When a Firm Undertakes Both Internal and External Auditing Services

question 31

Multiple Choice

When a firm undertakes both internal and external auditing services for the same entity, which of the following must be applied for the external auditor to demonstrate independence?

• A) The external auditor should gather sufficient appropriate audit and rely no more than usual on internal audit work.
• B) The external auditor should not assume the role of management when undertaking internal audit services.
• C) Any recommendations made by auditors are for implementation by management rather than the auditor.
• D) All of the above

---

Definitions:

Inventory

The total amount of goods and materials held by a company intended for sale or used in production, crucial for managing supply chains and fulfilling customer orders.

Economic Order Quantity

A formula used to determine the ideal order quantity that minimizes the total costs of inventory, including holding costs and ordering costs.

Shortage Cost

Shortage cost refers to the costs a company incurs when it is unable to meet demand due to insufficient inventory or resources.

Net Working Capital

The discrepancy between an organization's immediate assets and its short-term obligations, showing the accessible liquidity to manage its activities.