The Most Likely Explanation Why the Auditor's Examination Cannot Reasonably

question 830

Multiple Choice

The most likely explanation why the auditor's examination cannot reasonably be expected to bring all illegal acts by the client to the auditor's attention is that:

• A) Illegal acts are perpetrated by management override of internal accounting controls.
• B) Illegal acts by clients often relate to operating aspects rather than accounting aspects.
• C) The client's system of internal accounting control may be so strong that the auditor performs only minimal substantive testing.
• D) Illegal acts may be perpetrated by the only person in the client's organization with access to both assets and the accounting records.

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Definitions:

Economic Principle

Fundamental concepts that underpin the study and practice of economics, such as supply and demand or the cost-benefit analysis.

Productive Capacity

The maximum output a firm or economy can produce with its current level of resources and technology.

Efficient

The optimal use of resources to achieve the best possible outcome or output with minimal waste or effort.

Reallocating Resources

The process of distributing resources, such as capital and labor, in a different manner to increase efficiency or achieve a specific objective.