative Changes of the Freight Rate in Container Shipping ....................................................................................................................

26 46 55 65 75 85 95

Mária Grausová, Miroslav Hužvár, Jana Štrangfeldová: Healthcare Systems Efficiency in the Visegrád Group ............................................................................................... 104 Stanisław Heilpern: Multiple Life Insurance - Pension Calculation ................................ 114 Alena Kaščáková, Gabriela Nedelová: Changes in Slovak Households´ Economy ........... 122 Igor Kollár, Pavol Kráľ, Peter Laco: Methodology for Assessing Website Improvement in Corporate Environment .............................................................................. 131 Maciej Kostrzewski: Some Method of Detecting the Jump Clustering Phenomenon in Financial Time Series ................................................................................................................ 141 Cyprian Kozyra, Beata Zmyślona, Katarzyna Madziarska: Complementary Objective and Subjective Measures of Hospital Services Quality.................................... 150 Pavol Kráľ, Mária Stachová, Lukáš Sobíšek: Utilization of Repeatedly Measured Financial Ratios in Corporate Financial Distress Prediction in Slovakia ............................ 156 Ivana Malá: The Use of Finite Mixture Model for Describing Differences in Unemployment Duration ............................................................................................................. 164 Lukáš Malec: Studying Economics and Tourism Industry Relations by Smooth Partial Least Squares Method Depending on Parameter ................................................. 173 3

Tomáš Marcinko: Consequences of Assumption Violations Regarding Classical Location Tests................................................................................................................................... 180 Edyta Mazurek: The Income Tax Progression Depending on Social Insurance Contribution in Poland .................................................................................................................. 190

Petr Musil, Jana Kramulová, Jan Zeman: Regional Consumption Expenditures: An Important Starting Point for Regional Input-output Tables............................................... 200 Katarzyna Ostasiewicz, Walenty Ostasiewicz: Good Life: From Political to Human Economy ............................................................................................................................. 208 Anna Sączewska-Piotrowska: Analysis of Poverty Transitions in Poland Using Multilevel Discrete-Time Event History Models ................................................................. 219

Martina Šimková, Petra Švarcová: Disadvantaged University Students in the Czech Republic ................................................................................................................................. 229 Michal Široký: The Use of Short-term Business Statistics for Quarterly GDP Flash Estimates in the Czech Republic................................................................................................ 239 Zdeněk Šulc, Hana Řezanková: Evaluation of Recent Similarity Measures for Categorical Data ............................................................................................................................... 249 Lucia Švábová, Marek Ďurica: The Relationship Between the Finite Difference Method and Trinomial Trees ...................................................................................................... 259 Kristýna Vltavská, Jaroslav Sixta: The Estimation of Final Consumption Expenditures 270 Lenka Vraná: Business Cycle Analysis: Tracking Turning Points ..................................... 277 Janusz Wywiał: On Bayesian Testing in Auditing .................................................................... 284 Emília Zimková: Window Analysis of Supper-efficiency Change: Case of the Slovak Banking System ................................................................................................................. 294 Beata Zmyślona: Statistical Modelling of the Impact of Diabetes on the Risk of Hospitalization ........................................................................................................................... 301

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ON BAYESIAN TESTS IN AUDITING JANUSZ L. WYWIAŁ Katowice University of Economics, Faculty of Management, Department of Statistics 1 Maja 50, 40-287 Katowice, Poland [email protected] Abstract In auditing the problem of testing hypotheses about frequency of incorrect items is considered. It is treated as the particular case of compliance testing problems. Usually, classical statistical tests are used to testing those types of hypotheses. In the paper the Bayesian approach will be considered. The hypothesis will be tested on the basis of the simple random sample or on the basis of the simple random sample drawn from strata. Usually, Bayesian statistical inference in auditing is based on confidence intervals. Here, instead of that two well known Bayesian rules will be considered. Presented procedures will be illustrated by means of empirical examples. Key words: Bayesian testing of hypothesis, compliance test, stratified population, risk function, Bayes factor. DOI: 10.15611/amse.2014.17.31 1. Introduction The quality internal control system is audited. The audit is based on testing methods of processing selected operations by the system under control. The system is good when it has been operating continuously and effectively. Formally, the system is treated as a population of subsystems, which are mutually independent. Let p be probability that the controlled subsystem is wrong. It means that P(X=1)=p, P(X=0)=1-p. The following hypotheses are considered: H0: p=p0,

