Stacey, the Partner in Charge of the Audit of GHER

question 41

Essay

Stacey, the partner in charge of the audit of GHER Corporation, calculates that detection risk to be 5.7% for the audit of accounts payable. GHER Corporation and RIF Enterprises are in the same industry, close to the same size, and have similar balances in accounts payable. What do the different detection risks tell you about the planned audit evidence that will be gathered for the GHER Corporation audit?

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Definitions:

Revenue Account

An account that tracks the income earned from normal business operations, such as sales of goods or services, distinguished from other types of income.

Withdrawal Account

A withdrawal account is an account in a partnership or sole proprietorship from which an owner can withdraw his or her share of the business profits.

Closing Process

The closing process involves summarizing revenue and expense accounts and transferring net income or loss to owner's equity to prepare the company's books for the next accounting period.

Post-Closing Trial Balance

A financial report created after closing entries are made, listing all the account balances to ensure that debits equal credits.