There Are Many Important Reasons for Diligent Audit Planning

question 23

Multiple Choice

There are many important reasons for diligent audit planning.If an audit firm wrongly skips the planning stage of an audit,what will be the effect relative to fraud detection?

• A)The firm will not be able to apply GAAP to the financial statements.
• B)The firm will not adequately identify the types of fraud that may occur in the client company.
• C)The firm will not be able to perform direct tests of account balances.
• D)The firm will lack the competency and technical training necessary to complete the audit in accordance with GAAS.

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Definitions:

Direct Labor

Direct labor comprises the labor costs of workers directly involved in the production of goods or services.

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a unit of product.

Fixed Manufacturing Overhead

Ongoing expenses that do not change in total with the level of production or sales volume, such as salaries, rent, and insurance, associated specifically with the manufacturing process.

Variable Costing

An accounting method that includes only variable costs—those that change with production levels—in the cost of goods sold and inventory valuation.