An Auditor Who Accepts an Audit Engagement and Does Not

question 20

Multiple Choice

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity should:

• A)engage financial experts familiar with the nature of the business entity.
• B)obtain knowledge of matters that relate to the nature of the entity's business.
• C)refer a substantial portion of the audit to another auditor, who will act as the principal auditor.
• D)first inform management that an unmodified auditor's opinion cannot be issued.

---

Definitions:

Financial Ratios

Quantitative measures derived from a company's financial statements used to evaluate its financial performance and health.

Financial Stability

The condition of having a strong financial foundation, characterized by the ability to withstand economic fluctuations and meet obligations without undue stress.

Operating Efficiency

The effectiveness with which a company utilizes its assets and resources to generate profits and minimize costs without sacrificing quality.

Financial Statements

Formal records that outline the financial activities and condition of a business, including the balance sheet, income statement, and cash flow statement.