The Relationship Between the Required Understanding of the Internal Control

question 20

Multiple Choice

The relationship between the required understanding of the internal control structure and the preliminary audit strategy is that:

• A) normally, greater understanding is required when the lower assessed level of control risk approach is used.
• B) normally, greater understanding is required when the primarily substantive approach is used.
• C) no understanding is required in the planning stage unless tests of controls are a planned part of the strategy.
• D) normally, less understanding is required when the lower assessed level of control risk approach is used.

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Definitions:

Gallons

A unit of volume measurement used primarily in the United States to quantify liquids.

Standard Costs

Predetermined costs for manufacturing a product, used for budgeting and assessing performance.

Cost of Goods Sold

The total direct costs attributable to the production of goods sold by a company, including materials and labor.

Labor Rate Variance

The difference between the actual cost of labor and the budgeted or expected cost of labor, often analyzed in cost accounting.