This Question Will Represent a Statement, Question, Excerpt, or Comment

question 24

Multiple Choice

This question will represent a statement, question, excerpt, or comment taken from various parts of an auditor's documentation file. Letter choices A-P represent a list of the likely sources of the statement, question, excerpt, or comment. Select, as the best answer for each item, the most likely source. Select only one source for each item. It is our opinion that the possible liability to the company in this proceeding is nominal in amount.

• A) Practitioner's report on management's assertion about an entity's compliance with specified requirements.
• B) Auditor's communications on significant deficiencies in internal control. C. Audit inquiry letter to legal counsel.
• C) Lawyer's response to audit inquiry letter.
• D) Communication from those charged with governance to the auditor.
• E) Auditor's communication to those charged with governance (other than with respect to significant deficiencies in internal control).
• F) Report on the application of accounting principles.
• G) Auditor's engagement letter.
• H) Letter for underwriters.
• I) Accounts receivable confirmation request.
• J) Request for bank cutoff statement.
• K) Explanatory paragraph of an auditor's report on financial statements.
• L) Partner's engagement review notes.
• M) Management representation letter.
• N) Successor auditor's communication with predecessor auditor.
• O) Predecessor auditor's communication with successor auditor.

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Definitions:

Direct Material

Raw materials that can be physically and directly associated with the finished product during the manufacturing process.

Indirect Material

Materials used in the production process but not directly traceable to a finished product, such as lubricants for machinery.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the proportion of fixed versus variable costs a company has.

Safety Margin

The difference between the actual sales and the break-even point; it measures the amount by which sales can drop before a business incurs a loss.