Correct answer: D

Explanation: Substantive tests are audit tests performed to substantiate the fairness of presentation of each account on the financial statements. The nature, timing, and extent of substantive tests are determined by the creditor's assessment of control risk. The remaining answer choices are synonymous terms, and these tests are used to determine whether internal control procedures are actually in place in the client's operation.

Correct Answer: A

Explanation: Income recognized in the third year of a five-year construction contract using percentage-of-completion method would be calculated by multiplying the ratio of the total cost incurred to date divided by the estimated total cost times the estimated total gross profit on the contract less the gross profit recognized in years one and two. Note that billings on the contract do not affect the calculation of income recognized.