A)An Auditor Is Concerned That Accounts Receivable May Be Understated

question 3

Essay

A)An auditor is concerned that accounts receivable may be understated due to sales to customers that have been omitted from the sales journal and from the accounts receivable master file.Describe the procedure(s)the auditor should perform in these circumstances.B)Describe how the auditor tests the classification objective for accounts receivable.

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Definitions:

Equity Contribution

Capital provided by owners or shareholders to a firm in exchange for an ownership interest or stock.

Initial Investment

The initial amount of capital used to start a business or investment.

Commercial Substance

A scenario where the future cash flows of an asset or group of assets are expected to change significantly due to a transaction.

Fair Value

The amount one would get from selling an asset or the cost to transfer a liability during a structured exchange between participants in the market.