Why Is the Auditor More Concerned with Controlling the Exposure

question 77

Multiple Choice

Why is the auditor more concerned with controlling the exposure to the risk of incorrect acceptance than with the risk of incorrect rejection?

• A) Only the risk of incorrect acceptance results in an incorrect decision by the auditor.
• B) The risk of incorrect rejection is not related to the auditor's substantive procedures.
• C) The risk of incorrect rejection can be controlled by performing substantive procedures during the interim period.
• D) The risk of incorrect acceptance may ultimately result in the auditor's incorrectly issuing an unqualified opinion on the client's financial statements.

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Definitions:

Risk-Free Rate

The theoretical rate of return on an investment with zero risk, often represented by the yield on government securities.

Put Bonds

Bonds that grant the holder the right to force the issuer to buy back the bond at a predetermined price before maturity.

Convertible

A financial security (for example, a bond or a preferred stock) that can be converted into a different form, often common stock.