Question

An auditor performs analytical procedures and finds that the entity's accounts receivable balance had doubled since the end of the prior year. The auditor would consider the risk of misstatement to be high if which account remained unchanged?

Group of answer choices

accounts payable

selling expenses

inventory

allowance for bad debts

Answer 1

In performing analytical procedures as an overall review, the auditor determines whether adequate evidence has been gathered in response to unusual or unexpected balances identified during the audit, and may decide that additional audit procedures are warranted. In addition, the auditor may identify unusual or unexpected balances not already noted during the audit, which would also require the application of further auditing procedures.

If a second, similar retail outlet were opened, one would expect sales and accounts receivable to double. As long as the collection rates for the new outlet's receivables were expected to be similar to those of the original outlet, however, the allowance for doubtful accounts as a percentage of accounts receivable would remain the same.

ANS: Inventory