When Performing Substantive Procedures, the Key Objective Is to Determine

question 20

Multiple Choice

When performing substantive procedures, the key objective is to determine whether:

• A) there are immaterial misstatements within the balance being investigated.
• B) the client's internal controls are operating effectively.
• C) there are material misstatements within the balance being investigated.
• D) none of the above.

---

Definitions:

Adverse Selection

A situation in which asymmetric information results in high-risk individuals being more likely than low-risk individuals to acquire insurance or another financial product, leading to market inefficiency.

Defaulting

Failing to meet the legal obligations of a loan, typically by not making the required payments.

Health Insurance Market

The sector of the economy providing plans and services for individuals to cover healthcare expenses.

Adverse Selection

A situation in markets where buyers and sellers have asymmetric information, leading potentially to a selection of undesirable outcomes, such as in insurance markets where those most likely to need coverage are also most likely to purchase it.