An Auditor Assesses the Risk of Material Misstatement Because It

question 49

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:

Investments

Financial assets acquired for income generation or capital appreciation.

Cash Equivalents

Short-term, highly liquid investments that are easily convertible to a known amount of cash and close to their maturity.

Balance Sheet

A declaration of a company's financial health, detailing assets, obligations, and the equity of its owners at a targeted date.

Equity Method

A method of accounting for an investment in common stock by which the investment account is adjusted for the investor’s share of periodic net income and cash dividends of the investee.