When Assessing the Risk of Material Misstatements in the Financial

question 48

Multiple Choice

When assessing the risk of material misstatements in the financial statements,

• A) inadequate internal control procedures will mitigate client business risk.
• B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain.
• C) company management is responsible for determining materiality levels.
• D) the auditor must understand the client's business and industry.

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Definitions:

Satisfice

Satisfice is a decision-making strategy that aims for a satisfactory or adequate result, rather than the optimal solution, particularly when faced with limited information or time.

Shareholders

Shareholders are individuals or entities that own shares in a company, thereby holding a portion of the ownership and potentially influencing company decisions.

Problems

Situations, questions, or conditions perceived as unsatisfactory, requiring solutions or answers.

Subjective Probability

The individual's personal estimate of the chance of occurrence of a specific outcome, based on their own judgment or belief rather than on objective data.