Which of These Precautions Taken by Auditors Would Avoid or Minimise

question 25

Multiple Choice

Which of these precautions taken by auditors would avoid or minimise the consequences of litigation?

• A) using an engagement letter for all professional services offered by the firm.
• B) thoroughly investigating all potential clients before accepting an engagement.
• C) ensuring professional pronouncements are fully complied with by the firm.
• D) all the above.

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Definitions:

Payback Period

The length of time it takes for an investment to generate enough cash flow to recoup its original cost.

Accounting Rate of Return

The accounting rate of return (ARR) is an accounting metric that measures the profitability of an investment by dividing the average annual profit by the initial investment cost.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of shareholders' wealth maximization.

Time Value of Money

A financial principle that posits money available now is worth more than the same amount in the future due to its potential earning capacity.