Tests of Controls and Substantive Tests of Transactions Are an Important

question 119

Multiple Choice

Tests of controls and substantive tests of transactions are an important determinant of the extent of the auditor's use of tests of details of balances. Which of the following is true?

• A) They are likely to be performed prior to the client's end of the fiscal year.
• B) They are likely to eliminate the need for tests of details of balances.
• C) They are likely to have no impact on the planned tests of details of balances.
• D) They are likely to be used only in the audit of internal control.

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Definitions:

Recovery Ratio

A financial metric used to determine the amount of money recovered from an investment or project as compared to the amount invested or spent.

Notional Amount

The total principal or face value involved in a financial transaction, often used in derivatives trading.

Detachable Warrant

A financial instrument that grants the holder the right to purchase a company’s stock at a specified price, which can be detached and sold separately from the bond or preferred stock to which it was originally attached.

Traded Separately

Refers to the practice of trading components of a financial product independently, such as the detachable coupons from bonds being sold separately from the principal.