Which of the Following Is Not an Inherent Limitation in an Auditor's

question 120

Multiple Choice

Which of the following is not an inherent limitation in an auditor's ability to detect material misstatements relating to a client's compliance with laws and regulations?

• A)Laws and regulations often relate to operational issues within the entity that do not necessarily relate to the financial statements,so the information systems relating to financial reporting may not capture noncompliance.
• B)The legal implications of noncompliance are ultimately a matter for legal authorities to resolve,and are not a matter about which the auditor can resolve.
• C)Management may act to conceal noncompliance,or may override controls,or may intentionally misrepresent facts to the auditor.
• D)Auditors are not required to consider the applicable legal and regulatory frameworks that apply to the entity.

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Definitions:

Retained Earnings

The portion of net income that is retained by a company rather than distributed to its shareholders as dividends, often used for reinvestment.

Market-to-Book Value

A ratio used to compare a company's current market price to its book value, indicating how highly the market values the company relative to its actual assets.

Financial Statements

A set of formal records that outline an entity's financial activities and condition, including the balance sheet, income statement, and cash flow statement.

Stock Market

A collection of markets and exchanges where the buying, selling, and issuance of shares of publicly-held companies occur.