Detection Risk Is the Risk That the Auditor Will Not

question 32

Multiple Choice

Detection risk is the risk that the auditor will not detect material misstatements in the accounts. To limit detection risk to an acceptable level, the auditor ________.

• A) performs substantive tests
• B) tests controls
• C) gains an understanding of the internal control system
• D) applies statistical methods

---

Definitions:

Net Income

A company's remaining earnings after deducting all taxes and costs from the complete revenue.

Income Splitting

A tax strategy used to transfer income from a higher-tax-rate taxpayer to a lower-tax-rate taxpayer to reduce the total tax paid.

Salary Allowances

Additional monetary benefits provided to employees on top of their regular salary, potentially for specific purposes or expenses.

Capital Account

An account on a country's balance of payments that records transactions involving the purchase and sale of assets, representing changes in ownership of international assets.