Before Accepting an Engagement, to Perform an Audit for 2006

question 25

Multiple Choice

Before accepting an engagement, to perform an audit for 2006, the auditor should assess the auditability of the prospective client. Which of the following conditions would most likely cause the auditor to question the auditability of the client?

• A) Since a voucher system is employed, no subsidiary accounts payable ledger exists.
• B) Although the subsidiary records and the specialized journals are computerized, the general ledger and general journal are still maintained manually.
• C) Due to limited personnel, a small retailer has failed to implement many of the controls that are standard in the industry.
• D) The client's controller reconciles the bank statements each month.
• E) Predecessor auditor workpapers for the years 2002 and 2003 are not available.

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Definitions:

Direct Materials Quantity Variance

The difference between the actual quantity of direct materials used in production and the standard quantity expected to be used, multiplied by the standard cost per unit.

Materials Cost Per Yard

The expense associated with acquiring raw materials needed for manufacturing, measured per yard.

Yards Per Unit

A measurement unit indicating how many yards of material are used or produced per unit of finished goods.

Units Of Production

Units of production is a depreciation method that allocates the cost of an asset over its useful life based on the number of units it produces.