In the Audit of Notes Payable, It Is Common to Include

question 86

Multiple Choice

In the audit of notes payable, it is common to include tests of principal and interest payments as a part of the audit of the acquisitions and payment cycle because the payments are in the cash disbursements journal that is being sampled. It is also normal to test these transactions as part of the capital acquisitions and repayment cycle because

• A) it is not unusual for the auditor to duplicate a process, thereby gathering a larger quantity of evidence.
• B) replicating the evidence will provide the auditor with a higher level of assurance.
• C) the tests done in the acquisitions and payments cycle will look only at the cash credit side so the tests done in the capital acquisitions and repayment cycle will look at the debit side of the transaction.
• D) due to the infrequency of these transactions, in many cases no transactions involving notes payable are included in the sample tests of acquisitions and payments.

Understand the importance of strategic leadership in maintaining a sense of urgency for achieving organizational objectives.

Grasp the concepts of competing based on price or product and the exclusivity of these strategies within market competition.

Identify and avoid common pitfalls in strategic planning processes, including failures of process and substance.

Define and explain the concept of sustainable competitive advantage and its significance in strategic management.

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Definitions:

Average Rate of Return

A financial ratio that represents the average annual profit of an investment compared to the initial investment cost, often used in capital budgeting to evaluate profitability.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Internal Rate of Return

A financial metric used to estimate the profitability of potential investments by calculating the rate of return at which the net present value of costs (cash outflows) equals the net present value of benefits (cash inflows).

Average Rate of Return

A financial ratio used to measure the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.