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

question 70

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 prior year
• B)the accounts receivable balance at the end of the current year
• C)past economic conditions
• D)the economic status of current 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:

Retained Earnings

The portion of a company's accumulated net income that is not distributed to shareholders as dividends but is kept as reserves for reinvestment in the business operations.

Stock Dividend

A payment made by a corporation to its shareholders in the form of additional shares, rather than cash.

Fair Value

An estimate of the price at which an asset could be bought or sold in a current transaction between willing parties, not in a forced or liquidation sale.

Market Price

The current price at which an asset or service can be bought or sold in a competitive marketplace.