In Performing the Audit of Internal Control Over Financial Reporting

question 11

Multiple Choice

In performing the audit of internal control over financial reporting the auditor emphasizes internal control over class of transactions because:

• A)the accuracy of accounting system outputs depends heavily on the accuracy of inputs and processing.
• B)the class of transaction is where most fraud schemes occur.
• C)account balances are less important to the auditor then the changes in the account balances.
• D)classes of transactions tests are the most efficient manner to compensate for inherent risk.

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Definitions:

Employee Discounts

Reductions in price offered to employees of a company as a benefit or perk, which can apply to products or services offered by the employer.

Net Markups

The amount by which the cost of a product is increased to arrive at the selling price, after accounting for any discounts or additional charges.

Net Markdowns

The total decrease in the original selling prices of products, accounting for promotions or clearance sales, minus any markdown cancellations.

Periodic Inventory System

An inventory accounting system where the inventory balance is updated and the cost of goods sold is calculated only at the end of each accounting period.