The Occurrence Objective (Assertion) Is of Primary Importance When Performing

question 14

Essay

The occurrence objective (assertion) is of primary importance when performing transaction testing for sales. List and discuss the three potential misstatements that audit procedures are designed to detect.

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Definitions:

M&M Proposition II

A theory proposing that the cost of equity increases as a company increases its leverage, due to the riskier equity stream.

Debt-Equity Ratio

A ratio assessing the comparative financing from equity and debt for a company’s assets.

Cost of Equity

The return a company theoretically pays to its equity investors, conceived as a compensation for taking on the risk of investing.

Break-Even Point

The point at which total revenues equal total expenses, and the business neither makes a profit nor incurs a loss.