A Risk of Material Misstatement in Accounts Receivable Associated with the Allocation

question 93

Multiple Choice

A risk of material misstatement in accounts receivable associated with the allocation balance-related audit objective is that "long-term service revenue is recorded as current revenue or in the wrong period,overstating revenue and accounts receivable." Which of the following tests of detail of balances would respond to this risk?

• A)Read customer contracts and audit the criteria used to allocate revenue to components of the sales contract.
• B)Check cash received after the year end and trace to accounts receivable master file.
• C)Read the notes to the financial statements and compare to audited financial information.
• D)Enquire with management about the process used to make sure that revenue is recorded in the correct period.

Evaluate the cost-effectiveness and potential profitability of segmenting specific market segments.

Appreciate the concept of one product and multiple market segments and strategies to target them effectively.

Assess the impact of market segmentation on product positioning and marketing actions.

Identify challenges in implementing a segmentation strategy, including the simplicity and cost-effectiveness of assigning potential buyers to segments.

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Definitions:

Unlimited Liability

A legal obligation where a business owner or partner is personally responsible for all of the debts of the business.

Mutual Agency

A business principle where each partner in a partnership can act on behalf of the partnership, binding it contractually.

Partnership Accounting

The system of accounting that deals with financial transactions and record-keeping for business partnerships.

Information Tax Return

A document that reports income, expenses, and other pertinent tax information, typically filed with a governmental tax authority.