In light of a recent large corporation bankruptcy, auditors are becoming increasingly concerned about the possibility of fraud. Auditors might be helped in determining the chances of fraud if they carefully measure cash flow. To evaluate this possibility, samples of midlevel auditors from CPA firms were presented with cash -flow information from a fraud case, and they were asked to indicate the chance of material fraud on a scale of 1 to 100 (numbers close to 1 represent very low chance while numbers close to 100 represent very high chance of experiencing bankruptcy). A random sample of 16 auditors used the cash-flow information. Their mean assessment was 36.5, and the sample standard deviation was 22.9. For an independent sample of 14 auditors not using the cash-flow information, the sample and standard deviation were, respectively, 47.5 and 24.1.
(a) Based on the above information and at the .05 level of significance, is there evidence that cash-flow information would reduce the possibility of bankruptcy?
(A) What assumptions do you have to make about the two populations in order to justify the use of your test in part (a) ? Can you verify any of these assumptions? Use .05 as your level of significance for part (A) as well.