An auditor's analytical procedures indicate a lower than expected return on an equity method investment. This situation most likely could have been caused by:
A)an error in recording amortization of the excess of the investor's cost over the investment's underlying book value.
B)the investee's decision to reduce cash dividends declared per share of its common stock.
C)an error in recording the unrealized gain from an increase in the fair value of available-for-sale securities in the income account for trading securities.
D)a substantial fluctuation in the price of the investee's common stock on a national stock exchange.

Question

Quizplus · Accepted Answer

A lower than expected return on an equity method investment could be due to an error in recording amortization of the excess of the investor's cost over the investment's underlying book value. This could result in overstating the investment's value in the investor's financial statements, which could lead to a lower-than-expected return. The other choices are less likely to cause this issue.

An Auditor's Analytical Procedures Indicate a Lower Than Expected Return