Most Auditors Assess Inherent Risk as High for Related Parties

question 43

Multiple Choice

Most auditors assess inherent risk as high for related parties and related- party transactions because:

• A) of the lack of independence between the parties.
• B) of the accounting disclosure requirement.
• C) both A and B
• D) it is required by generally accepted accounting principles.

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Definitions:

Variable Manufacturing Overhead

Costs that vary directly with the level of production output, such as indirect materials and indirect labor that increase as production increases.

Actual Output

The real quantity of goods or services produced by a company during a specific period, as opposed to planned or theoretical output.

Labor Efficiency Variance

The variance between the real hours spent working and the anticipated standard hours, times the standard rate of labor.

Actual Direct Labor Rate

The actual amount paid per hour to workers who are directly involved in the production of goods or services.