When the Auditor Attempts to Understand the Operation of the Accounting

question 87

Multiple Choice

When the auditor attempts to understand the operation of the accounting system by tracing a few transactions through the accounting system, the auditor is said to be

• A) tracing.
• B) vouching.
• C) performing a walkthrough.
• D) testing controls.

---

Definitions:

Ending Inventory

The total value of goods available for sale at the end of an accounting period, crucial for calculating cost of goods sold.

Cost of Goods Sold

Direct costs attributable to the production of the goods sold by a company, including materials and labor.

Net Income

The total earnings or profit of a company after subtracting all expenses, taxes, and costs from its total revenue.

Overstatement

A situation where figures or values are recorded in the financial statements higher than the actual or true values.