Once an Understanding of the Client's Internal Control Is Obtained

question 7

Multiple Choice

Once an understanding of the client's internal control is obtained that is sufficient for audit planning, then the auditor must first assess:

• A) the level of control risk supported by the understanding obtained.
• B) whether a lower level of control risk could be supported.
• C) whether the financial statements are auditable.
• D) the level of control risk.

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Definitions:

Lessor's Implicit Rate

The interest rate in a lease that yields the same net investment in the lease as the present value of the minimum lease payments and any unguaranteed residual value.

Ordinary Annuity

A series of equal payments made at equal intervals of time, with the payments occurring at the end of each period.

Present Value Factors

The factors used to calculate the present value of a future amount of money or stream of cash flows, given a specific discount rate.

Long-term Lease Obligation

A financial commitment that involves leasing an asset for a long-term period, noted on the balance sheet as a liability.