If Evidence Was Obtained in the Prior Year's Audit That

question 2

Multiple Choice

If evidence was obtained in the prior year's audit that indicates a key control was operating effectively:

• A) the tests of that control will be reduced this year.
• B) the auditor would not test this area again this year.
• C) it will be unnecessary to test that control this year.
• D) the extent of tests of that control may be reduced this year if the auditor determines that it is still in place.

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Definitions:

Sales

Transactions involving the exchange of goods or services for money.

Acid Test Ratio

Used to determine the amount of assets that can be quickly turned into cash to pay current liabilities; acid test ratio equals total of cash plus receivables divided by total current liabilities.

Balance Sheet

A summary report detailing a company's assets, debts, and equity held by shareholders at a particular moment.

Income Statement

The financial statement that shows the revenues, the expenses, and the net income for a certain period of time.