Obtaining an Adequate Understanding of the Client's Business Is Important

question 24

Multiple Choice

Obtaining an adequate understanding of the client's business is important in physical observation of inventory because

• A)it is required by GAAP.
• B)it will help the auditor in assessing the risk of theft of inventory.
• C)inventory is normally a significant item.
• D)inventory varies significantly for different companies.

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Definitions:

Dividend Cuts

Dividend cuts occur when a company reduces the size of the dividend payments to its shareholders, often as a response to financial difficulties or the need to conserve cash.

Compromise Policy

A strategy of finding a middle ground between differing views or objectives in a negotiation or decision-making process.

Flotation Costs

Expenses incurred by a company when issuing new securities, such as underwriting fees, legal fees, and registration fees.