The Auditor Should Obtain Sufficient Knowledge of the Client's Information

question 332

Multiple Choice

The auditor should obtain sufficient knowledge of the client's information and communication system relevant to financial reporting to understand all of the following, except

• A) Classes of transactions in the entity's operations that are significant to the financial statements, and how those transactions are processed, from initiation to inclusion in the financial statements.
• B) The financial reporting process, including development of significant accounting estimates and inclusion of appropriate disclosures.
• C) The means the entity uses to communicate roles, responsibilities, and significant matters relating to financial reporting.
• D) Control activities related to each account balance, transaction class, and disclosure component in the financial statements or to every assertion relevant to them.

Understand different analyses (trend, ratio) and their applications in financial statement analysis.

Understand and calculate key financial ratios including accounts receivable turnover, and distinguish their categories (liquidity, profitability, solvency).

Comprehend the concept of percentage analysis within financial statements.

Interpret future income levels and understand factors influencing these predictions.

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Definitions:

Construing

The process of interpreting and making sense of experiences and events through individual perceptions and constructs.

Cognitive Complexity

Refers to an individual's ability to process information, think about multiple dimensions of situations or concepts, and understand the intricacies and nuances.

REP Test

A projective test used to examine an individual's social perception and personal constructs through the explanation of interpersonal situations.

Empathic Ability

The capacity to understand and share the feelings of another person from their perspective.