Because an External Auditor Is Paid a Fee by a Client

question 8

Multiple Choice

Because an external auditor is paid a fee by a client company, he or she

• A) is absolutely independent and may conduct an audit.
• B) may be sufficiently independent to conduct an audit.
• C) is never considered to be independent.
• D) must receive approval from the relevant provincial securities commission before conducting an audit.

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Definitions:

Segmented Income Statement

An income statement that separates costs and revenues into different segments, departments, or divisions of a business.

Contribution Approach

An income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.

Manufacturing Overhead

All indirect costs related to manufacturing that cannot be directly traced to specific items produced, such as factory rent, utilities, and equipment depreciation.

Variable Costing

An accounting approach that only considers variable costs—costs that change with the level of output—in product costing and decision-making.