An Audit Firm's Quality Control Procedures Pertaining to the Acceptance

question 24

Multiple Choice

An audit firm's quality control procedures pertaining to the acceptance of a prospective audit client would most likely include:

• A) inquiry of management as to whether disagreements between the previous auditor and the prospective client were resolved satisfactorily.
• B) consideration of whether sufficient appropriate audit evidence may be obtained to afford a reasonable basis for an opinion.
• C) inquiry of third parties, such as the prospective client's bankers and solicitors, about information regarding the prospective client and its management.
• D) consideration of whether the internal control is sufficiently effective to permit a reduction in the extent of required substantive tests.

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Definitions:

Credit

An accounting entry that increases liabilities and equity or decreases an asset or expense account.

Note Receivable

A financial asset representing a promise to receive a specific amount of money, plus interest, from another party within a defined time frame.

Return

In finance, it refers to the profit or loss made on an investment over a specified period, expressed as a percentage of the initial investment.

Common Stockholders' Equity

The portion of a company's equity that is attributable to common stockholders, calculated as total assets minus total liabilities minus preferred stock equity.