Auditors Begin Their Assessments of Inherent Risk During Audit Planning

question 54

Multiple Choice

Auditors begin their assessments of inherent risk during audit planning. Which of the following would not help in assessing inherent risk during the planning phase?

• A) obtaining client's agreement on the engagement letter
• B) obtaining knowledge about the client's business and industry
• C) touring the client's plant and offices
• D) identifying related parties

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Definitions:

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the expected variable overhead based on the predetermined rate.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product and included in the direct costs of production.

Variable Overhead

Costs that vary with the level of production or business activity, such as utilities or indirect materials.

Direct Material

Raw materials and components that are directly incorporated into a finished product and can be easily traced to the product.