It Is the Auditor's Job to Review the Client's Estimate

question 50

Multiple Choice

It is the auditor's job to review the client's estimate to evaluate whether it has been determined in accordance with the applicable financial reporting framework.To do this,the auditor considers whether the allowance for doubtful accounts is properly valued based on

• A)the accounts written off during the current year
• B)the accounts receivable balance at the end of the prior year
• C)current economic conditions
• D)the economic status of past customers
• E)the net receivable balance that should represent the amount of cash the company expects to collect in the current year
• F)both A and C
• G)both B and D

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Definitions:

Self-fulfilling Prophecy

When persons behave toward another person according to a label (impression) and cause the person to respond in ways that confirm the label.

Stereotype Threat

The suspicion a member of a group holds that he or she will be judged based on a common stereotype of the group.

Confirmation Bias

The tendency to focus on information relevant to a belief and ignoring or downplaying information that is inconsistent with that belief.

Anchoring and Adjustment

A cognitive bias where individuals rely too heavily on an initial piece of information (the "anchor") when making decisions, with adjustments made too conservatively.