For Investments Accounted for Using the Equity Method

question 82

Multiple Choice

For investments accounted for using the equity method:

• A) audited financial statements of the investee generally constitute sufficient evidence regarding the underlying net assets and the results of operations of the investee.
• B) post acquisition debits and credits can be tested using statistical sampling where control risk is low.
• C) brokers' advices would provide most of the evidence necessary to satisfy audit objectives pertaining to all five categories of financial statement assertions.
• D) initial procedures would involve obtaining an understanding of the rationale behind management's classification of the investments.
• E) analytical procedures may reduce the amount of evidence needed from other substantive tests.

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Definitions:

Benefits Principle

The idea that people should pay taxes based on the benefits they receive from government services

Taxes

Obligatory charges imposed by authorities on the earnings of employees and the profits of businesses, or applied to the price of various commodities, services, and financial activities.

Total Surplus

The sum of consumer surplus and producer surplus in a market, representing the total benefits to society.

Deadweight Loss

A loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved, often due to market failure, taxes, or subsidies.