An Auditor Who Accepts an Audit Engagement and Does Not

question 39

Multiple Choice

An auditor who accepts an audit engagement and does not possess expertise with respect to the business entity's industry,should

• A) Engage financial experts familiar with the nature of the business entity.
• B) Obtain a knowledge of matters that relate to the nature of the entity's business.
• C) Refer a substantial portion of the audit to another CPA, who will act as the principal auditor.
• D) First inform management that an unqualified opinion cannot be issued.

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Definitions:

Repairs

Expenditures to restore an asset to its former condition or to keep it in operable condition without increasing its life or value significantly.

Warranty Expense

Costs a company anticipates or incurs for the repair or replacement of defective products during the warranty period.

Repairs

Expenses incurred to restore an asset to a condition where it can perform its intended function, without improving beyond its original state.

Accrued Vacation Pay

Represents the amount of vacation time earned by employees that has not yet been used or paid out, and is recorded as a liability on the company's balance sheet.