Generally Accepted Auditing Standards (GAAS) Give Auditors Considerable Discretion to Decide

question 62

Multiple Choice

Generally accepted auditing standards (GAAS) give auditors considerable discretion to decide the amount of work required to satisfy auditing standards guiding internal control evaluation and related audit planning. Which of the descriptions below best expresses the minimum amount of work permitted by GAAS for nonpublic companies?

• A)Do not obtain an understanding of client environment, accounting, or control activities. Do not document the decision to assess control risk at maximum. Perform 100% substantive audit on all financial statement transactions and balances.
• B)Obtain an understanding of client environment, accounting, and control activities. Document the decision to assess control risk at maximum. Perform an extensive but not 100% substantive audit on financial statement transactions and balances.
• C)Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk below the maximum. Perform restricted substantive audit on financial statement transactions and balances, considering the control risk assessment.
• D)Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk at zero. Perform no substantive audit on financial statement transactions and balances, since zero control risk means that no errors or fraud can reach the accounts.

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Definitions:

Poor Credentials

Refers to qualifications, certifications, or experiences that are considered inadequate or less respected within a professional context.

Reasonable Idea

A thought or suggestion that is sensible and likely to be accepted or agreed upon by most people.

Influence

The capacity to have an effect on the character, development, or behavior of someone or something.

Poorly Qualified Speaker

A poorly qualified speaker lacks the expertise, skills, or knowledge required to effectively communicate or present on a particular topic or to a certain audience.