In a Review Service Where the Client Has Failed to Follow

question 11

Multiple Choice

In a review service where the client has failed to follow GAAP, the accountant is:

• A) not required to determine the effect of a departure if management has not done so, but that fact must be disclosed in the report.
• B) required to determine the effect of a departure if management has not done so, and that fact must be disclosed in the report.
• C) not required to determine the effect of a departure if management has not done so, and that fact need not be disclosed in the report.
• D) required to determine the effect of a departure if management has not done so, and that fact need not be disclosed in the report.

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Definitions:

Fixed Cost

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.

Margin of Safety Percentage

A metric that measures how much sales can drop before a business reaches its break-even point, typically expressed as a percentage.

Variable Expenses

Costs that vary directly with the level of production or business activity.

Contribution Margin

The amount by which sales revenue exceeds variable costs. It is used to cover fixed costs and generate profit.