The Auditing Standards Describe How an Auditor Determines If the Preconditions

question 5

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 misstatement.
• C)The auditor obtains the agreement of management that it agrees to provide the auditor with all information that management is aware of that might be relevant to the preparation of the financial statements.
• 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.

---

Definitions:

Trust Fund

A legal arrangement where assets are held by a trustee for the benefit of another person or group.

Compounded Monthly

A method of calculating interest in which the interest earned each month is added to the principal, and the following month's interest is calculated on the new total.

Perpetuity

A financial instrument that pays a fixed amount of cash flow indefinitely.

Compounded Annually

Involves the calculation and addition of interest to the principal sum of a loan or deposit once every year.