The Auditor Has Evaluated the Effectiveness of the Client's Procedures

question 46

Multiple Choice

The auditor has evaluated the effectiveness of the client's procedures to count inventory,and has provided constructive suggestions for improvement.However,the client has not implemented the suggestions,so the auditor has concluded that the inventory instructions do not provide adequate controls.This means that the auditor

• A)must send a management letter informing management of the impact of these weaknesses.
• B)must spend more time ensuring that the physical count is accurate.
• C)should use attribute sampling to select a smaller sample for testing the physical inventory.
• D)should increase the level of price and compilation tests to ensure better quality inventory pricing data.

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Definitions:

Monopolistic Competition

A market structure in which many companies sell products that are similar but not identical, allowing for competition but with some pricing power for producers.

Profit-Maximizing

A strategy or approach used by firms to determine the price and output level that delivers the maximum profit.

Long-Run Equilibrium

A state in which all firms in a market are producing at their minimum long-run average cost, with no incentive to enter or exit the market.

Monopolistic Competition

A market structure where many companies sell products that are similar but not identical, allowing for competition on factors other than price.