With respect to understanding the client's revenue process, it is particularly important that the auditor ________.
A)makes some preliminary inquiries with the client's attorney
B)be knowledgeable about the entity, how the entity earns revenues, and particular revenue recognition issues that may be relevant to the entity
C)examines other firms within the client's industry to determine acceptable practices
D)uses accounting standards as an optional guide to determining what the client should be recording

Question

Quizplus · Accepted Answer

The auditor needs to have knowledge about the entity's revenue process, including how the entity earns revenues and any relevant revenue recognition issues. This knowledge will help the auditor design appropriate audit procedures and make informed judgments about the appropriateness of the client's revenue recognition practices. Making preliminary inquiries with the client's attorney or examining other firms within the client's industry may be helpful, but they are not as important as understanding the client's revenue process. Using accounting standards as an optional guide is not sufficient, as the auditor is required to follow auditing standards and exercise professional judgment.

With Respect to Understanding the Client's Revenue Process, It Is