How Does the Auditor Gain an Understanding of the Entity

question 49

Multiple Choice

How does the auditor gain an understanding of the entity and its environment? The auditing standards require the auditor to understand

• A)industry,regulatory and other external factors that management deems relevant to the entity
• B)the nature of management of the entity,including its operations,ownership and governance structures,the types of investments management makes,and the way the entity is structured and financed
• C)management's selection and use of accounting policies,including any changes in these policies
• D)the entity's objectives and strategies and the related business risks that may lead to the risk of material misstatement

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Definitions:

Triangular Pyramid

A geometric solid with a triangular base and three faces that are also triangles, meeting at a single point called the apex.

Ammonia

A compound of nitrogen and hydrogen with the formula NH3, known for its sharp, pungent odor and use in fertilizers and cleaning products.

Electron Density

A measure of the probability of an electron being present at a specific location around an atom or molecule.

Octahedron

A polyhedron with eight faces, usually referring to a regular octahedron with eight equilateral triangles as faces.