When the Client Uses a Service Organization,the Auditor Obtains Evidence

question 64

Multiple Choice

When the client uses a service organization,the auditor obtains evidence by one or more of the following methods:

• A)obtain a report prepared by the auditor of the service organization that describes the service organization's system,evaluates the appropriateness of the design of internal controls and tests the operating effectiveness of the controls
• B)request the management of the service organization to perform test of controls at the direction of the auditor
• C)perform substantive tests of transactions at the service organization
• D)perform tests of the service organization's controls over the activities performed by the client organization

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Definitions:

Breakeven Analysis

This analysis determines the point at which revenue equals costs, resulting in neither profit nor loss.

Financial Leverage

The use of borrowed money (debt) to amplify the potential returns from an investment.

EBIT-EPS Analysis

A tool used to determine the impact of different levels of debt on a company's earnings before interest and tax (EBIT) and earnings per share (EPS).

Leverage

The use of borrowed funds to finance the purchase of assets or increase the potential return of an investment.