An Auditor Who Discovers That Client Employees Have Committed an Illegal

question 14

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 noncompliance 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:

Loss on Disposal

The financial loss incurred when an asset is sold for less than its book value.

Accumulated Depreciation

The cumulative depreciation of an asset up to a single point in its life, representing how much of the asset's value has been used up.

Gain Reported

The difference reported in financial statements when the sale price of an asset exceeds its book value.

Carrying Amount

The book value of an asset or liability on a company's balance sheet, calculated as its original cost minus depreciation, amortization, or impairment costs.