If an Auditor Discovers a Suspected Illegal Act Involving Financial

question 27

Multiple Choice

If an auditor discovers a suspected illegal act involving financial statement presentation occurred at a client,the auditor has a duty to:

• A) Consult with outside legal counsel to determine if the act is in fact illegal
• B) Not mention this suspected misconduct, unless the illegality of the act is, at minimum, determined to be probable
• C) Not mention this suspected misconduct, unless the resulting monetary liability can be determined with reasonable certainty
• D) Inform the company's Audit Committee

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Definitions:

Direct Labor Rate

The wage rate paid to employees directly involved in manufacturing goods or providing services, expressed per hour or per unit of output.

Time and Materials Pricing

A contract or pricing method where the customer pays the supplier based on the time spent to complete the work and the cost of materials used.

Production Capacity

The maximum amount of goods that can be produced in a given timeframe using available resources.

Contribution Margin

The amount by which sales revenue exceeds variable costs, used to cover fixed costs and generate profit.