The Auditor Is Performing Substantive Tests Several Months Before the End

question 28

Multiple Choice

The auditor is performing substantive tests several months before the end of the year. This most likely means that:

• A) inherent risk is set at moderate to high.
• B) detection risk is set at low to very low.
• C) control risk is set at slightly below maximum to maximum.
• D) control risk is set at maximum.
• E) detection risk is set at moderate to high.

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Definitions:

Foreclosure by Action and Sale

A legal process where a creditor seeks to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the asset used as the collateral for the loan.

Surplus

The amount by which revenue exceeds expenses in financial accounting, or in terms of inventory, more than what is needed.

Mortgage Debt

A loan secured by property, typically real estate, where the borrower is obliged to make a predetermined series of payments.

Deed of Trust

A legal document where real property is held in trust by a third party as security for a loan until the debt is paid off.