The Auditing Standards Describe How an Auditor Determines If the Preconditions

question 65

Multiple Choice

The auditing standards describe how an auditor determines if the preconditions for an audit are present.Which of the following would be a precondition for an audit?

• A)The auditor obtains the agreement of management that it acknowledges and understands its responsibility for the issuing of the financial statements in accordance with the financial reporting framework.
• B)The auditor obtains the agreement from management that it acknowledges and understands its responsibility for internal controls so financial statements can be prepared free of material misstatement.
• C)The auditor obtains the agreement of management that it will provide the auditor with all information that management is aware of that might be relevant to the preparation of the financial statements and any other information the auditor may request.
• D)The auditor determines whether the financial reporting framework (the set of internal control standards)used by the client to prepare the financial statements is acceptable.

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Definitions:

Discount Rate

The rate utilized in DCF analysis for estimating the present value of future cash flows.

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity available for running day-to-day operations.

Salvage Value

The anticipated end value of an asset after exhausting its useful life.

Discount Rate

The interest rate used to calculate the present value of future cash flows.