ExpertMedium1 markMultiple Choice
CPA · Question 39 · Area 3: Performing Procedures
An auditor is concerned about the valuation of the allowance for doubtful accounts. Which of the following procedures provides the best evidence?
An auditor is concerned about the valuation of the allowance for doubtful accounts. Which of the following procedures provides the best evidence?
Answer options:
A.
Confirming outstanding balances with customers.
B.
Vouching a sample of invoices to shipping documents.
C.
Reviewing the aging of accounts receivable and subsequent cash collections.
D.
Inquiring of the credit manager regarding credit policies.
How to approach this question
Valuation of A/R = Will they pay? Best test: Did they pay later? (Subsequent cash) or How late are they? (Aging).
Full Answer
C.Reviewing the aging of accounts receivable and subsequent cash collections.✓ Correct
Reviewing the aging of accounts receivable and subsequent cash collections.
The valuation assertion for A/R addresses whether the balance is recorded at net realizable value. Analyzing the aging (likelihood of payment) and checking subsequent cash receipts (actual payment) provides the most relevant evidence.
Common mistakes
Thinking confirmations test valuation (they don't test ability to pay, only existence of debt).
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