Which Situation Would Most Likely Require Special Audit Planning by the Auditors

question 3

Multiple Choice

Which situation would most likely require special audit planning by the auditors?

• A)Some items of factory and office equipment do not bear identification numbers.
• B)Depreciation methods used on the client's tax return differ from those used on the books.
• C)Assets costing less than $500 are expensed even though the expected life exceeds one year.
• D)The investment portfolio has several complex financial instruments,such as derivatives.

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Definitions:

Sensitivity Analysis

A technique in financial modeling used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

Variable Costs

Costs that vary directly with the level of production or volume of sales, such as materials and labor.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums, providing stability to a company's expense structure.

Depreciation Expense

The allocated amount of the cost of an asset that is written off as an expense over its useful life.