The Auditors of Smith Electronics Wish to Limit the Audit

question 33

Multiple Choice

The auditors of Smith Electronics wish to limit the audit risk of material misstatement in the test of accounts receivable to 5 percent.They believe that inherent risk is 100%,and there is a 40% risk that material misstatement could have bypassed the client's system of internal control.What is the maximum detection risk the auditors should specify in their substantive procedures of details of accounts receivable?

• A)5%.
• B)12.5%.
• C)42.7%.
• D)60%.

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Definitions:

Shareholders' Expectations

The anticipations or demands of individuals or entities that own shares in a company, often regarding financial performance and returns on investment.

Skilled Labor

Workers who have specialized training or skills, often acquired through education or on-the-job training, required to perform specific tasks or jobs.

HR Management

The practice of recruiting, hiring, deploying, and managing an organization's employees.

Cultural Values

The core principles and ideals upon which an entire community exists and makes decisions, affecting behavior, traditions, and expectations.