An Organization Contracted a Third Party to Construct a New

question 160

Multiple Choice

An organization contracted a third party to construct a new facility that was estimated to cost $25 million. Which of the following is the most pertinent reason for the organization to audit the contractor's records?

• A) The contract includes a right-to-audit clause.
• B) The contractor will be paid on a cost-plus basis.
• C) The estimated cost is high.
• D) The contractor has subcontracted much of the work.

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Definitions:

Statement Of Cash Flows

A financial report that shows how changes in balance sheet and income affect cash and cash equivalents.

Financing Activities

Transactions and events where a company raises funds to support its operations and expansions, typically involving equity and debt.

Net Cash

The amount of cash available after accounting for cash inflows and outflows, providing a clear picture of an entity's liquidity.

Investing Activities

Transactions and events that involve the acquisition or disposal of long-term assets and investments by a company.