The Auditor Is Concerned About the Client's Compliance with Laws

question 77

Multiple Choice

The auditor is concerned about the client's compliance with laws and regulations that have an indirect impact on the financial statements.Because of the inherent limitations of an audit,there is an unavoidable risk that some material misstatements in the financial statements may be undetected.This risk is greater related to potential violations of laws and regulations for which of the following reasons?

• A)many government contracts refer to a specific set of regulations
• B)many government programs are subject to state and federal laws
• C)many laws and regulations do not directly affect the financial statements
• D)noncompliance may involve conduct designed to conceal the noncompliance
• E)whether an action constitutes noncompliance is a matter for determination in a court of law
• F)both A and B
• G)both C and E
• H)Both D and E

---

Definitions:

Long-Term Asset

Assets held by a company for more than one year, intended for use in producing goods or services or held for investment.

Present Values

The present value of a future amount of money or series of payments, based on a certain rate of return.

Working Capital

The difference between a company's current assets and current liabilities, indicating its short-term financial health and efficiency.

Sales Revenue

The income received by a company from its sales of goods or services before any expenses are deducted.