The Audit Team Gathers Information About a New Client's Business

question 57

Multiple Choice

The audit team gathers information about a new client's business and industry in order to obtain:

• A) an understanding of the clients internal control system for financial reporting.
• B) an understanding of how economic events and transactions have an effect on the company's financial statements.
• C) information about engagement risk.
• D) information regarding whether the company is engaging in financial statement fraud.

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Definitions:

Haircuts

A reduction applied to the value of assets for purposes of calculating capital requirements, risk, or losses.

Productive

The efficiency at which an individual, company, or economy can convert input resources into useful output.

Diminish Profits

The reduction in the amount of earnings as a result of increased costs, decreased revenue, or both.

Economic Profit

The financial difference created by subtracting total explicit and implicit expenses from total revenue in a company.