When the Auditor Concludes That a Control Is Functioning Properly

question 60

Multiple Choice

When the auditor concludes that a control is functioning properly when,in fact,it is not,the auditor has committed the:

• A)Risk of underreliance.
• B)Risk of overreliance.
• C)Risk of incorrect acceptance.
• D)Risk of incorrect rejection.

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Definitions:

Modified Internal Rate

A version of the internal rate of return (IRR) adjusted for scale and risk, providing a more accurate reflection of an investment's profitability.

Cost of Capital

The critical rate of return a firm is required to earn on investment projects to hold its market stance and entice financiers.

NPV Method

Net Present Value method, a financial analysis tool used to determine the value of an investment by discounting future cash flows to their present value.

IRR Method

The IRR method, or Internal Rate of Return method, is a financial analysis tool used to evaluate the profitability of an investment by calculating the interest rate at which net present value of all the cash flows (both positive and negative) from a project or investment equals zero.