An Auditor Who Discovers That Client Employees Have Committed an Illegal

question 34

Multiple Choice

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if:

• A)the illegal act is a violation of generally accepted accounting principles.
• B)the client does not take the remedial action that the auditor considers necessary.
• C)the illegal act was committed during a prior year that was not audited.
• D)the auditor has already assessed control risk at the maximum level.

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Definitions:

Milling Department

A section within a manufacturing facility where the process of grinding, cutting, pressing, or crushing materials occurs.

Overhead Applied

The portion of manufacturing overhead costs allocated to each unit of production based on a predetermined rate or method.

Machine-Hours

A measure of production activity that represents the hours machines are operating to manufacture products.

Job-Order Costing System

An accounting system that calculates the cost of individual jobs or batches in manufacturing or service sectors, tracking direct materials, direct labor, and overhead per job.