When CPAs Do Audits for Specified Elements, Accounts, or Items

question 107

Multiple Choice

When CPAs do audits for specified elements, accounts, or items,

• A) materiality is defined in terms of the overall financial statements.
• B) materiality is defined in terms of the elements, accounts, or items being audited.
• C) auditors do not need to extend their audit efforts to include other elements, accounts, or items that are interrelated with those being audited.
• D) the authority for auditing specified elements, accounts, or items is in the review and compilation standards.

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Definitions:

Net Credit Sales

The total amount of sales made on credit, subtracting returns and allowances.

Accounts Receivable

Money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.

Times Interest Earned Ratio

The times interest earned ratio is a financial metric that measures a company's ability to meet its debt obligations based on its current earnings before interest and taxes (EBIT).

Default in Payment

Occurs when a borrower fails to make a loan payment on time as agreed upon in the loan agreement.