The Confirmation of Customers' Accounts Receivable Rarely Provides Reliable Evidence

question 62

Multiple Choice

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because

• A) Many customers merely sign and return the confirmation without verifying its details.
• B) Recipients usually respond only if they disagree with the information on the request.
• C) Customers may not be inclined to report understatement errors in their accounts.
• D) Auditors typically select many accounts with low recorded balances to be confirmed.

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Definitions:

Debit Memo

A document issued to record a reduction in the balance due from a customer, often due to a return or correction.

Gross Profit

The difference between revenue and the cost of goods sold before expenses.

Single-Step Income Statement

An income statement format that calculates net income using a single subtraction of total expenses from total revenue.

Fiscal Year

A fiscal year is a one-year period that companies and governments use for financial reporting and budgeting, which does not necessarily coincide with the calendar year.