There Are Several Reasons Why the Auditor Is Responsible for Reasonable

question 25

Multiple Choice

There are several reasons why the auditor is responsible for reasonable but not absolute assurance.One of them is that:

• A) fraudulently prepared financial statements are often extremely difficult, but not impossible, for the auditor to detect.
• B) accounting presentations contain complex estimates that can be convincing.
• C) most audit evidence results from testing a sample of a population, and sampling involves minimal risk.
• D) audit testing and the evaluation of test results require significant auditor judgement, and auditors can make errors in judgement.

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Definitions:

Return on Total Assets

A financial ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets, indicating how efficiently a company uses its assets to generate earnings.

Net Income Before Interest and Taxes

Earnings of a company before interest and tax expenses are deducted; also known as operating profit.

Accounts Receivable Turnover

A financial metric that measures how many times a company collects its average accounts receivable in a period, indicating the efficiency of extending credit and collecting debts.

Average Accounts Receivable

The average amount of money owed to a company by its customers for goods or services provided on credit over a specified period.