If the Auditor Finds a Material Weakness in the Controls

question 79

Multiple Choice

If the auditor finds a material weakness in the controls of the client,it represents a deficiency in the design or operation of a control

• A)that adversely affects the company's ability to initiate,record,process,or report external financial data reliably in accordance with GAAP.
• B)that negatively affects the company's ability to initiate,record,process,or report external financial data reliably in accordance with GAAP.
• C)that results in a remote possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected.
• D)that results in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected.

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Definitions:

Quick Assets

Liquid assets that can be rapidly converted into cash, excluding inventory, such as cash, marketable securities, and receivables.

Leverage

The use of borrowed capital or financial instruments to increase the potential return of an investment or project.

Debt Financing

The raising of funds through borrowing, either by issuing bonds or taking out loans, which creates a liability to be repaid over time.

Return on Common Stockholders' Equity

A measure of profitability that indicates how much profit a company generates with the money shareholders have invested, expressed as a percentage.