Prior to the Acceptance of an Audit Engagement with a Client

question 34

Multiple Choice

Prior to the acceptance of an audit engagement with a client who has terminated the services of the previous auditor, the proposed auditor should:

• A)contact the previous auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential.
• B)accept the engagement without contacting the previous auditor, since the proposed auditor can include audit procedures to verify the reason given by the client for the termination.
• C)not communicate with the previous auditor, because this would in effect be asking the auditor to violate the confidential relationship between auditor and client.
• D)advise the client of the intention to contact the previous auditor and request permission for the contact.

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Definitions:

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good or service, the additional satisfaction gained from consuming an additional unit decreases.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, opposite to what is observed with normal goods.

Diminishing Marginal Utility

The principle that as a person consumes more of a good, the satisfaction (utility) gained from consuming an additional unit decreases.

Total Satisfaction

The total amount of pleasure or utility that a consumer receives from consuming a certain quantity of goods or services.