Regardless of the Assessed Level of Control Risk, an Auditor

question 46

Multiple Choice

Regardless of the assessed level of control risk, an auditor of a non-public company would perform some:

• A)tests of controls to determine the effectiveness of internal control policies.
• B)analytical procedures to verify the design of internal control activities.
• C)substantive tests to restrict detection risk for significant transaction classes.
• D)dual purpose tests to evaluate both the risk of monetary misstatement and preliminary control risk.

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Definitions:

Financial Leverage

Utilizing borrowed funds to amplify the prospective gains of an investment.

Operating Leverage

The degree to which a company uses fixed operating costs, affecting its earnings before interest and taxes (EBIT) with changes in sales.

Breakeven Point

The financial position at which total costs equal total revenues, indicating that there is no net loss or gain.

Fixed Cost

Costs that do not vary with the level of output or sales, such as rent, insurance, and salaries.