Reference no: EM132829723

Problem 1: Which of the following circumstances would be most indicative of a higher likelihood of fraudulent financial reporting?

a. The clerk who is responsible for handling cash receipts is not subject to appropriate oversight by management.
b. The entity's controller feels underpaid and underappreciated.
c. There is inadequate internal control to safeguard the entity's assets.
d. The payroll clerk appears to be living beyond his means and recently bought an expensive new home.
e. The entity has been experiencing negative cash flows from its operating activities.

Problem 2: Which two risk components comprise the risk of material misstatement?

a. Inherent risk and control risk.
b. Inherent risk and detection risk.
c. Control risk and detection risk.
d. Audit risk and inherent risk.
e. Business risk and audit risk.