When Making a Decision About the Dollar Amount in an Account

question 120

Multiple Choice

When making a decision about the dollar amount in an account balance based on a sample,the audit team considers the risk of incorrect acceptance more serious than the risk of incorrect rejection because

• A) The incorrect rejection decision impairs the efficiency of the audit.
• B) The audit team will do additional work and discover the misstatement of the incorrect decision.
• C) The incorrect acceptance decision impairs the effectiveness of the audit.
• D) Sufficient appropriate audit evidence will not have been obtained.

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Definitions:

X-Inefficiency

The difference between efficient behavior of businesses theoretically assumed or envisaged and their observed behavior in reality due to a lack of competitive pressure.

Competitive Firms

Businesses operating in a market where they must compete with others for the same customers, without having significant control over market prices.

Monopolistic Firms

Companies that have the majority of market share within their industry, allowing them to affect pricing and market conditions.

Absent

Not present or missing in a particular place or situation.