The Audit Expectation Gap Is the Difference in the Expectations

question 12

Multiple Choice

The audit expectation gap is the difference in the expectations of the

• A) assurance providers and the financial statement users.
• B) assurance providers and the audit client.
• C) audit client and the financial report or other users.
• D) audit client and the regulator.

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Definitions:

Overapplied

A situation where the allocated amount of indirect costs exceeds the actual amount incurred.

Underapplied

A situation where the applied manufacturing overhead is less than the actual manufacturing overhead incurred, indicating that the costs have not been fully allocated.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate overhead costs to products or job orders based on a chosen activity base.

Direct Labor-Hours

The total hours worked by employees directly involved in the production of goods or provision of services.