Generally Accepted Auditing Standards (GAAS) Give Auditors Considerable Discretion to Decide

question 62

Multiple Choice

Generally accepted auditing standards (GAAS) give auditors considerable discretion to decide the amount of work required to satisfy auditing standards guiding internal control evaluation and related audit planning. Which of the descriptions below best expresses the minimum amount of work permitted by GAAS for nonpublic companies?

• A)Do not obtain an understanding of client environment, accounting, or control activities. Do not document the decision to assess control risk at maximum. Perform 100% substantive audit on all financial statement transactions and balances.
• B)Obtain an understanding of client environment, accounting, and control activities. Document the decision to assess control risk at maximum. Perform an extensive but not 100% substantive audit on financial statement transactions and balances.
• C)Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk below the maximum. Perform restricted substantive audit on financial statement transactions and balances, considering the control risk assessment.
• D)Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk at zero. Perform no substantive audit on financial statement transactions and balances, since zero control risk means that no errors or fraud can reach the accounts.

---

Definitions:

Accrual Basis

An accounting method where revenue and expenses are recorded when earned or incurred, regardless of when cash is exchanged.

Accounting

The systematic and comprehensive recording of financial transactions pertaining to a business, and the process of summarizing, analyzing, and reporting these transactions to oversight agencies and tax collection entities.

Differences

Differences can refer to discrepancies or variations between two or more items, figures, or concepts in various contexts.

Earnings Per Share

A financial ratio that measures the amount of a company's profit allocated to each outstanding share of common stock, indicating a company's profitability.