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:

Confidence Interval

A range of values, derived from sample statistics, that is likely to contain the value of an unknown population parameter, with a certain level of confidence.

Sample Size

The number of observations or data points collected in a sample from a population, impacting the precision and reliability of statistical estimates.

UCL

Upper Control Limit, a threshold in statistical quality control charts indicating the maximum acceptable variation in a process.

LCL

stands for Lower Control Limit, which is a line on a control chart that represents the lower acceptable limit of process variability or performance.