An Auditor's Analytical Procedures Performed During the Overall Review Stage

question 13

Multiple Choice

An auditor's analytical procedures performed during the overall review stage indicated that the entity's accounts receivable balance had doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following explanations most likely would satisfy the auditor?

• A)The entity liberalized its credit standards in the current year and sold much more merchandise to customers with poor credit ratings.
• B)Twice as many accounts receivable were written off in the prior year than in the current year.
• C)A greater percentage of accounts receivable were currently listed in the "more than 90 days overdue" category than in the prior year.
• D)The entity opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.

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Definitions:

Relationships

Connections or interactions between individuals or groups that can influence communication, collaboration, and performance within an organization.

Choice

The act of selecting from among available alternatives, reflecting personal judgment or preference.

Bureaucratic Procedures

Established, formal rules and protocols typically found within large organizations, aimed at standardizing and controlling processes.

Priorities

The ranking of tasks, goals, or objectives in order of importance, guiding where resources and attention should be focused.