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:

Average Tax Rate

The ratio of the total amount of taxes paid to the total tax base (income, spending, etc.), indicating the percentage of total income or spending that is paid in taxes.

Marginal Tax Rate

The marginal tax rate is the rate at which the last dollar of income is taxed, reflecting the proportion of additional income that is paid in taxes.

Progressive Tax

A tax system where the tax rate increases as the taxable amount or income goes up, making it proportionately higher for wealthier individuals or entities.

Individual Income

The total earnings received by an individual from all sources, including wages, investments, and other forms of compensation.