As a Result of Tests of Controls, an Auditor Over

question 30

Multiple Choice

As a result of tests of controls, an auditor over relied on internal control and decreased substantive testing. This overreliance occurred because the true deviation rate in the population was

• A) Less than the risk of assessing control risk too low on the auditor's sample.
• B) Less than the deviation rate in the auditor's sample.
• C) More than the risk of assessing control risk too low on the auditor's sample.
• D) More than the deviation rate in the auditor's sample.

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Definitions:

Short-Term Investments

Assets that are expected to be converted into cash, sold, or consumed within one year or one business cycle, whichever is longer.

Non-Interest-Bearing

A financial instrument or account that does not earn interest over time, implying that its value does not increase beyond the principal amount.

Promissory Note

A finance-related written assurance where one party obligates to pay the other a clearly defined monetary amount, either when required or at a particular future time.

Discounted

Refers to the process of determining the present value of a future amount of money or stream of cash flows given a specific rate.