When Auditing the Valuation Assertion of an Equity Method Investment

question 46

Multiple Choice

When auditing the valuation assertion of an equity method investment, which of the following is the auditor most likely to do?

• A)Inspect stock certificates.
• B)Obtain audited financial statements of the investee company.
• C)Obtain the market price of the stock as of year-end.
• D)Review management's calculations.

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Definitions:

Efficiently Allocated

A situation where resources are distributed in a manner that maximizes the overall benefit to society or an economy, with no way to improve anyone's condition without worsening someone else's.

Marginal Cost

The amount spent on producing one more unit of a good or service.

Average Total Cost

The per unit cost of production, calculated by dividing the total cost by the quantity of output produced.

Economic Profits

Economic profits consist of the total revenue generated by a business minus both its explicit and implicit costs, reflecting the actual profitability including opportunity costs.