A Significant Risk Is an Identified and Assessed Risk of Material

question 51

Multiple Choice

A significant risk is an identified and assessed risk of material misstatement that, in the auditor's judgment, requires special audit consideration.Which of the following would be classified as a significant risk?

• A)A risk related to a significant economic or accounting development.
• B)A risk related to transactions for a simple operating lease, like you sign when you rent an apartment.
• C)A risk that does not involve a related party transaction.
• D)A risk related to a transaction that involves a recording error, but was not intentional, like a fraud.

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Definitions:

Speculative Demand

The demand for goods, services, or assets based not on their fundamental value but on the expectation that their price will increase in the future.

Precautionary Demand

The demand for liquid assets or money for the purpose of meeting unforeseen emergencies or taking advantage of unexpected opportunities.

Liquidity Trap

A situation where low interest rates fail to increase lending and economic growth due to people preferring to hold onto cash.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period, typically showing a downward slope from left to right.