After Obtaining an Understanding of Internal Controls and Assessing Control

question 2

Multiple Choice

After obtaining an understanding of internal controls and assessing control risk on the audit of a nonpublic company,an auditor decided to perform tests of controls.The auditor most likely decided that

• A) It would be efficient to perform tests of controls that would result in a reduction in planned substantive tests.
• B) Additional evidence to support a further reduction in control risk is not available.
• C) An increase in the assessed level of control risk is justified for certain financial statement assertions.
• D) There were many internal control weaknesses that could allow errors to enter the accounting system.

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Definitions:

Investment

The action or process of allocating resources, usually money, with the expectation of generating an income or profit.

Economic Growth

Refers to an increase in a country's output of goods and services over time, typically measured by GDP.

Production Possibility Frontier

A curve depicting the maximum attainable combinations of two products that may be produced with available resources and technology.

Increasing Opportunity Costs

The principle that as you increase production of one good, the opportunity cost of producing an additional unit of this good increases.