During Consideration of Internal Control in a Financial Statement Audit

question 14

Multiple Choice

During consideration of internal control in a financial statement audit of a nonpublic company,an auditor is not obligated to

• A) Search for significant deficiencies in the operation of internal control.
• B) Understand the internal control environment and the information system.
• C) Determine whether the controls relevant to audit planning have been placed in operation.
• D) Perform procedures to understand the design of internal control.

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Definitions:

Operating Income

The profit realized from a business's core operations, calculated before interest and taxes are deducted.

Break-even Point

The level of production or sales at which total costs equal total revenue, meaning no net loss or gain is incurred; a crucial financial analysis metric.

Break-even Point

The break-even point is the level of production or sales at which total revenues equal total expenses, resulting in no net profit or loss.

Margin of Safety

The difference between actual or expected sales and sales at the break-even point.