Smith Corporation Has Numerous Customers

question 1

Multiple Choice

Smith Corporation has numerous customers. Customer files are kept on disk storage. Each account in the customer file contains name, address, credit limit, and account balance. The auditor wishes to test these files to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to:

• A) Develop test data that would cause some account balance to exceed the credit limit and determine if the system properly detects such situations.
• B) Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.
• C) Require a printout of all account balances so they can be manually checked against the credit limits.
• D) Request a printout of a sample of account balances so they can be individually checked against the credit limits.

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Definitions:

NPV

Net Present Value is a method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and the present value of cash outflows.

Contracts

Legal agreements between two or more parties that are enforceable by law, outlining responsibilities, duties, and sharing of benefits.

IRR

Internal Rate of Return; the discount rate that makes the net present value of all cash flows from a particular project zero.

Cash Flow

The net amount of cash and cash-equivalents being transferred into and out of a business.