When the Auditor Is Engaged to Report on the Internal

question 43

Essay

When the auditor is engaged to report on the internal controls, five steps similar to those for a regular audit engagement are followed.Describe them.

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Definitions:

Direct Materials Price Variance

The difference between the actual cost of direct materials purchased and the expected (or standard) cost, impacting the overall cost of goods sold.

Direct Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard amount expected to be used, multiplied by the standard cost of those materials.

Inferior Materials

Materials of lower quality than standard, which may affect the quality of finished goods and potentially reduce manufacturing costs.

Budgeted Unit Sales

The projected quantity of products a company expects to sell over a certain period, based on budgeting processes.