Correct Answer:
C. Gives an inappropriate opinion when the financial statements are materially misstated
Audit risk is the risk of expressing an inappropriate opinion on materially misstated financial statements.
November 13, 2026 · Accounting and Finance MCQs, Auditing MCQs
Audit risk is the risk that the auditor:
Related MCQs
The prudence (conservatism) concept suggests that a business should:
A.
Recognize all expected profits in advance
B.
Not overstate assets or income and not understate liabilities or expenses
C.
Ignore all expected losses
D.
Record assets at the highest possible value
Correct answer is:
B. Not overstate assets or income and not understate liabilities or expenses
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Inherent risk is the susceptibility of an assertion to material misstatement:
A.
After considering all internal controls
B.
Only due to auditor's errors
C.
Before considering any related internal controls
D.
Only in government organizations
Correct answer is:
C. Before considering any related internal controls
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Overhead is under-absorbed when:
A.
Actual overhead is less than absorbed overhead
B.
Actual overhead equals absorbed overhead
C.
Actual overhead is greater than absorbed overhead
D.
Budgeted overhead is zero
Correct answer is:
C. Actual overhead is greater than absorbed overhead
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Conversion cost is the sum of:
A.
Direct materials and direct labor
B.
Direct materials and factory overhead
C.
Direct labor and factory overhead
D.
Selling and administrative expenses
Correct answer is:
C. Direct labor and factory overhead
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Line-item budgeting is a budget format that:
A.
Lists expenditure by inputs such as salaries and supplies
B.
Links spending to results
C.
Starts from zero each year
D.
Excludes salaries
Correct answer is:
A. Lists expenditure by inputs such as salaries and supplies
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A cash budget shows:
A.
Only credit sales
B.
Profit for the year
C.
Expected cash receipts and payments and the resulting cash balance
D.
Depreciation schedules only
Correct answer is:
C. Expected cash receipts and payments and the resulting cash balance
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