Which One of the Following Potential Audit Problems Is Not

question 61

Multiple Choice

Which one of the following potential audit problems is not true in affecting goodwill impairment valuations?

• A)Goodwill arising from acquisitions can be netted into one test at the operating segment level,but not netted at the company level.
• B)Market valuation may be volatile.A material temporary decline in market value may not be a good indicator of FMV.
• C)FMV might not exist,might require independent appraisals by investment bankers or estimates using cash flow and discounted present value factors.
• D)No assumptions are required about competition,economic development,product placement,and so forth.

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Definitions:

Principle of Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio to reduce exposure to any single asset's volatility.

Positively Correlated Stocks

Stocks whose prices tend to move in the same direction due to similar underlying factors or market conditions.

Volatility

A statistical measure of the dispersion of returns for a given security or market index, often associated with the degree of risk or uncertainty.

Systematic Risk

The risk inherent to the entire market or a whole market segment, which cannot be mitigated through diversification alone.