An Auditor's Purpose for Performing Tests of Controls Is to Provide

question 90

Multiple Choice

An auditor's purpose for performing tests of controls is to provide reasonable assurance that:

• A)Controls are operating effectively.
• B)The risk that the auditor may unknowingly fail to modify the opinion on the financial statements is minimized.
• C)Transactions are executed in accordance with management's authorization and access to assets is limited by a segregation of functions.
• D)Transactions are recorded as necessary to permit the preparation of the financial statements in conformity with generally accepted accounting principles.

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Definitions:

Gross Profit Rate

The ratio of gross profit (sales minus cost of goods sold) to net sales, showing the efficiency at which a company produces its goods.

Partial Equity Method

A variation of the equity method, where initial recognition is at cost and subsequent recognition involves recording dividends as income and not adjusting for the investee's retained earnings.

Upstream Inventory Transfers

Transactions where goods are sent from a subsidiary to the parent company, often analyzed for transfer pricing and tax purposes.

Downstream Inventory Transfers

The movement of inventory from a parent company to a subsidiary or between subsidiaries, typically involving finished goods or products closer to the end of the supply chain.