When a Predecessor Auditor Has Examined the Prior-Years' Financial Statements

question 54

Multiple Choice

When a predecessor auditor has examined the prior-years' financial statements presented in comparative format,the current auditors' report should

• A) make no reference to the predecessor auditors' report.
• B) reference the predecessor auditors' report in the introductory paragraph, Auditor's Responsibility section, and opinion paragraph.
• C) reference the predecessor auditors' report in an other-matter paragraph.
• D) disclaim an opinion on the prior-years' financial statements.

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Definitions:

Overapplied Factory Overhead

The condition where the allocated factory overhead costs exceed the actual factory overhead expenses.

Predetermined Overhead Rate

A calculated rate used to allocate manufacturing overhead costs to individual units of production, typically based on estimated costs and activity levels.

Direct Labour Cost

The expense incurred for workers who are directly involved in the production of goods or services.

Manufacturing Costs

Costs directly associated with the production of goods, including materials, labor, and factory overhead.