When a Client Fails to Follow GAAP, the Audit Report

question 58

Multiple Choice

When a client fails to follow GAAP, the audit report can be unmodified, qualified, or adverse depending on the materiality. What factors affect materiality that an auditor should consider?

• A) the dollar amount in comparison to a base
• B) if the misstatement can be measured
• C) the nature of the item
• D) All the above are factors an auditor should consider regarding materiality.

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Definitions:

Secondary Stakeholder Groups

Those individuals or organizations indirectly affected by a company's operations, typically not directly engaged in transactions with the company but impacted by its actions.

Legitimacy

The general perception that an action, entity, or institution is appropriate and justified according to socially constructed norms, values, beliefs, and definitions.

Invisible Hand

A metaphor used by economist Adam Smith to describe the self-regulating behavior of the marketplace.

Adam Smith

An 18th-century Scottish economist and philosopher, often considered the father of modern economics, known for his theories on free markets, capitalism, and the "invisible hand."