When Evaluating the Effectiveness of a Client's Internal Controls with a Tolerable

question 49

Multiple Choice

When evaluating the effectiveness of a client's internal controls with a tolerable rate of deviation of 5%,the audit team determined the upper limit rate of deviation to be 4%.Based on this information,which of the following decisions would the audit team most likely make?

• A) Reduce the planned degree of reliance on internal controls.
• B) Increase the extent of further audit procedures.
• C) Rely on internal controls as planned.
• D) Expand the sample to examine additional applications of the control.

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Definitions:

Debit

An entry recorded on the left side of a ledger account that increases an asset or expense account, or decreases a liability, equity, or revenue account.

Credit

A financial arrangement where goods, services, or money is received in exchange for a promise to pay back later, often with interest.

"Dr"

An abbreviation for "debit record," indicating an entry on the left side of an account, representing an increase in assets or expenses.

Stockholders' Equity

Shareholders' equity in a corporation, which is the value of the assets that remains once all debts and obligations are deducted.