When Obtaining an Understanding of an Entity's Internal Controls, an Auditor

question 401

Multiple Choice

When obtaining an understanding of an entity's internal controls, an auditor should concentrate on the substance of the controls rather than their form because:

• A) The procedures may be operating effectively but may not be documented.
• B) Management may establish appropriate procedures but not enforce compliance with them.
• C) The procedures may be so inappropriate that no reliance is contemplated by the auditor.
• D) Management may implement procedures whose costs exceed their benefits.

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Definitions:

Balance Sheet

A summary report of a company's financial position, detailing assets, liabilities, and equity of shareholders at a certain moment.

Accrual Accounting

Accrual accounting is an accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.

Natural Progression

The gradual and inherent development or sequence of events that naturally unfolds over time.

Operating Business

An enterprise that is actively engaged in conducting commercial, industrial, or professional activity as its primary function.