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:

Secured Creditors

Creditors who have a legal claim to a debtor's collateral in case of default on a loan.

Chapter 13

A type of bankruptcy that involves a reorganization of a debtor's finances under a court-approved plan to repay creditors over time, usually three to five years.

Regular Income

Consistent earnings received by an individual or entity, typically through employment, investments, or business operations.

Installment Plans

Payment methods that allow customers to purchase goods by making a series of payments over time.