A Financial Statement Auditor Concludes That Internal Controls Over Cash

question 8

Multiple Choice

A financial statement auditor concludes that internal controls over cash are not functioning as designed.She believes that material misstatements to the cash accounts are possible because of the deficiencies.What course of action is the auditor most likely to take?

• A)Report the audit to the regulatory agencies of the IRS and SEC.
• B)Develop specific tests for cash balances to determine the extent of misstatement.
• C)Explain to the client that the audit firm will not be able to complete the audit.
• D)Test the internal control over cash.

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Definitions:

Inventory Levels

The quantity of goods and materials on hand at a particular time, reflecting a balance between supply and demand.

Variable Costing

An accounting method that only considers variable costs (costs that change with the level of output) when determining the cost of producing a good or service.

Absorption Costing

A cost accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Inventory Levels

The quantity of goods or materials a company has available at any given time, crucial for meeting customer demand and optimizing production.