An auditor is concerned about the valuation of the allowance for doubtful accounts. Which of the following procedures provides the best evidence?

Answer options:

Confirming outstanding balances with customers.

Vouching a sample of invoices to shipping documents.

Reviewing the aging of accounts receivable and subsequent cash collections.

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

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).

Question 38 All questions Question 40

Practice the full CPA AUD Practice Exam

78 questions · hints · full answers · grading

More questions from this exam

Q01A CPA firm is auditing a large public company. The audit partner's spouse has just been promoted ...Hard Q02During the acceptance phase of a new audit engagement for a private company, the successor audito...Hard Q03A CPA firm is designing its system of quality control. Which of the following policies would most...Medium Q04An auditor is establishing an understanding with a client regarding the services to be performed ...Medium Q05Under the AICPA Code of Professional Conduct, which of the following fee arrangements is prohibit...Medium

View all 78 questions →