Identify the Three Primary Reasons an Auditor Should Obtain a Good

question 23

Essay

Identify the three primary reasons an auditor should obtain a good understanding of the client's industry, and discuss specific ways an auditor can obtain this understanding.

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Definitions:

Contingent Liability

A potential obligation that depends on a future event arising from past transactions or events.

Allowance For Doubtful Accounts

A contra-asset account that represents the estimated amount of receivables which are not expected to be collected.

Accounts Receivable Turnover

A financial metric that measures how efficiently a company collects revenue from its credit sales by dividing net credit sales by the average accounts receivable.

Net Credit Sales

Sales made on credit minus any returns or allowances.