There Are Four Conditions That Give Rise to the Need

question 49

Multiple Choice

There are four conditions that give rise to the need for independent audits of financial statements. One of these conditions is consequence. In this context, consequence means that the:

• A) users of the statements may not fully understand the consequences of their actions.
• B) auditor must anticipate all possible consequences of the report issued.
• C) impact of using different accounting methods may not be fully understood by the users of the statements.
• D) financial statements are used for important decisions.
• E) financial statements were prepared in accordance with GAAS.

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Definitions:

Positive Assurance

Certification or guarantee often required in auditing, indicating that financial statements and records accurately reflect the entity's financial status.

Repudiation

The refusal to accept or be associated with, often involving a contract or agreement.

Frustration of Purpose

A legal defense allowing for the termination of a contract when an unexpected event undermines the contract's core purpose.

General Contract Law

The body of law that governs the formation, execution, and enforcement of agreements between parties.