When There Is a Significant Risk That an Account Will

question 10

Multiple Choice

When there is a significant risk that an account will be misstated and the client's system of internal controls is not considered effective at reducing that risk:

• A) more high quality evidence is gathered when conducting substantive tests
• B) detection risk is set as high
• C) detection risk is set as low
• D) none of the above

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Definitions:

Allowance for Doubtful Accounts

A financial account used by companies to account for the percentage of accounts receivable that may not be collected due to customer defaults.

Cash Realizable Value

The amount of cash expected to be received from the liquidation of assets or completion of transactions.

Trade Receivables

Notes and accounts receivable that result from sales transactions.

Notes Receivables

Written promises for amounts to be received, typically including interest, indicating that another party owes the business money.