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
