The Auditors of Smith Electronics Wish to Limit the Audit

question 33

Multiple Choice

The auditors of Smith Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 5 percent.They believe that inherent risk is 100%,and there is a 40% risk that material misstatement could have bypassed the client's system of internal control.What is the maximum detection risk the auditors should specify in their substantive procedures of details of accounts receivable?

• A)5%.
• B)12.5%.
• C)42.7%.
• D)60%.

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Definitions:

Psychosocial Development

The development of the personality and the acquisition of social attitudes and skills from infancy through maturity.

Erikson

A psychosocial development theorist known for his 8-stage theory of human development.

Initiative Versus Guilt

Erikson’s third psychosocial stage in which young children develop a sense of purposefulness, try new skills and activities, and take pride in their accomplishments, as well as feel guilt if they are unsuccessful.

Economic Labor

The work performed by individuals that contributes to the production of goods and services in an economy.