When Assessing the Risk of Material Misstatement,auditors Evaluate the Reasonableness

question 9

Multiple Choice

When assessing the risk of material misstatement,auditors evaluate the reasonableness of an entity's accounting estimates.An auditor normally would be concerned about assumptions that are

• A) Susceptible to bias.
• B) Consistent with prior periods.
• C) Insensitive to variations.
• D) Similar to industry guidelines.

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Definitions:

Direct Labor-Hours

A measure of the total amount of time worked by employees directly involved in manufacturing a product or delivering a service.

Variable Overhead

Costs of production that vary with the level of output, such as utility expenses or raw material costs.

Direct Materials

Raw materials that are directly traceable to the production of a specific good or service.

Variable Overhead

Costs of operation that fluctuate with production volume, such as utilities for machinery.