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    Question

    Which of the following is an example of an inherent

    limitation of an audit?
    A Non-detection of fraud due to collusion Correct Answer Incorrect Answer
    B Auditor's inability to understand the client's business Correct Answer Incorrect Answer
    C Use of test checks Correct Answer Incorrect Answer
    D Lack of professional skepticism Correct Answer Incorrect Answer

    Solution

    Inherent limitations arise from the nature of financial reporting, the nature of audit procedures, and the need for the audit to be conducted within a reasonable period and at a reasonable cost. Collusion among management or employees can lead to fraud that is designed to be concealed from the auditor, making it inherently difficult to detect.

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