When a Compensating Control Exists, a Deficiency in the System

question 19

Multiple Choice

When a compensating control exists, a deficiency in the system:

• A) is magnified and must be removed from the sampling process and examined in its entirety.
• B) could cause a material loss, so it must be tested using substantive procedures.
• C) is reduced but not removed; therefore, it is still of concern to the auditor.
• D) is no longer a concern because the potential for misstatement has been sufficiently reduced.

Understand the concept of social roles and how they shape individual behavior within a group.

Identify the mechanisms and effects of cognitive dissonance and attitude change.

Recognize the influence of social norms on individual behavior and decision-making.

Understand the impact of deindividuation on group behavior and personal accountability.

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Definitions:

Scienter

Knowledge of wrongdoing or fraudulent intent, often required to be proven in cases of securities fraud.

Unilateral Mistake

A situation in contract law where only one party is mistaken about a basic assumption on which the contract is based.

Subjective Value

The worth or importance of something based on personal preferences, opinions, or experiences, rather than its objective market value.

Fraudulent Misrepresentation

Occurs when one party deceives another by intentionally providing false information, leading to an agreement or transaction based on that misinformation.