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:

Per-unit Costs

The cost incurred for producing or acquiring a single unit of a product or service.

Natural Monopoly

A market condition where a single firm can supply a good or service to an entire market at a lower cost than two or more firms due to economies of scale.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single participant can significantly influence price.

Economies of Scale

The reduction in per-unit production costs that occurs when companies grow their scale of operation, demonstrating how larger operation capacity can lead to cost efficiencies.