When Obtaining an Understanding of the Entity and Its Environment,the

question 15

Multiple Choice

When obtaining an understanding of the entity and its environment,the auditor should obtain an understanding of internal controls primarily to

• A) Identify areas of relatively high risk of misstatement and plan the audit accordingly.
• B) Provide suggestions for improvement to the client.
• C) Serve as a basis for setting audit risk and materiality.
• D) Decide whether to perform an audit for the client.

---

Definitions:

Utility Maximization

The economic principle that individuals or entities attempt to obtain the greatest satisfaction or utility from their available resources.

General Beliefs

Widely held opinions or convictions concerning various topics or principles.

Bargaining Unit

A cohort of workers, characterized by mutual interests, and represented by one labor union in discussions for collective agreements.

NLRB

The National Labor Relations Board, a US federal agency tasked with enforcing US labor law in relation to collective bargaining and unfair labor practices.