In Evaluating the Reasonableness of an Accounting Estimate, an Auditor

question 745

Multiple Choice

In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on key factors and assumptions that are:

• A) Consistent with prior periods.
• B) Similar to industry guidelines.
• C) Objective and not susceptible to bias.
• D) Deviations from historical patterns.

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Definitions:

Strike Price

The price at which the holder of an option can buy (in a call option) or sell (in a put option) the underlying security.

Intrinsic Value

The actual value of a company or an asset based on underlying perception of its true value including all aspects of the business.

November 45 Call

A call option that gives the holder the right to buy a particular stock at a price of $45 per share, expiring in November.

Pure Discount Bond

A type of bond that is issued at a discount to its nominal value and pays no interest, but is redeemed at its face value at maturity.