Answered: Look at the following descriptions of…

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Activities Required In Completing A Quality Audit

Section: Chapter Questions

Problem 92RSCQ

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Question

Look at the following descriptions of how management, the auditor and the audit committee (or board of directors) interact with one another. Choose the one that best describes the interactions.

a) Management works closely with the Board of Directors. Included amongst Management's duties is the hiring of Independent Auditors

b)The Board of Directors is all knowing and all seeing. They employ Management as their Agent to run the company.

Their monthly Board meetings suffice to satisfy them that Management is performing in the Shareholders' interest.

c) Agency theory explains many things including why Management hires Independent Auditors to audit the financial statements

d) Shareholders select a Board of Directors to oversee the Shareholders' business. The Board of Directors hire Management to run the day to day operations of the business. The Board of Directors hire Agents to assist it in monitoring Management. Amongst these Agents is the independent auditor.

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