When Communicating Internal Control-Related Matters Noted in an Audit of a Nonpublic

question 42

Multiple Choice

When communicating internal control-related matters noted in an audit of a nonpublic company,an auditor's report issued on significant deficiencies should indicate that

• A) Errors or fraud may occur and not be detected because there are inherent limitations in any internal control system.
• B) The issuance of an unqualified opinion on the financial statements may depend on corrective follow-up action.
• C) The deficiencies noted were not detected within a timely period by employees in the normal course of performing their assigned functions.
• D) The purpose of the audit was to report on the financial statements and not to provide assurance on internal control.

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Definitions:

Perfect Competition

A market structure characterized by a large number of small firms, identical products, and free entry and exit, leading to price-takers.

Marginal Revenue Product

The extra revenue generated from employing one additional unit of a resource.

Marginal Cost

The additional cost incurred by producing one more unit of a product, which can vary depending on the level of production.

Pareto Efficient

A distribution of resources where improving the situation of one person cannot be achieved without detriment to another.