When the Auditor Knows That an Illegal Act Has Occurred

question 44

Multiple Choice

When the auditor knows that an illegal act has occurred, the first course of action by the auditor is to:

• A) withdraw from the engagement.
• B) issue an adverse opinion.
• C) consider the effects on the financial statements, including the adequacy of disclosure.
• D) not report it to the proper governmental authorities.

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Definitions:

Consumer Surplus

The variance between the aggregate amount consumers can and will pay for a good or service versus the amount they actually spend on it.

Producer Surplus

is the difference between what producers are willing to accept for a good or service versus what they actually receive.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in a stable market.

Producer Surplus

The difference between what producers are willing to accept for a product versus what they actually receive, measured by the area above the supply curve and below the market price.