Johnson Is Engaged in the Audit of a Power Company

question 37

Multiple Choice

Johnson is engaged in the audit of a power company which supplies power to a residential community. All accounts receivable balances are small and the internal control structure is effective. Customers are billed twice monthly. In
Order to obtain evidence with regards the valuation and allocation assertion of the accounts receivable balances as
At balance date, Johnson would most likely:

• A) send positive confirmation requests.
• B) examine evidence of subsequent cash receipts.
• C) use statistical sampling instead of sending confirmation requests.
• D) send negative confirmation requests.

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Definitions:

NPV Rule

A principle stating that an investment should be made if its net present value is positive, as it's expected to add value to the firm.

IRR Rule

A decision-making tool used in finance to evaluate investments, stating that a project is acceptable if its internal rate of return exceeds a predetermined threshold.

Internal Rate

NO. However, closely related term Internal Rate of Return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments.

Present Value

The value today of a sum promised at a specified time in the future given a rate of interest. The amount that would have to be deposited today at the specified interest rate to grow into the promised sum on the specified date.