Which of the Following Auditing Procedures Probably Would Provide the Most

question 55

Multiple Choice

Which of the following auditing procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

• A)Trace test counts noted during the entity's physical count to the entity's summarization of quantities.
• B)Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens.
• C)Select the last few shipping documents used before the physical count and determine whether the shipments were recorded as sales.
• D)Inspect the open purchase order file for significant commitments that should be considered for disclosure.

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Definitions:

Volatility

Measures the degree of variation of a trading price series over time, indicating the level of uncertainty or risk associated with the size of changes in a security's value.

Unsystematic Risk

The risk associated with a specific issuer of a security or investment, which can be mitigated through diversification.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single investment's performance.

Portfolio Theory

A framework for constructing a portfolio of assets in such a way that it optimizes the balance between risk and return.