An effective audit is one that
A)reduces the audit risk to the targeted level.
B)ensures that there are no errors contained in the financial statements.
C)does not contain errors of a dollar amount higher than 5% of the net income of the company.
D)is completed on time and within budget.

Question

Quizplus · Accepted Answer

An effective audit is one that reduces the audit risk to the targeted level. Audit risk is the risk that the auditors may issue an incorrect opinion on the financial statements, either by failing to detect material misstatements or by stating that the financial statements are free from material misstatements when in fact they are not. An effective audit is one that reduces this risk to an acceptable level. The other options ("ensures that there are no errors contained in the financial statements," "does not contain errors of a dollar amount higher than 5% of the net income of the company," and "is completed on time and within budget") are not accurate measures of an effective audit as they do not address the primary objective of mitigating audit risk.

An Effective Audit Is One That