Which of the Following Would Provide the Best Audit Evidence

question 227

Multiple Choice

Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?

• A) Develop a cost-per-product analysis for products developed over the past five years.
• B) Develop a report on revenue generated by or cost savings directly attributable to newly developed products.
• C) Compare research as a percentage of revenue between this company and all major competitors in the same industry.
• D) Compare the number of this year's new product developments to the number of new product developments for the past five years.

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Definitions:

Earnings Quality

Pertains to the degree to which reported income provides a true representation of the company's financial performance.

Source of Cash Flow

Source of Cash Flow refers to the origins of the money coming into a business, indicating how the company is earning its income.

Net Operating Loss

A financial situation where a company's allowable tax deductions are greater than its taxable income, leading to a negative taxable income.

Carryback

Carryback involves applying tax deductions or credits to a prior tax year, resulting in a tax refund or reduced tax liability.