The auditor is concerned about the client's compliance with laws and regulations that have an indirect impact on the financial statements.Because of the inherent limitations of an audit,there is an unavoidable risk that some material misstatements in the financial statements may be undetected.This risk is greater related to potential violations of laws and regulations for which of the following reasons?
A)many government contracts refer to a specific set of regulations
B)many government programs are subject to state and federal laws
C)many laws and regulations do not directly affect the financial statements
D)noncompliance may involve conduct designed to conceal the noncompliance
E)whether an action constitutes noncompliance is a matter for determination in a court of law
F)both A and B
G)both C and E
H)Both D and E

Question

Quizplus · Accepted Answer

Noncompliance that involves conduct designed to conceal the noncompliance is more likely to go undetected by the auditor, compared to violations that are easily identifiable. Additionally, determining whether an action constitutes noncompliance is ultimately left up to a court of law, which may pose a greater risk for undetected material misstatements in the financial statements.

The Auditor Is Concerned About the Client's Compliance with Laws