If Auditors Believe There Is a Risk That Expensincurred Before

question 34

Multiple Choice

If auditors believe there is a risk that expensincurred before year-end will be excluded from the current year's expenses, they will:

• A) Send out confirmation requests to a sample of the client's debtors.
• B) Trace transactions recorded close to year-end to source documentation.
• C) Perform analytical review analysis on the client's statement of financial position.
• D) None of the above.

---

Definitions:

Debt Management Ratios

Financial ratios that are used to evaluate a company's ability to manage its long-term and short-term debt obligations.

Average Collection Period

The average number of days it takes for a company to receive payments owed by its customers, reflecting the efficiency of its credit and collection policies.

Liquidity Problem

A liquidity problem occurs when an individual or organization struggles to convert assets into cash quickly without significant losses in value, potentially affecting their ability to meet immediate financial obligations.

Credit Terms

Conditions under which credit is extended by a lender to a borrower, including repayment schedule, interest rate, and the timeframe of the loan.