The Following Audit Procedure Tests Primarily Which Balance- Related Audit

question 42

Multiple Choice

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Review the minutes of the board of directors' meetings for any indication of pledged receivables.

• A) Existence
• B) Presentation and disclosure
• C) Rights and obligations
• D) Both B and C above

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Definitions:

External Benefit

Positive effects of a transaction or activity on third parties not directly involved in the transaction, which are not reflected in the market price.

Negative Externality

A negative externality is a cost imposed on a third party not involved in the production or consumption of a good or service, such as pollution.

Positive Externality

A beneficial effect experienced by a third party who did not choose to incur that benefit, often resulting from an individual's or firm's actions.

Corrective Tax

A tax designed to internalize externalities, effectively correcting market outcomes that might otherwise result in social inefficiency.