Which of the Following Items Is Not an Important Consideration

question 18

Multiple Choice

Which of the following items is not an important consideration in an auditor's evaluation of an entity's business risk?

• A)The specific business risks that an entity faces may result in financial report errors and fraud.
• B)Business risk factors affect the ability of an entity to be profitable and survive.
• C)Auditing standards include many entity business risk factors that identify circumstances that increase the likelihood of material misstatements.
• D)Auditing standards require the auditor to evaluate the entity's business risk in order to provide suggestions to improve the entity's profitability.

Understand the implications of permanent differences on taxable and financial income.

Recognize the role of GAAP in tax allocation and the objectives behind income tax accounting.

Calculate the tax base of assets and liabilities for the purpose of recognizing deferred taxes.

Understand the concept of temporary differences in accounting.

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Definitions:

Times Interest Earned

Times Interest Earned is a financial ratio that measures a company's ability to meet its debt obligations based on its operating income.

Debt to Assets Ratio

A financial ratio that indicates the percentage of a company's assets financed through debt, measuring financial leverage.

Current Ratio

A liquidity ratio measuring a company’s ability to pay short-term obligations with its short-term assets.

Cash Dividends

Payments made by a corporation to its shareholders from its profits.