Which of the Following Is a Step in an Auditor's

question 14

Multiple Choice

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

• A)Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls.
• B)Perform tests of details of transactions and account balances to identify potential errors and fraud.
• C)Identify specific internal control policies and activities that are likely to detect or prevent material misstatements.
• D)Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing.

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Definitions:

Implicit Costs

The opportunity costs that are not directly paid out but represent the loss of potential income from using resources in a certain way.

Opportunity Costs

Missing out on possible advantages from other choices by opting for a particular alternative.

Externalities

Spillover effects of an activity that influence the well-being of nonconsenting parties.

Opportunity Cost of Capital

The potential return that is foregone by investing capital in one project rather than an alternative investment.