Which of the Following Represents a Correct Statement Regarding Internal

question 78

Multiple Choice

Which of the following represents a correct statement regarding internal control testing?

• A) When auditors plan to use evidence about the operating effectiveness of internal control contained in prior audits, auditing standards require tests of the controls' effectiveness at least every other year.
• B) The greater the risk, the less audit evidence the auditor should obtain that controls are operating effectively.
• C) The auditor uses control risk assessment and results of tests of controls to determine planned detection risk and the related substantive tests for the financial statement audit.
• D) Testing of internal controls can only be performed by the auditor at the end of the fiscal year.

Understand the degree of operating leverage and its use in measuring the sensitivity of operating income to changes in sales volume.

Interpret and analyze financial information to make informed business decisions related to sales, costs, and profit.

Understand the principles and applications of the percentage-of-completion method and completed contract method in revenue recognition.

Recognize the role of payments, including interest and progress payments, in the accounting for installment sales and construction contracts.

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Definitions:

FICA Tax

Federal Insurance Contributions Act tax; a U.S. federal payroll tax that funds Social Security and Medicare.

Medicare Tax

A federal payroll tax that funds Medicare, the health insurance program for individuals aged 65 and over, as well as for some younger people with disability status as determined by the Social Security Administration.

Payroll Period

The interval of time for which an employee's wages are calculated, such as weekly, bi-weekly, or monthly.

Salaries Payable

An account that represents the amounts owed but not yet paid to employees for services rendered.