Which of the Following Statements Is Correct

question 8

Multiple Choice

Which of the following statements is correct?

• A) If detection risk is high, significant substantive procedures are necessary to reduce detection risk.
• B) There is an inverse relation between the auditor's assessed risk of material misstatement and detection risk.
• C) There is no relation between the auditor's assessed risk of material misstatement and detection risk.
• D) If detection risk is low, only a small number of substantive procedures are necessary to reduce the detection risk.

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Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, indicating the net value owned by the shareholders.

Loan

A sum of money that is borrowed and expected to be paid back with interest by the borrower to the lender.

Accounting Equation

The foundational formula in accounting that states assets equal liabilities plus owners' equity, essentially showing what the company owns is financed by debt and shareholders' equity.

Land Sale

A land sale involves the transaction where ownership of a piece of land is transferred from one party to another, typically involving legal documentation and financial compensation.