What Is Inherent Risk

question 1

Multiple Choice

What is inherent risk?

• A)The probability that some accounts are more susceptible to misstatement than others.
• B)The probability that the client's internal control policies and procedures will fail to detect material misstatements.
• C)The probability that material misstatements have occurred in transactions entering the accounting system used to develop financial statements.
• D)The probability that the auditor may not detect material misstatements in the financial statements.

Comprehend the fiduciary duties of agents, including duties of loyalty, obedience, and avoidance of secret profits.

Know the effects and implications of agents' actions on behalf of principals, including the continuity of principals' obligations.

Recognize the legal capacity required for appointing agents and the effect of an agent's incapacity on the agency relationship.

Understand the specifics of agency termination, including automatic termination due to bankruptcy or the principal's death.

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Definitions:

Investing Activities

Financial activities related to the acquisition or sale of long-term assets and investments.

Bonds Payable

Long-term debt securities issued by a corporation or government entity, promising to pay the holder a specified amount of interest over a specified period and to repay the principal at maturity.

Net Cash

The amount of cash after subtracting cash outflows from cash inflows.

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.