H1: p=p1> p0,

where p0 is the admissible (tolerable, acceptable) level of the probability that the audited system works incorrectly and p1 is the inadmissible level of this probability. Moreover, let p1>p0. Defined hypotheses are usually verified on the basis of the simple sample denoted by X1, X2,…, Xn where P(Xi=x)=P(X=x), i=1,..,n, while Xi and Xj are mutually independent. It is n

well known that the sum M   X i has Bernoulli distribution with the following probability i 1

function.

n P( M  m | p)    p m (1  p)n  m  m

(2)

According to the classical Neyman-Pearson framework the above hypotheses are usually verified on the basis of the test statistic M or on the basis of its standardized version

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285

T

M  E (M ) M  np  D( M ) np(1  p)

So, the hypothesis H0 is rejected when the p-value evaluated on the basis of formula s=P(Mm|H0)=P(Tt|H0) where  is the assumed significance level. In practice of auditing the probability p is usually very small (pp1,

(1)

Now let us underline that p is treated as a value of a random variable and p1 is fixed. The distribution of p is called a prior one. The framework of Bayesian inference is based on the posterior distribution of p. It is explained in details below under the additional assumptions. 2. Inference under Bayesian approach 2.1 . The homogenous population Let us take into account the Bayesian model proposed by Meeden (2003). The particular case of that model is defined by the following assumptions. Similarly, like it is above the sum n

M   X i has Bernoulli distribution. The beta distribution B(u,z) is the prior distribution i 1

of the probability p with the following density function:

f ( p) 

u  z  u 1 p (1  p) z 1 , u z 

for p(0,1)

(3)



where: ()   x  1e x dx , >0. 0

Moreover: u E ( p)  , uz

1 ( p) 

V ( p) 

uz , u  z  u  z  1 2

2(u  z ) u  z  1 is skewness coefficient, u  z  2 uz

The beta distribution is usually taken into account as the prior distribution of the probability p, see, e.g. Santer and Duffy (1989). 285

286

The joint distribution of M and p is:

h( p, m) 

u  z   n  mu 1   p (1  p) nm z 1 u z   m 

The marginal distribution of M is: 1

g (m)   h( p, m)dp  0

u  z   n  m  u n  m  z    u z   m  n  u  z 

The posterior distribution of parameter p is:

h( p | m) 

n  u  z  p mu 1 (1  p) nm z 1 m  u n  m  z 

(4)

Let c0 be the loss dealing with situation when H0 is accepted when H1 is true. It means that the auditor accepts the system when it works incorrectly. Let c1 be the loss generated by rejecting H0 when it is true. It means that the well working system is not accepted. According to the general Bayessian rule of testing statistical hypothesis, see e.g. Krzyśko (2004), pp. 254-5 and 323-5 or Robert (2007), pp. 225-8, the following posterior probabilities are evaluated: p1

P p  p1 | m   h( p | m)dp , 0

1

P p  p1 | m   h( p | m)dp . p1

So, c1P p  p1 | m is the risk of accepting the hypothesis H1 when H0 is true. Moreover, c0 P p  p1 | m is the risk of accepting H0 when H1 is true. The decision rule is as follows. The hypothesis H0 is rejected when c1P p  p1 | m < c0 P p  p1 | m , H0 is accepted when c1P p  p1 | m  c0 P p  p1 | m . The just written decision rule is equivalent to the following. The hypothesis H0 is rejected when c0 P p  p1 | m  r, (5) c0  c1 the hypothesis H0 is accepted when

P p  p1 | m 

c0 r. c0  c1

(6)

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Let us note that if c0=c1, then r 

c0 1 1  . The value r  is usually taken into account 2 c0  c1 2

in practical analysis. The next rule of making decision is based on the basis of the following Bayes factor, see, e.g. Robert (2007), pp. 227:

B

P p  p1 | m P p  p1  P p  p1 | m P p  p1 

(7)

Let l  log10 ( B) . Usually, the rule of making the decision is as follows. If 0