The Auditor Might Choose A Response to Lower Inherent Risk

question 27

True/False

The auditor might choose a response to lower inherent risk for audit assertions where the auditor has developed an analytical model by examining the relationship between nonfinancial measures of the volume of business activity such as gross payroll or accrued payroll taxes, and these items are consistent with expectations.

---

Definitions:

Direct Materials

Raw materials that are directly traceable to the production of specific goods or services.

Manufacturing Overhead

Includes all manufacturing costs other than direct materials and direct labor, encompassing expenses such as depreciation, electricity, and maintenance of factory facilities.

Cost of Goods Sold

The total cost directly associated with producing goods that have been sold, including materials, labor, and overhead costs.

Overapplied

A situation where the allocated amount of indirect costs exceeds the actual amount spent.