Final answer:
The statement that an audit can be relied on to provide reasonable assurance of detecting noncompliance with laws materially affecting the financial statements is true. Audits are designed to detect material misstatements due to noncompliance with laws having a direct effect on the financial statements, although they do not provide an absolute guarantee.
Option 'a' is the correct.
Step-by-step explanation:
An audit is a process where an independent party examines an organization's financial statements to determine whether they are accurate and comply with relevant laws and regulations. The statement that an audit can be relied on to provide reasonable assurance of detecting noncompliance with laws that have a material and direct effect on financial statement amounts and related disclosures is true.
An audit is designed to provide a high level of assurance that the financial statements are free from material misstatement, whether due to fraud or error.
While an audit is not a guarantee, auditors apply professional skepticism and utilize various audit procedures that are likely to discover material noncompliance related to the financial statements.
It is especially pertinent in the context of laws and regulations that have a direct effect on the financial statements such as tax laws, environmental regulations, and other governmental requirements. Auditors actively look for signs of noncompliance during their audits by reviewing transactions, agreements, and management representations. They also obtain an understanding of the entity's compliance with laws and regulations.
However, it's also important to note that auditors may not detect all noncompliances, especially if they are carefully concealed or if they do not have a direct effect on the financial statements. Also, the specific audit procedures employed will vary based on the nature of the engagement and the assessed risks.