The Audit Team Gathers Information About a New Client's Business

question 3

Multiple Choice

The audit team gathers information about a new client's business and industry in order to obtain:

• A)an understanding of the clients internal control system for financial reporting.
• B)an understanding of how economic events and transactions have an effect on the company's financial statements.
• C)information about control risk.
• D)information regarding whether the company is engaging in financial statement fraud.

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Definitions:

Effective Interest Rate

The real rate of return on a loan or financial product, reflecting the actual interest earned or paid over a specified period, including the effect of compounding.

Stated Rate

The interest rate declared on a financial instrument, such as a bond or loan, which may differ from the effective or market rate of interest.

Bond Interest Expense

The cost incurred by an issuer of bonds to the bondholders, representing the interest payments made periodically.

Effective Yield

This term represents the total yield an investment returns, adjusted for compounding over a standard one-year period.