In Many Audits of Sales Transactions Substantive Tests of Transactions

question 137

Multiple Choice

In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because

• A) understatements of assets and income are a greater concern than overstatements.
• B) overstatements of assets and income are a greater concern than understatements.
• C) it doesn't matter if income is understated because the savings on income tax offsets the reduced revenue and net income is correct.
• D) the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements will not be misleading.

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Definitions:

Dividends

Cash payouts made by a corporation to its equity holders, usually stemming from the corporate profits.

Discount Rate

The interest rate used to discount future cash flows to their present value, essentially reflecting the opportunity cost of capital.

Present Value

The up-to-date valuation of a future financial sum or cash flow sequence, considering a determined rate of return.

Present Value Factor

A factor used to calculate the present value of a future amount of money or stream of payments, based on a specific rate of return.