When External Users Place Heavy Reliance on the Financial Statements

question 25

Multiple Choice

When external users place heavy reliance on the financial statements it is appropriate that

• A) audit risk be increased.
• B) inherent risk be decreased.
• C) inherent risk be increased.
• D) audit risk be decreased.

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Definitions:

Direct Labor Hours

The total hours worked directly on producing goods, an important factor in costing and efficiency analyses.

Factory Overhead

All indirect costs associated with manufacturing a product, including utilities, maintenance, and salaries of non-direct labor.

Total Factory Overhead

Total factory overhead encompasses all indirect costs associated with manufacturing, including utilities, depreciation, and salaries for supervisory personnel, that cannot be directly traced to specific products.

Activities Per Product

The specific tasks or operations that need to be completed in order to produce each unit of a product.