The risk of material misstatement due to fraud relating to revenue recognition should be
A)approached in a manner that is identical to control risk assessment.
B)given lower priority to the risk of embezzlement.
C)ordinarily presumed by the auditor.
D)assumed to have been considered by the FASB.

Question

Quizplus · Accepted Answer

The risk of material misstatement due to fraud relating to revenue recognition should be presumed by the auditor because revenue is a key financial statement item that often involves subjective judgments and estimates. The auditor should assess the risk of fraud and design procedures to obtain sufficient evidence to address the risk. It should not be approached in the same manner as control risk assessment, and it should not be given lower priority than the risk of embezzlement. It is also not assumed to have been considered by the FASB, as their job is to develop accounting standards, not to assess the risk of fraud.

The Risk of Material Misstatement Due to Fraud Relating to Revenue