For Financial Statement Audits, Auditors Need to Understand Controls That

question 29

Multiple Choice

For financial statement audits, auditors need to understand controls that are relevant to the audit in order to

• A) identify and assess the risks of material misstatements.
• B) perform preliminary analytical procedures.
• C) detect fraud.
• D) assess inherent risk.

---

Definitions:

Retained Earnings

The portion of net income that is retained by a company rather than distributed to its shareholders as dividends.

Net Operating Income

The profit generated from a company's normal business operations, excluding non-operating income and expenses.

Materials Quantity Variance

Materials quantity variance is the difference between the actual quantity of materials used in production and the expected quantity, based on standard usage rates.

Materials Price Variance

The difference between the actual cost of materials and the standard cost, used to assess efficiency in purchasing raw materials.