When Are Auditors Likely to Encounter Judgment Problems in the Use

question 4

Multiple Choice

When are auditors likely to encounter judgment problems in the use of analytical procedures?

• A)Whenever the auditor places reliance on management's explanations for unusual fluctuations in account balances without first developing independent expectations
• B)Whenever the auditor allows unaudited balances to unduly influence his/her expectations of current balances
• C)Whenever the auditor fails to consider the pattern reflected by several unusual fluctuations when trying to explain what caused them
• D)The auditor is likely to encounter judgment problems in each of the above instances.

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Definitions:

Work in Process Inventory

The inventory account that tracks the cost of materials, labor, and overhead for products that are in production but not yet complete.

Equivalent Cost

The combined costs of direct materials and conversion costs (labor and overhead) for partially completed goods, used in process costing environments.

Weighted-Average Method

An inventory costing method that calculates the cost of ending inventory and the cost of goods sold based on the weighted average cost of all items available for sale.

Direct Labor Cost

The total expense that a company incurs for labor directly involved in the production process.