The Risk of Underreliance Is the Risk That the Sample

question 17

Multiple Choice

The risk of underreliance is the risk that the sample selected to test controls:

• A)Does not support the auditor's planned level of control risk when the true operating effectiveness of the control justifies such an assessment.
• B)Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transaction classes.
• C)Contains proportionally fewer monetary errors or deviations from prescribed control procedures than exist in the balance or class as a whole.
• D)Does not support the tolerable misstatement for some or all of management's assertions.

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Definitions:

Financial Statement

Formal records that outline the financial activities and condition of a business, including the balance sheet, income statement, and cash flow statement.

Permanent/Temporary

Refers to types of accounts in accounting, where permanent accounts show cumulative amounts that carry over to future periods, and temporary accounts are closed at the end of each period.

Normal Balance

The side (debit or credit) of an account on which increases to the account are recorded under double-entry accounting.

Financial Statement

A formal record of the financial activities and position of a business, person, or other entity.