The Auditor Designs the Risk Assessment Procedures That He Believes

question 20

Multiple Choice

The auditor designs the risk assessment procedures that he believes will be effective in assessing the risk of material misstatement for the entity.According to the auditing standards,the risk assessment process should include

• A)internal control tests for significant accounts
• B)analytical procedures
• C)observation of inventory
• D)substantive test of transactions

---

Definitions:

Effective Cost

Effective cost refers to the total cost of a financing option when all charges, fees, and interest payments are taken into account.

Annual Rate

The interest rate for a period of one year, often used to compare the yields of different investment and financing options.

ABC System

A system of controlling inventory that recognizes the differing cost and importance of various items. A parts are expensive and/or important and are controlled carefully. C parts are cheap and plentiful, so little effort is expended to monitor them. B parts are between As and Cs.

Inventory Management

The oversight of non-capitalized assets (inventory) and stock items, involving the control of ordering, storing, and using a company's inventory.