When an Auditor Becomes Aware of Possible Noncompliance by a Client

question 21

Multiple Choice

When an auditor becomes aware of possible noncompliance by a client, the auditor should obtain an understanding of the nature of the act to:

• A)evaluate the effect on the financial statements.
• B)determine the reliability of management's representations.
• C)consider whether other similar acts may have occurred.
• D)recommend remedial actions to the audit committee.

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Definitions:

Fear Response

The fear response is an emotional and physiological reaction to perceived threats, activating the body's fight-or-flight response.

Extinction

Extinction, in psychology, is the process through which a conditioned response decreases or disappears as a result of repeated exposure without the unconditioned stimulus.

Conditioned Stimulus

An originally neutral stimulus that, after association with an unconditioned stimulus, comes to trigger a conditioned response.

Conditional Response

An acquired reflex to a stimulus initially neutral, after its frequent association with a stimulus that naturally invokes a response.