A Substantive Strategy Differs from a Reliance Strategy in That

question 65

Multiple Choice

A substantive strategy differs from a reliance strategy in that a substantive strategy includes:

• A)increased implementation of detailed tests of transactions and balances.
• B)extra tests of controls.
• C)increased emphasis on verbal representations from management.
• D)setting control risk at a minimum level.

---

Definitions:

Payback Method

A simplistic financial analysis technique that calculates the time required for an investment to generate cash flows sufficient to recover its initial cost.

Replacement Chain Method

A capital budgeting decision tool that compares different projects by analyzing them over a common time period, particularly useful for comparing investments of different durations.

Equivalent Annual Annuity

A financial term that represents the annual cash flow from an investment over its lifespan, making it easier to compare different investments.

Capital Rationing

Capital rationing is a strategy where companies limit or restrict their capital investments due to budgetary constraints.