Which of the Following Comes Closest to Outlining the Auditors

question 67

Multiple Choice

Which of the following comes closest to outlining the auditors' responsibility for considering internal control in all financial statement audits?

• A)An understanding of the control environment,information and communication,risk assessment and monitoring is necessary;an understanding of control activities is only necessary for areas in which the auditor is performing tests of controls.
• B)The auditor must obtain an understanding of each of the five internal control components sufficient to assess the risks of material misstatement for the audit.
• C)When tests of controls have been performed,control risk must be assessed at a level less than the maximum.
• D)An understanding of the control environment is necessary,but no understanding of the other components is necessary unless control risk is to be assessed at a level less than the maximum.

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Definitions:

Conversion Costs

The combined costs of labor and overhead that are required to transform raw materials into finished products.

Cost Per Equivalent Unit

Calculation of the cost to produce a single unit, taking into account units that are partially completed; particularly useful in process costing systems.

Processing Department

A unit or stage within a manufacturing operation where a particular process or set of processes is performed, transforming raw materials into finished products.

Equivalent Units

A measure used in cost accounting to express the amount of work done during a period in terms of fully completed units of output.