An Auditor Considers Two Factors in Understanding Business Risks

question 32

Multiple Choice

An auditor considers two factors in understanding business risks.They are:

• A)The likelihood of a risk occurring and the materiality of the risk.
• B)The magnitude of the risk and the type of risk.
• C)The likelihood of the risk occurring and the type of risk.
• D)The likelihood of a risk occurring and the magnitude the risk.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, representing the price paid for the use of borrowed money or for delaying the repayment of a debt.

Operating Expense

Expenses incurred through normal business operations, like rent, utilities, and payroll.

Income Statement

A report detailing a firm's income, expenditures, and net income or loss for a certain time frame.

Operating Cycle

The time it takes for a company to purchase inventory, sell it to customers, and collect the cash from the sale.