An Auditor Assesses the Risk of Material Misstatement Because It

question 1

Multiple Choice

An auditor assesses the risk of material misstatement because it:

• A)is relevant to the auditor's understanding of the control environment.
• B)provides assurance that the auditor's overall materiality levels are appropriate.
• C)indicates to the auditor where inherent risk may be the greatest.
• D)affects the level of detection risk that the auditor may accept.

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Definitions:

Unrealized Changes

Refers to changes in the value of assets or liabilities that have occurred but have not been realized through a transaction.

Earnings Per Share

A measure of a company's profitability calculated by dividing net income by the number of outstanding shares.

Comprehensive Income

This is a measure of all changes in equity of a company that result from recognized transactions and other economic events of the period other than those resulting from investments by and distributions to owners.

Accrual-Based Sales Revenue

Revenue recognized when earned, regardless of when the payment is received, following the accrual basis of accounting.