The Auditor Has Decided That There Is a Risk of Material

question 40

Multiple Choice

The auditor has decided that there is a risk of material misstatement with respect to sales revenue.Which of the following audit tests should the auditor use to quantify the potential error?

• A)discuss the process used to assign credit limits with the sales manager and the controller
• B)send external confirmations to customers with accounts receivable balances
• C)determine whether all sales tested have a supporting customer purchase order
• D)determine whether all sales tested have a matching bill of lading

Analyze the effects of changes in price levels on aggregate demand and aggregate supply.

Interpret the significance and calculation of price indices and their role in measuring changes in the economy.

Understand the macroeconomic equilibrium and its implications for real GDP and price level.

Evaluate the role of government policies, including fiscal and monetary policies, in affecting aggregate demand and aggregate supply.

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Definitions:

Book Depreciation

The method of allocating the cost of a physical or tangible asset over its useful life for accounting and tax purposes.

Earnings and Profits

A measure used in corporate tax to assess the ability of a corporation to make distributions to its shareholders that are not considered a return of capital.

Basis

The amount of investment in property for tax purposes, used to calculate gain or loss on a sale or disposition.

Capital Gain

The profit from the sale of property or an investment, calculated as the difference between the selling price and the purchase price.