The Acceptable Risk of Overreliance

question 61

Multiple Choice

The acceptable risk of overreliance

• A) is the risk that the auditor will erroneously conclude that the controls are less effective than they actually are.
• B) is less of a concern to the auditors than the risk of underreliance.
• C) represents the auditor's measure of sampling risk.
• D) is determined by a statistical formula, and not by professional judgment.

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Definitions:

Indirect Materials

Materials used in the production process but not directly traceable to the finished product, such as lubricants and adhesives.

Overapplied Overhead

A situation in which the allocated manufacturing overhead cost is greater than the actual overhead incurred.

Job-order Costing

An accounting method that assigns costs to specific jobs or batches, useful for customized orders or distinct products.

Direct Labor

The wages and other compensation for employees who are directly involved in the production of goods or services.