After Obtaining an Understanding of Internal Control and Assessing Control

question 30

Multiple Choice

After obtaining an understanding of internal control and assessing control risk of an entity, an auditor decided not to perform tests of controls.The auditor most likely decided that:

• A)a combination of limited tests of controls with analytical procedures would be more efficient and effective than detailed substantive testing.
• B)the assessed level of detection risk exceeded the assessed level of control risk.
• C)control risk should be assessed as low for key financial report assertions.
• D)the evidence that could be obtained through tests of controls would not support an assessment of control risk as less than high.

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Definitions:

Invested Capital

The total amount of money that has been invested into a company by its owners, shareholders, and creditors, used for acquiring assets and funding operations.

Investment Turnover

A financial ratio that measures the efficiency of a company's use of its investments in generating sales revenue.

Profit Margin

The percentage of revenue remaining after all expenses have been deducted from sales.

Return On Investment

Return on investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested, expressed as a percentage.