In the Context of an Audit of Financial Statements, Substantive

question 15

Multiple Choice

In the context of an audit of financial statements, substantive procedures are audit procedures that:

• A)may be eliminated under certain conditions.
• B)are primarily designed to discover significant subsequent events.
• C)may be either tests of details of transactions, tests of details of account balances, or analytical procedures.
• D)will increase proportionately with an increase in the auditor's reliance on internal control.

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Definitions:

Compounded Annually

A method of calculating interest where the interest earned each year is added to the principal, and the interest for the next year is calculated on the total amount.

Unamortized Discount

The portion of a bond discount that has not yet been charged to expense because the bond has not reached its maturity.

Times Interest Earned Ratio

A financial ratio that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes (EBIT) to its interest expenses.

Callable Bonds

A type of financial instrument that allows the issuer to buy them back prior to the expiration date, for a pre-determined price.