Generally Accepted Auditing Standards (GAAS)give Auditors Considerable Discretion to Decide

question 121

Multiple Choice

Generally accepted auditing standards (GAAS) give auditors considerable discretion to decide the amount of work required to satisfy auditing standards guiding internal control evaluation and related audit planning.Which of the following descriptions best expresses the minimum amount of work permitted by GAAS for nonpublic companies?

• A) Do not obtain an understanding of client environment, accounting, or control activities. Do not document the decision to assess control risk at maximum. Perform 100% substantive audit on all financial statement transactions and balances.
• B) Obtain an understanding of client environment, accounting, and control activities. Document the decision to assess control risk at maximum. Perform an extensive but not 100% substantive audit on financial statement transactions and balances.
• C) Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk below the maximum. Perform restricted substantive audit on financial statement transactions and balances, considering the control risk assessment.
• D) Obtain an understanding of client environment, accounting, and control activities, and perform detail tests of controls. Document the decision to assess control risk at zero. Perform no substantive audit on financial statement transactions and balances because zero control risk means that no errors or fraud can affect the accounts.

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Definitions:

Natural Selection

The evolutionary process by which organisms better adapted to their environment tend to survive and produce more offspring.

Behavioral Phenotypes

Observable characteristics or behaviors that result from the interaction of genotype and environment.

Canalized

A process by which the genetic development of an organism is guided by the environment so that a certain phenotype is produced regardless of variability in the environment or genetics.

Niche Construction

The process by which organisms alter their own and each other’s environments, potentially affecting both their own evolution and that of other species.