Understanding how the entity earns and recognizes revenue assists the auditor in developing an expectation of total revenues by understanding the client's capacity, market place, and customers. O True O False A risk related to what can go wrong with respect to authorizing purchases relates to O foods ordered that have not been received O purchases being made from authorized vendors O purchases being made from unauthorized vendors O goods received that were not ordered Why does the client prepare independent bank reconciliation? O To check accounts payable O To record purchase returns and allowances O To validate purchase returns To check for the completeness, existence, and valuation of cash balances Phantom vendors involve payments received from fictitious vendors O payments received from fictitious employees O purchases that are made from fictitious vendors O purchases that are made from fictitious employees When an adverse opinion is issued regarding internal control over financial reporting (ICFR), the auditor O makes a clear statement that the company has maintained effective internal control for the period under audit O maintains that the company has fairly reported its financial statements in accordance with Generally Accepted Accounting Principles (GAAP) O is not entitled to receive full compensation for services rendered during the audit makes a clear statement that the company has not maintained effective internal control for the period under audit Material misstatements discovered during the audit O require a note disclosure in the financial statements are discussed with management, and usually management makes the recommended adjustment to correct the misstatement O are a basis for the auditor to immediately issue a scope limitation O are discussed with the client's legal counsel only, and usually they make the recommended adjustment to correct the misstatement