The Auditor of ABC Ltd

question 34

Multiple Choice

The auditor of ABC Ltd.has concluded that there are significant risks of misstatement of revenue at the company with potential overstatement of revenue.Which of the following audit tests should the auditor conduct to address this significant risk?

• A)control tests of authorization to ensure that credit limits for sales are all approved by the sales manager
• B)analytical review of sales comparing sales trends over the last five years by division and to the industry
• C)examination of sales after the year end to quantify potential cutoff errors (income from the subsequent period included in the current year)
• D)risk assessment procedures looking carefully at inherent risks associated with the handling of cash in the sales cycle

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Definitions:

Cognitive

Relating to the process of thinking, understanding, learning, and remembering, which encompasses various mental activities like perception, reasoning, and judgment.

Dual-Process Theory

A cognitive psychology theory that proposes there are two distinct systems for processing information: a fast, automatic, intuitive system, and a slower, more analytical, deliberate system.

Social Identity Theory

A psychological theory that explains how individuals categorize themselves and others into groups, influencing their sense of self and their interactions with others.

Political Party

An organized group of people with at least roughly similar political aims and opinions, seeking to influence public policy by getting its candidates elected to public office.