The Client Makes Estimates Relative to Recorded Amounts in the Financial

question 26

Multiple Choice

The client makes estimates relative to recorded amounts in the financial statements. Which of the following assumptions best represents the auditor's primary focus regarding the reasonableness of such estimates?

• A) That historical trends are followed.
• B) That income is managed.
• C) That there is an adequate cushion.
• D) That management reverses estimates when opportune.

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Definitions:

Comprehensive

Refers to an all-inclusive, thorough consideration or coverage of a specific topic or area.

Management Function

Fundamental activities such as planning, organizing, leading, and controlling that are performed by managers to achieve organizational goals.

Setting Objectives

The process of outlining specific, measurable, achievable, relevant, and time-bound goals that direct actions and efforts.

Planning

The process of defining an organization's strategy or direction and making decisions on allocating its resources to pursue this strategy.