While Performing a Substantive Test of Details During an Audit

question 28

Multiple Choice

While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was not materially misstated. It was, in fact, materially misstated. This situation illustrates the risk of

• A) incorrect rejection.
• B) incorrect acceptance.
• C) assessing control risk too low.
• D) assessing control risk too high.

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Definitions:

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity, helping businesses better plan for costs.

Standard Operating Procedures

Established or prescribed methods to be followed routinely for the performance of designated operations or in designated situations.

Employee Manuals

Documents that outline a company's policies, procedures, and expectations for its employees.

Zero-based Budget

A budgeting method where all expenses must be justified for each new period, starting from a "zero base," rather than just adjusting previous budgets.