In a Top-Down Approach to Understanding Internal Control Over Financial

question 38

Multiple Choice

In a top-down approach to understanding internal control over financial reporting and selecting the specific internal controls to test, the auditor focuses on _______-level controls.

• A)entity
• B)division
• C)operating unit
• D)function

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Definitions:

Precautionary Motive

A theory explaining the demand for liquidity by individuals and firms as a safeguard against future cash needs and uncertainties.

Safety Margin

The difference between the actual value of a company's sales and the break-even sales, serving as a buffer for unexpected declines in revenue.

Financial Reserve

A portion of funds set aside by a business or organization to cover future obligations or unexpected expenses.

Zero-balance Accounts

Bank accounts that are maintained at a zero balance by automatically transferring funds from a master account in amounts only large enough to cover presented checks or debits.