The Most Effective and Efficient Audit Approach in the Examination

question 112

Multiple Choice

The most effective and efficient audit approach in the examination of the income statement would be which of the following?

• A) Examine income statement accounts concurrently with the related balance sheet accounts.
• B) Compare company's components of net income to other businesses in the same industry.
• C) Compare company's components of net income to the previous two years.
• D) Examine changes in all balance sheet accounts.

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Definitions:

Direct Materials Quantity Variance

The difference between the actual quantity of materials used in production and the expected quantity, multiplied by the standard cost per unit of material.

Total Cost Variance

The overall difference between the actual costs incurred and the standard or budgeted costs, across all categories of expenses.

Variable Factory Overhead

Costs of manufacturing that vary with the level of production output, such as utility costs for machinery.

Controllable Variance

The difference between the expected cost and the actual cost that management has the power to influence or control.