Which of the following statements is FALSE?
A. Bond agreements often contain covenants that restrict the ability of management to pay dividends
B. The stronger the covenants in the bond contract, the less likely an issuer will default on the bond and so the lower the interest rate investors will require to buy the bond
C. If a bond issuer fails to live up to any covenant, the issuer goes into bankruptcy immediately
D. Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds
Answer: C. If a bond issuer fails to live up to any covenant, the issuer goes into bankruptcy immediately
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When using the cost recovery method of accounting for long-term construction contacts under IFRS, early in the life of the contract it is typically the case that:
a. expenses in excess of revenues are recognized b. revenues in excess of expenses are recognized c. an equal amount of revenue and expense is recognized d. there is no predictable pattern of revenue and expenses
Which of the following statements about audit evidence is true?
a. To be appropriate, audit evidence should be either persuasive or relevant but need not be both b. The sufficiency and appropriateness of audit evidence is a matter of professional judgment c. The difficulty and expense of obtaining audit evidence about an account balance is a valid basis for omitting the test d. A client's accounting records can be sufficient audit evidence to support the financial statements