An Auditor Uses the Assessed Level of Control Risk To

question 35

Multiple Choice

An auditor uses the assessed level of control risk to:

• A) Evaluate the effectiveness of the entity's internal control.
• B) Identify transactions and account balances where inherent risk is at the maximum.
• C) Indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high.
• D) Determine the acceptable level of detection risk for financial statement assertions.

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Definitions:

Diseconomies Of Scale

Diseconomies of Scale arise when a company or business grows so large that the costs per unit increase, leading to inefficiency and increased production costs.

Utilization

The ratio of the actual output of a facility to its potential output under full capacity, usually expressed as a percentage.

Efficiency

Actual output as a percent of effective capacity.

Effective Capacity

The maximum output level that an organization can sustain under normal conditions, considering the limitations of time, resources, and constraints.