Acceptable Audit Risk and the Amount of Substantive Evidence Required

question 102

True/False

Acceptable audit risk and the amount of substantive evidence required are inversely related.

---

Definitions:

Allowance for Doubtful Accounts

A contra-asset account that represents an estimate of accounts receivable that may not be collected.

Percentage of Sales Basis

A method used to forecast future financial outcomes by assuming that certain expenses, net income, and balance sheet items change in direct proportion to changes in sales.

Uncollectibles

Debts from customers that are considered impossible to collect and are therefore written off as a loss.

Expense with Revenues

Represents the relationship between the costs incurred and the revenues generated in a specific period.