In an Interview with the Plant Manager Regarding Operations, the Auditor

question 41

Multiple Choice

In an interview with the plant manager regarding operations, the auditor is most likely to obtain evidence that raises concerns regarding:

• A)the capitalization vs. expensing policy.
• B)the allocation of fixed and variable costs.
• C)the need to write off equipment that has become obsolete.
• D)the adequacy of depreciation expense.

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Definitions:

Capital Budgeting Technique

Methods used to evaluate and select long-term investments based on potential for profit and alignment with strategic goals, such as NPV or IRR.

Time Value

The principle that current money holds greater value than an identical sum in the future because of its earning potential.

Net Present Value Method

A method used in capital budgeting to evaluate the profitability of an investment or project by calculating the present value of expected future cash flows.

Net Present Value

A financial metric used to evaluate the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows over a period of time.