An Auditor Who Discovers That Client Employees Have Committed an Illegal

question 64

Multiple Choice

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if

• A) The illegal act is a violation of generally accepted accounting principles.
• B) The client does not take the remedial action that the auditor considers necessary.
• C) The illegal act was committed during a prior year that was not audited.
• D) The auditor has already assessed control risk at the maximum level.

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Definitions:

Money Balances

The total amount of money held by individuals or entities in the form of cash or bank deposits.

Wealth Redistribution

The transfer of income and wealth from some individuals to others by means of a social mechanism such as taxation, public services, or welfare.

Inflation

The pace at which overall costs for products and services increase, diminishing the buying power.

Paul Volcker

A former Chairman of the Federal Reserve known for his measures to combat inflation through high interest rates in the late 1970s and early 1980s.