The ZZZY Company has adopted a new high-end internal-audit system that has all the latest in artificial intelligence built into it. The vendor of the system claims that the system is so sophisticated that it can spot any problem imaginable, even before it happens. Further, the system comes with a complete money-back guarantee: If the system fails to detect any material problem at any time in the future, the entire cost of \(\$ 100,000\) will be refunded promptly, less a \(\$ 75\) service fee.

You are the controller of ZZZY, and your internal auditor has just presented you with a report from the new internal-audit system.

"A complete bill of health," said the internal auditor.

The CEO was amazed. For the last five years the external auditors had consistently written a management letter that indicated numerous problems.

Required

(a) What is your opinion? Would you be willing to rely on the new system? Why or why not?

(b) What would be the best evidence to demonstrate the effectiveness of an automated system?