Before Applying Principal Substantive Tests to an Entity's Accounts Receivable

question 587

Multiple Choice

Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should:

• A) Consider the likelihood of assessing the risk of incorrect rejection too low.
• B) Project sampling risk at the maximum for tests covering the remaining period.
• C) Ascertain that accounts receivable are immaterial to the financial statements.
• D) Assess the difficulty in controlling the incremental audit risk.

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Definitions:

Opportunity Cost

The cost of missing out on the next best alternative when making a decision.

Leisure Time

Time spent not working and free from domestic or professional duties, allowing for rest, recreation, or personal activities.

Unproductive Activity

Unproductive Activity is an economic term that describes actions or work that do not contribute to the production of goods or services or generate economic value.

Productive Activity

Productive activity involves processes or actions that contribute to the production of goods and services, thereby adding economic value.