The Potential Conflict of Interest When a Single Accounting Firm

question 89

Multiple Choice

The potential conflict of interest when a single accounting firm provides both auditing and consulting services is that the firm can

• A) charge higher fees to its audit clients and lower fees for its consulting services so it can expand its consulting business.
• B) charge higher fees to its consulting clients and lower fees for its audit services so it can expand its auditing business.
• C) provide unjustifiably favorable audit reviews for firms that are large clients for its consulting services.
• D) pressure its clients into paying high fees for both auditing and consulting services.

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Definitions:

Manufacturing Equipment

The machinery and tools used in the manufacturing process to produce goods or products.

Conversion Cost

The combined costs of direct labor and manufacturing overhead involved in transforming materials into finished goods.

Prime Cost

The sum of direct materials and direct labor costs in the production of goods, excluding overhead expenses.

Inventoriable Cost

Direct costs associated with the production of goods, including materials and labor, that are capitalized as inventory on the balance sheet until sold.