Introduction: Audit firms are organizations that conduct audit engagements. An audit firm may have more than one auditor in the form of its partners. The audit engagements are signed by any partner of the firm.
To identify: Whether the given statement is true or false.
Answer to Problem 1CYBK
The given statement is false.
Explanation of Solution
An audit firm conducts audit engagements of their clients and it is usually not likely to face litigation costs. Audit firms keep the documentation of each process of audit engagement and conclusions are drawn. The recording of sufficient documents and pieces of evidence reduced the risk of future litigations which is why the audit firm is not likely to see the litigation costs as the highest single cost. Hence, the given statement is false.
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Chapter 4 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- An accounting firm uses partners and staff to produce an audit. The quality of the audit (as measured by reduction in litigation liability and the likelihood of audit errors) is a function of the composition of the audit team. In particular, ?=??.???.? where r is the audit quality, P is the partner-hours devoted to the audit, and S is the staff-hours devoted to the audit. Notice that both partners and staff are essential for audit quality, and that audit quality increases in the amount of either, but at a decreasing rate. The cost of a partner-hour is 50 while the cost of a staff-hour is 5. The budget for this audit is 5000. How many partner and staff hours will the accounting firm choose to maximize quality subject to this budget constraint?arrow_forwardWhat parts of the accounting cycle require analytical processes, rather than methodical processes? Explain.arrow_forwardIn most audits of large entities, control risk assessment contributes to audit efficiency, whichmeans thata. The cost of substantive procedures will exceed the cost of control evaluation work.b. Auditors will be able to reduce the cost of substantive procedures by an amount morethan the control evaluation costs.c. The cost of control evaluation work will exceed the cost of substantive procedures.d. Auditors will be able to reduce the cost of substantive procedures by an amount less thanthe cost of tests of controlsarrow_forward
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- Generally, which of the following audit procedures is the least expensive to perform? A. Analytical procedures B. Tests of details of balance C. Substantive tests of transactions D. Tests of controls E. Risk assessment procedurearrow_forwardAny situation where a potential conflict can arise between the firm's owners and its managers is referred to as a(n): Group of answer choices organisational problem. compensation issue. agency problem. personnel conflict. control issue.arrow_forwardInternal auditing and external auditing are quite comparable in many ways.arrow_forward
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