If the Risk of Material Misstatement Is Low (E

question 129

Multiple Choice

If the risk of material misstatement is low (e.g., the combined inherent risk and control risk assessments are low) , _______.

• A)then the auditor does not need as much assurance from substantive tests, and the auditor can reasonably accept a lower level of assurance from substantive tests and use smaller sample sizes for substantive testing
• B)then the auditor needs more assurance from substantive tests, and the auditor can reasonably accept a higher level of assurance from substantive tests and use greater sample sizes for substantive testing
• C)then the auditor would set audit risk at the highest possible level
• D)then the auditor should consider lowering the engagement fees

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Definitions:

Contingency Theories

A group of leadership theories suggesting that there is no single best way to lead, as effective leadership depends on the context of the situation.

Theory Y

A management approach that assumes employees are inherently motivated and will take responsibility if given the opportunity, in contrast to Theory X.

Formal Mathematical Models

Theoretical frameworks that use mathematical expressions to represent and analyze complex systems or problems.

Tight Bureaucracy

A highly structured organizational form with strict rules, procedures, and hierarchy, emphasizing control and consistency.