When Making a Client Continuance Decision the Auditor Should View

question 26

Multiple Choice

When making a client continuance decision the auditor should view an individual client as

• A)an individual stock in an investment portfolio from a risk and return perspective.
• B)a stand alone investment with a fixed level of risk and return.
• C)since risk is unknown it is not a factor in the decision and the auditor should seek the highest fee possible.
• D)an auditor must charge a standard fee based on the size of the client to maintain independence.

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Definitions:

Activity Increases

A term indicating a rise in the level of business or production activities.

Contribution Margin

The amount by which sales revenue exceeds variable costs, contributing towards covering fixed costs and profit.

Gross Margin

The difference between sales revenue and the cost of goods sold, divided by revenue, expressed as a percentage, indicating the financial health and profitability of a company's core activities.

Net Operating Income

The profit realized from a business's operations after subtracting all operation-related expenses from gross income.