Assume You Are Working on a 12/31 Year-End Audit

question 40

Essay

Assume you are working on a 12/31 year-end audit.It is now March 31^st and the 12/31 accounts receivable aging shows a large receivable that was outstanding on 12/31 for 120 days.Further,the entity's receivables are typically collected in less than 45 days.You anticipate that the entity's allowance for doubtful account should be increased and inform the entity about your disposition.Management disagrees.Is there an alternative substantive procedure that you could perform that would provide convincing evidence that this balance is collectible? If so,explain.

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Definitions:

Inventory Valuation

The process of calculating the cost assigned to inventory items to determine the cost of goods sold and the inventory asset value at the end of an accounting period.

Weighted Average

A calculation that takes into account the varying weights or significance of different items in a data set, producing a mean value.

Perpetual Inventory System

A method of inventory management that instantly logs sales or acquisitions of inventory using computerized point-of-sale systems and software for managing enterprise assets.

Inventory Valuation

The method used to calculate the cost associated with an inventory at the end of a financial period, affecting cost of goods sold and gross profit.