Why Does the Auditor Divide the Financial Statements into Smaller

question 95

Multiple Choice

Why does the auditor divide the financial statements into smaller segments?

• A) Using the cycle approach makes the audit more manageable.
• B) Most accounts have few relationships with others and so it is more efficient to break the financial statements into smaller pieces.
• C) The cycle approach is used because auditing standards require it.
• D) All of the above are correct.

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Definitions:

Cash Flow From Investing

Cash flow from investing activities is a section of a company's cash flow statement that shows the inflow and outflow of cash resulting from investment activities, such as purchases or sales of physical assets or investments in securities.

Production Machinery

Equipment and machines used in the manufacturing process to produce goods and products.

Capital Equipment

Long-term assets such as machinery, vehicles, or large tools that a business uses in its operations to produce goods or services.

Leverage Ratio

A financial ratio indicating the level of debt used by a company to finance its assets, relative to its equity.