The Auditor Considers Internal Control by Four Steps

question 76

Multiple Choice

The auditor considers internal control by four steps.What is the order for these steps?
1) Obtain an understanding of internal control.
2) Assess control risk.
3) Perform tests of controls.
4) Decide on planned detection risk and substantive testing.

• A) 4, 1, 2, 3
• B) 1, 2, 3, 4
• C) 2, 1, 3, 4
• D) 1, 3, 2, 4

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Definitions:

Bankruptcy Proceeding

The formal legal process initiated after filing for bankruptcy that involves resolving the debtor's financial obligations.

Distribution of Assets

The process of allocating assets among beneficiaries, heirs, or other designated parties, usually following a legal procedure like a will or bankruptcy.

Administrative Expenses

Costs associated with the general operation of a business, such as salaries, rent, and utilities, not directly tied to producing goods or services.

Financial Distress Costs

Costs associated with a company's financial trouble leading to bankruptcy or restructuring, including legal fees, loss of goodwill, and disruption of operations.