In the Audit of Accounts Receivable, the Negative Form of Confirmation

question 41

Multiple Choice

In the audit of accounts receivable, the negative form of confirmation request is most likely to be used when ________.

• A) recipients are likely to return positive confirmation requests without verifying the accuracy of the information
• B) the combined assessed level of inherent and control risk relative to accounts receivable is low
• C) a small number of accounts receivable is involved but a relatively large number of errors are expected
• D) the auditor performs a dual-purpose test that assesses control risk and obtains substantive evidence

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Definitions:

Fixed Expenses

Expenses that remain constant regardless of variations in the level of production or the volume of sales, like lease payments or wages.

Degree Of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, indicating the impact of fixed costs on earnings.

Variable Expenses

Expenses that vary directly with the amount of activity or production volume.

Fixed Expenses

Expenses that do not change with the level of production or sales, remaining constant regardless of business activity levels.