Choice "A" is correct. Inadequate recordkeeping with respect to assets, such as failing to reconcile the physical inventory count and the accounting records, provides an opportunity for fraud or error to occur.
Choice "b" is incorrect. An auditor might suspect misstatement when management commits to aggressive or unrealistic earning projections, not when management does not emphasize meeting such projections.
Choice "d" is incorrect. The inclusion of several large, outstanding checks in the monthly bank reconciliation may be a normal occurrence and is not necessarily indicative of material misstatement.
Choice "c" is incorrect. Electronic processing and recording of transactions without a paper audit trail may be acceptable as long as a satisfactory electronic audit trail exists.