The likelihood that material misstatements may have entered the accounting system and not been detected

The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as

a. risk of material misstatement
b. inherent risk
c. control risk
d. detection risk


Answer: a. risk of material misstatement

One of the typical characteristics of management fraud is

a. falsification of documents in order to misappropriate funds from an employer
b. conversion of stolen inventory to cash deposited in a falsified bank account
c. victimisation of investors through the use of materially misleading financial statements
d. illegal acts committed by management to evade laws and regulations


Answer: c. victimisation of investors through the use of materially misleading financial statements

Which of the following circumstances would most likely cause an audit team to perform extended procedures?

a. supporting documents are produced when requested
b. the company has recently hired a new chief financial officer after the previous on retired
c. the company maintains several different petty cash funds
d. the client made several large adjustments at or near year-end


Answer: d. the client made several large adjustments at or near year-end