Your Audit Client Has Many Different Types of Accounts Receivable

question 20

Multiple Choice

Your audit client has many different types of accounts receivable: Canadian,American,and other international accounts;and short- and long-term accounts.There are also some sales on consignment.The company has used forward exchange contracts to reduce its exposure due to foreign exchange fluctuations.How will this affect the audit engagement?

• A)control risk will increase
• B)inherent risks of error will decrease
• C)risk of material misstatement increases
• D)audit risk will be increased

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Definitions:

Economic Profits

Profits exceeding the opportunity costs of a firm, representing earnings beyond the breakeven point.

Economic Costs

The total value of all resources used to produce a good or service, including both explicit and implicit costs.

Accounting Profit

The difference between total revenue and explicit costs; it does not account for implicit costs, unlike economic profit.

Total Revenue

The entire amount of income generated by the sale of goods or services before any costs are subtracted.