Johnson Is Engaged in the Audit of a Power Company

question 37

Multiple Choice

Johnson is engaged in the audit of a power company which supplies power to a residential community. All accounts receivable balances are small and the internal control structure is effective. Customers are billed twice monthly. In
Order to obtain evidence with regards the valuation and allocation assertion of the accounts receivable balances as
At balance date, Johnson would most likely:

• A) send positive confirmation requests.
• B) examine evidence of subsequent cash receipts.
• C) use statistical sampling instead of sending confirmation requests.
• D) send negative confirmation requests.

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Definitions:

Group of Banks

A group of banks refers to a consortium or a syndicate formed by several banks to provide large loans or handle major financial transactions.

IPO

An Initial Public Offering (IPO) is the process through which a private company goes public by selling its shares to the public for the first time.

Allocation of Shares

The process of distributing shares of stock among investors.

Oversubscribed

A situation in which the demand for an IPO or a new issue of securities exceeds the number of shares available.