A Major Limitation in the Application of the Audit Risk

question 68

Multiple Choice

A major limitation in the application of the audit risk model is the:

• A) difficulty in understanding the effect on other factors in the model when one factor is changed.
• B) difficulty in measuring the components of the model.
• C) difficulty in defining the terms of the model.
• D) failure of the Auditing and Assurance Standards Board to accept it and incorporate it into the standards.

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Definitions:

Finished Goods Inventory

The inventory of goods that are completed and ready for sale.

Goods Available

The total inventory that a company has ready for sale at the beginning of an accounting period, including both produced and acquired goods.

Raw Materials

Basic materials used in the production process to create goods and services.

T-account

A visual representation of a general ledger account, showing debit and credit transactions and the resulting balance.