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:

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary based on income levels, jurisdictions, and types of taxes.

Cash

The most liquid form of financial assets, readily available for transactions.

Consolidated Balance Sheet

A balance sheet that combines the assets, liabilities, and equity of a parent company with those of its subsidiaries, removing intercompany transactions.

Share Issue

The process by which a company distributes new shares to shareholders, either through a public offering or a private placement.