By Assessing Control Risk as High, an Auditor Has Determined

question 33

Multiple Choice

By assessing control risk as high, an auditor has determined that their client's system of internal controls

• A) is unlikely to be effective in mitigating inherent risks identified.
• B) is very effective at preventing or detecting material misstatements.
• C) is very strong.
• D) will eliminate the possibility of material fraud or error.

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Definitions:

Zero-Beta Security

A financial instrument whose returns are not correlated with those of the market, meaning it has a beta of zero, thus not contributing to portfolio volatility.

Expected Return

The probability-weighted average of the possible outcomes.

Risk Premium

The extra return above the risk-free rate that investors require as compensation for the risk of an investment.

Alpha

In investing, alpha is the measure of an investment's return relative to a benchmark index's performance, representing the value that a portfolio manager adds or subtracts from a fund's return.