Smith Ltd Has Numerous Customers

question 2

Multiple Choice

Smith Ltd has numerous customers. Each customer file contains name, address, credit limit and account balance. The auditor wishes to undertake a test of the programmed control that does not allow account balance to exceed credit limit. The best procedure for the auditor to follow would be to:

• A) develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.
• B) develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations.
• C) request a printout of a sample of account balances so they can be individually checked against the credit limits.
• D) request a printout of all account balances so they can be manually checked against the credit limits.

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Definitions:

Highly Inflationary Economy

An economic condition characterized by a cumulative inflation rate over three years approaching or exceeding 100%, significantly impacting financial reporting.

Cumulative Inflation

The total change in the price level of goods and services in an economy over a set period of time, typically resulting in a decrease in purchasing power of the currency.

Temporal Method

An accounting method used to translate foreign currency financial statements into the reporting currency of a parent company, focusing on the timing of transactions.

Ending Inventory

The total value of all inventory a company has in stock at the end of an accounting period.