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

question 62

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 descriptions below 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, since zero control risk means that no errors or fraud can reach the accounts.

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Definitions:

Task Performance

Consists of the quantity and quality of work produced.

Delphi Technique

A structured communication method, usually involving surveys and questionnaires, used for systematic forecasting and decision-making by gaining consensus from a panel of experts.

Rand Corporation

A global policy think tank that offers research and analysis to improve policy and decision making.

Communication Networks

The methods and pathways through which information flows within an organization or group, influencing efficiency and effectiveness.