The Risk of Material Misstatement Differs from Detection Risk in That

question 51

Multiple Choice

The risk of material misstatement differs from detection risk in that it

• A) Arises from the misapplication of audit procedures.
• B) May be assessed in either quantitative or nonquantitative terms.
• C) Exists independently of the financial statement audit.
• D) Can be changed at the auditor's discretion.

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Definitions:

Direct Labor Hour

A measure of the amount of time spent by workers directly manufacturing a product or providing a service, used for cost allocation.

Fixed Factory Overhead Volume Variance

A variance that measures the difference between the budgeted and actual fixed factory overhead costs, attributing changes to fluctuations in production volume.

Fixed Overhead

Costs associated with running a business that do not change with the level of production or sales, such as rent, salaries, and insurance.

Variable Overhead Rate

Variable Overhead Rate is the portion of indirect manufacturing costs that varies in proportion to production volume or activity levels, such as utilities or raw materials.