Question

Which of the following would provide the best form of evidential matter pertaining to the annual valuation of a long-term investment in which the independent auditor's client owns a 45 percent voting interest?

A. Market quotations of the investee company's stock
B. The current fair value of the investee company's assets
C. Historical costs of the investee company's assets
D. Audited financial statements of the investee company

Answer 1

The best form of evidential matter for the annual valuation of a long-term investment would be the audited financial statements of the investee company, which provide a comprehensive overview of financial health and value.

Step-by-step explanation:

The question pertains to determining the best form of evidential matter for the annual valuation of a long-term investment in which the auditor's client holds a significant interest. The most reliable evidence would be the audited financial statements of the investee company.

Market quotations of the investee company's stock would provide a fair value, but audited financial statements give a comprehensive overview of the investee company's financial health and would likely consider the market quotations as well. Historical costs are less relevant as they do not reflect current value, and the fair value of the investee company's assets may not directly translate to the value of the investment.