An Auditor Most Likely Would Limit Substantive Audit Tests of Sales

question 56

Multiple Choice

An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting:

• A)opening and closing inventory balances.
• B)cash receipts and accounts receivable.
• C)shipping and receiving activities.
• D)cut-offs for sales and purchases.

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Definitions:

Pre-tax Interim Net Income

The net income earned before taxes are deducted during an interim period, such as a quarter or half-year.

Income Tax Loss

A situation where tax-deductible expenses exceed taxable revenues, potentially reducing taxable income in future periods through loss carryforwards.

Tax Loss Carryforward

A tax provision that allows a company to use its current loss towards future profits to reduce taxable income.

Taxable Income

The amount of income subject to taxation, after all deductions and allowances have been considered, according to the tax laws.