Question

Auditor's will need to perform more substantive tests than normal to obtain sufficient appropriate evidence that a financial instrument is fairly stated if which of the following conditions exist:

A. Management is objective and transparent in their assumptions.
B. Management's key assumptions are subject to volatility.
C. The entity's portfolio is composed of only stocks issued by Fortune 100 firms traded in an
D. active market.
E. The entity does not have control weaknesses in its valuation processes.

Answer 1

The correct answer is option B. Management's key assumptions are subject to volatility.

Step-by-step explanation:

Auditors will need to perform more substantive tests than normal to obtain sufficient appropriate evidence that a financial instrument is fairly stated if the condition management's key assumptions are subject to volatility exists. Volatility in management's key assumptions means that the assumptions are likely to change frequently.

When management's key assumptions are subject to volatility, auditors will need to conduct more detailed tests to ensure the accuracy and fairness of the financial instrument's valuation.