In What Order Should the Following Steps Occur

question 123

Multiple Choice

In what order should the following steps occur?
A. Set preliminary judgment of materiality and performance materiality.
B. Understand the client's business and industry.
C. Perform preliminary analytical procedures.
D. Accept the client and perform initial audit planning.

• A) D, B, C, A
• B) B, A, C, D
• C) B, D, A, C
• D) D, C, B, A

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Definitions:

Equity-Method

An accounting technique used to record investments in affiliate companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee's profits or losses.

Operating Activities

Activities that relate directly to the operation of a business, including sales revenue and expenses, reflected in the cash flow statement.

Decrease in Inventory

A reduction in the amount of goods available for sale or use, often reflected in financial statements and can indicate sales performance or a strategy to lower inventory levels.

Acquisition of Treasury Stock

The process by which a company buys back its own shares from the marketplace, reducing the amount of outstanding stock.