In Situations in Which the Auditor Believes the Chance of Financial

question 57

Multiple Choice

In situations in which the auditor believes the chance of financial failure or loss is high, and there is a corresponding increase in engagement risk for the auditor, acceptable audit risk should:

• A) remain the same.
• B) be reduced.
• C) be increased.
• D) be calculated using a computerised statistical package.

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Definitions:

Drawing Account

An account that tracks the money or goods withdrawn from a business by its owners for personal use.

Capital Account

A financial statement that shows the changes in ownership interest of a company over a period.

Noncumulative

Pertains to dividends or other rights that do not accumulate if not paid or exercised in the period they are due.

Dividends in Arrears

Unpaid dividends on cumulative preferred stock which must be paid out before any dividends can be distributed to common stockholders.