If Tests of Controls Induce the Auditor to Change the Assessed

question 58

Multiple Choice

If tests of controls induce the auditor to change the assessed level of control risk for property plant & equipment from 50 percent to 100 percent and audit risk (6 percent) and inherent risk remain constant,the acceptable level of detection risk

• A) Would most likely change from 10 percent to 5 percent.
• B) Would most likely change from 20 percent to 40 percent.
• C) Would most likely change from 30 percent to 15 percent.
• D) Would be unchanged because the auditor has control over detection risk.
• E) Cannot be determined because inherent risk is not given.

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Definitions:

Stocks and Bonds

Securities representing equity ownership in a corporation (stocks) and debt obligations of an entity (bonds), each offering different risk and return profiles.

Securities and Exchange Commission (SEC)

A U.S. government agency responsible for regulating the securities markets and protecting investors.

Supervises

To oversee and direct tasks, operations, or people to ensure objectives are met effectively and efficiently.

Trading of Securities

The act of buying, selling, or exchanging financial instruments such as stocks, bonds, and options in the financial markets.