In Confirming Accounts Receivable, an Auditor Decided to Confirm Customers

question 75

Multiple Choice

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the entity's confirmation letter?

• A)An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance is correct.
• B)A client-prepared letter reminding the customer that a nonresponse will cause a second request to be sent.
• C)An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the auditor.
• D)A client-prepared statement of account showing the details of the customer's account balance.

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Definitions:

Underapplied

Describes a situation where the allocated overhead costs in accounting are less than the actual overhead costs incurred.

Overapplied

A scenario in which the overhead cost assigned to manufacturing exceeds the overhead that was actually incurred.

Direct Labor-Hours

A measure of the labor directly involved in manufacturing a product, represented in hours.

Predetermined Overhead Rate

A rate calculated before a period begins, based on estimated overhead costs and activity levels, used to allocate overhead to products.