When Considering Internal Control, an Auditor Should Be Aware of Reasonable

question 8

Short Answer

When considering internal control, an auditor should be aware of reasonable assurance, which recognizes that
A. Internal control may be ineffective due to mistakes in judgment and personal carelessness.
B. Adequate safeguards over access to assets and records should permit an entity to maintain proper accountability.
C. Establishing and maintaining internal control is an important responsibility of management.
D. The cost of an entity's internal control should not exceed the benefits expected to be derived.

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Definitions:

Effective (Annualized) Yield

A calculation of the annual return on an investment, taking into account the effect of compounding interest.

Consumer Price Index

An index that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Effective Annualized Rate

The interest rate on an investment or loan on an annual basis, taking compounding into account.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.