The Auditor Has Examined the Financial Statements,particularly the Cash Flow

question 12

Multiple Choice

The auditor has examined the financial statements,particularly the cash flow statement,and the notes to the financial statements to determine that all relevant information is presented clearly.Which audit assertion is associated with this audit test?

• A)classification
• B)allocation
• C)understandability
• D)valuation

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Definitions:

Accumulated Tax Losses

Accumulated tax losses refer to net losses that a business can carry forward to future tax years, to offset taxable income and reduce tax liabilities.

Optimal Level

The most favorable point, amount, or degree of something for a particular situation, which maximizes efficiency or returns.

M&M Proposition II

Part of the Modigliani-Miller theorem on capital structure, stating that the cost of equity increases with higher levels of debt, as a consequence of the increased risk taken by equity holders.

Cost of Equity

The compensation that investors demand for bearing the risk of owning stock, usually reflected by earnings or dividend growth expectations.