If Control Risk Is High or Maximum, and There Are

question 58

Multiple Choice

If control risk is high or maximum, and there are no compensating controls, the auditor should _______.

• A)assume that fraud risk is high, and design appropriate substantive tests, particularly substantive tests of transactions
• B)assume that fraud risk is low, and design appropriate substantive tests, particularly substantive tests of transactions
• C)consider withdrawing from the engagement
• D)request additional written representation from management

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Definitions:

Receivable into Cash

The process or activity of converting money that is owed to a company by its customers into actual cash, usually through collection efforts.

Excess Cash

Funds that exceed the normal operating needs of a company, which might be used for investments, acquisitions, or improving financial ratios.

Marketable Securities

Financial instruments that can easily be converted to cash due to their high demand and short maturity period.

Lockbox System

A service offered by banks to companies for the receipt of payment from customers, under which payments are sent directly to a location accessible by the bank.