The Primary Objective of an External Auditor's Obtaining an Understanding

question 4

Multiple Choice

The primary objective of an external auditor's obtaining an understanding of a client's internal control is to provide the auditor with which of the following?

• A) Evidential matter to use in reducing detection risk.
• B) Knowledge necessary to plan the audit and related testing.
• C) A basis from which to modify tests of controls.
• D) Information necessary to prepare flowcharts.

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Definitions:

Parent Corporation

A larger corporation that owns more than half the stock of another firm, allowing it to control the subsidiary's management and operations.

Foreign Subsidiary

A company owned or controlled by another company (the parent) but located and operating in a country different from the parent company.

Statement Of Retained Earnings

A financial statement that outlines the changes in retained earnings for a specific period, typically impacted by net income and dividends distributed.

Functional Currency

The currency of the primary economic environment in which an entity operates and conducts its business, crucial for financial reporting.