Question：The relationship between the nominal rate used for discounting cash flows (i), the real rate (r) and the rate of inflation (h) may be expressed as which one of the following?

　　A. (1+r) = (1+i) x (1+i)

　　B. (1+h) = (1+i) x (1+r)

　　C. (1+i) = (1+r) x (1+h)

　　D. (1+r) = (1+i) - (1+h)

　　The correct answer is: (1+i) = (1+r) x (1+h).

　　The nominal rate for discounting cash flows is made up of two components: the real rate and the rate of inflation

　　Question：K Co, a potential client, has asked P&Co to act as auditor to his company and wants the audit to commence immediately as the financial statements are required by the bank. P&Co's response should be to:

　　A. Accept the assignment subject to written confirmation of appointment by the Board.

　　B. Contact the previous auditors for professional clearance before they start work.

　　C. Inform the previous auditors that they intend to commence work.

　　D. Start work on the audit right away.

　　The correct answer is: Contact the previous auditors for professional clearance before they start work.

　　Regardless of K Co's request for urgency the incoming auditor must always complete professional clearance procedures.