If the Auditor Does Not Assess a Risk of Material

question 10

Multiple Choice

If the auditor does not assess a risk of material misstatement related to a potential contingent liability,

• A)he is required to contact the external counsel for the audit client and request additional information
• B)he is required to contact the internal counsel for the audit client
• C)he is not required to contact the external counsel for the audit client
• D)he is not required to contact the internal counsel for the audit client and request additional information

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Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing the ownership interest of the shareholders.

Stock Warrants

Financial instruments that give the holder the right to purchase the issuer's stock at a specified price before a specified date.

Compensation Expense

Costs associated with the wages, salaries, and benefits provided to employees, recorded on the income statement.

Service Period

The period of time over which employee services are rendered in exchange for an award, common in the context of stock compensation plans.