The significance of cash to the entity's liquidity and the fact that the balance is relatively
small mean that the acceptable level of detection risk in verifying cash balances is invariably
set as low.

Question

Quizplus · Accepted Answer

The statement is true. Since cash is an important component of an entity's liquidity, detection risk in verifying cash balances is typically set to a low level. This is because any material misstatement in cash could have a significant impact on the entity's financial position and performance. Additionally, cash balances are relatively small compared to other account balances, making it easier to detect any errors or fraud in the account.

The Significance of Cash to the Entity's Liquidity and the Fact