Question

Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts?

The amount of bad debt write-offs in the prior year.

The auditor’s allowable risk of assessing control risk is too low.

The size of the intercompany receivable balance.

Preliminary judgments about materiality levels.

Answer 1

Correct answer--- Preliminary judgments about materiality levels.

The other options ie The amount of bad debt write-offs in the prior year, The auditor’s allowable risk of assessing control risk is too low, and The size of the intercompany receivable balance are not considered in planning a sample for a test of subsequent cash receipts.

The test is done to analyses whether the amount od receivables including notes are true and fair or not. Preliminary judgement is considered because it tells how much sampling is required give the level of assertion and detection risk.