An Auditor Learns That a Client's Employee in Control of Inventory

question 41

Multiple Choice

An auditor learns that a client's employee in control of inventory gets divorced and is responsible for paying a large amount of child support.All of the following for the audit of inventory likely are true except:

• A) Fraud risk increases.
• B) The risk of misappropriation of assets increases.
• C) Risk of material misstatement increases.
• D) Detection risk increases.

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual units of production based on a certain activity base.

Variable Component

The part of a cost or expense that varies directly with the level of activity or production volume, in contrast to fixed costs.

Electrical Motor

An electromechanical device that converts electrical energy into mechanical energy, commonly used in various appliances, machinery, and vehicles.

Labor-Hour

A unit of measure representing an hour of work performed by an employee.