Why Should the Auditor Understand the Client's Business Factors-Such as Information

question 74

Multiple Choice

Why should the auditor understand the client's business factors-such as information about related parties?

• A) It may indicate areas of increased control risk.
• B) It may indicate areas of increased client business risk.
• C) It may indicate areas of increased audit risk.
• D) It may indicate reasons not to accept the engagement.

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Definitions:

Stock Price

The current price at which a share of a company is traded on the stock market.

Optimal Capital Structures

The best mix of debt, equity, and other financial instruments that minimizes the cost of capital for a company while maximizing its value.

Financial Leverage

The use of borrowed funds to increase the potential return of an investment, which also increases the risk of loss.

EPS

Earnings Per Share, a financial ratio that indicates the portion of a company's profit allocated to each outstanding share of common stock.