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9) Which ratio is computed by dividing operating income by net sales?A) gross profit percentB) profit marginC) return on salesD) return on assetsAnswer: BTerms: Common financial ratiosDiff: ModerateObjective: LO 7-6AACSB: Reflective thinking 1) Which of the following best describes one of the primary objectives of audit documentation?A) defend against claims of a deficient auditB) provide a basis for reviewing the work of subordinatesC) provide reasonable assurance that the audit was conducted in accordance with auditing standardsD) provide additional support of recorded amounts to the client2) Audit documentsA) are kept by the client for easy reference for their accounting staff.B) should be considered as a substitute for the clients accounting records.C) are designed to facilitate the review and supervision of the work performed by the audit team by a reviewing partner.D) prepared during the engagement are the property of the client once the audit bill is paid.
3) Audit documentationA) should identify the items tested when the audit procedures involve sampling of transactions orbalances.B) does not aid in the preparation of the tax return since accounting and tax rules differ.C) is another term for the audit program.D) should not be given to anyone outside the audit firm, even if a subpoena has been issued. 4) Audit documentation of the evidence gathered by the auditor should meet which of the following criteria?A) Workpapers are prepared in sufficient detail so that they can be given to the client for future reference.B) The content is sufficient to provide support for the auditor's opinion, including the auditor's representation as to compliance with auditing standards.C) Audit evidence is principally gathered to determine if the client's financial statements, as prepared by management, can be relied upon to make managerial decisions about the firm.D) Audit evidence as displayed in the workpapers is primarily performed to protect the auditing firm in the case of a lawsuit by investors.1) When preparing and organizing audit files,A) the rules established by the SEC and PCAOB must be followed.B) a lead schedule contains the detailed accounts from the general ledger making up the line itemon the trial balance.C) a working trial balance is considered part of the permanent file.D) the audit program is not part of the audit files.2) Audit documentation should possess certain characteristics. Which of the following is true regarding those characteristics?A) Audit documentation should beindexed and cross-referenced Audit documentation should beorganized to benefit the client's staffYesYesB) Audit documentation should beindexed and cross-referenced Audit documentation should beorganized to benefit the client's staffNoNoC) Audit documentation should beindexed and cross-referenced Audit documentation should beorganized to benefit the client's staffYesNoD) Audit documentation should beindexed and cross-referenced Audit documentation should beorganized to benefit the client's staffNoYes