The Key Element That Protects an Auditor Against Common Law

question 28

Multiple Choice

The key element that protects an auditor against common law liability is:

• A) Adherence to generally accepted accounting principles (GAAP)
• B) Adherence to generally accepted auditing standards (GAAS)
• C) Compliance with threats and safeguards approach
• D) Maintain confidentiality of client information

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Definitions:

Net Method

An accounting method that records purchases after deducting any available discounts, directly showing the net purchase cost.

Credit Terms

Conditions under which credit will be extended to a customer, including repayment timeframe and interest rate.

Merchandise Inventory

Goods a company has in stock and available for sale, typically in a retail or wholesale setting.

Inventory Shrinkage

The loss of products between purchase and sale, often due to theft, damage, or errors in counting.