PA Has Been Asked to Accept the Audit Engagement of BarneyBlues

question 50

Multiple Choice

PA has been asked to accept the audit engagement of BarneyBlues Corporation.PA sent a letter to the predecessor auditor asking whether there was any reason why he should not accept the engagement.Assuming that the prior year audit went smoothly,what would be an appropriate response by the predecessor auditor?

• A)Provide a brief statement that there is no reason of which he or she is aware that would prevent accepting the engagement.
• B)Send a copy of the entire working paper file to PA.
• C)Telephone PA and say that PA should not take the engagement because the fee charged was too large.
• D)Send a copy of the tax returns and tax assessments to PA.

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper ones.

Relative Price

Relative Price is the price of one good or service compared to another, usually reflecting its value in terms of another item rather than its absolute price in currency.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price point.

Marginal Utility

The heightened satisfaction or value achieved by consuming one additional unit of a product or service.