Which of the Following Statements About Illegal Acts Committed by Clients

question 20

Multiple Choice

Which of the following statements about illegal acts committed by clients is correct?

• A)An auditor has no responsibility to detect illegal acts that have an indirect effect on the financial statements.
• B)An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements.
• C)An auditor considers illegal acts from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions.
• D)An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and irregularities.

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Definitions:

Inventory Liquidation

The process of selling off inventory, typically at reduced prices, to generate cash or reduce excess stock.

LIFO Cost Flow Assumption

An inventory valuation method that assumes the most recently produced or acquired items are sold first, last-in, first-out.

FIFO

First In, First Out, an inventory valuation method where the first items placed in inventory are the first sold.

Specific Identification

An inventory valuation method wherein the costs of individual inventory items are tracked and used to determine the cost of goods sold.