Interpretations to the Rules of Conduct Permit a CPA Firm

question 47

Multiple Choice

Interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same private company client if three criteria are met. Which of the following is not one of those criteria?

• A) The client must accept full responsibility for the financial statements.
• B) The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission.
• C) The CPA must not assume the role of employee or of manager.
• D) The CPA must follow applicable auditing standards.

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Definitions:

Direct Labor Hours

Direct Labor Hours are the total hours worked by employees directly involved in the production process of a company's goods or services, used in calculating labor costs and efficiency.

Overhead Applied

Overhead applied is the portion of overhead costs allocated to individual products or job orders based on a predetermined formula or rate.

Work in Process

Represents the cost of unfinished goods in the manufacturing process, including labor, raw materials, and overhead costs.

Production Jobs

Specific tasks or sets of tasks within the manufacturing process, designed to produce goods or manage the production flow.