An auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years. A possible misstatement this procedure could uncover is
A) overstatement or understatement of sales.
B) overstatement or understatement of accounts receivable.
C) overstatement or understatement of bad debt expense.
D) overstatement or understatement of sales returns and allowances.

Question

Quizplus · Accepted Answer

The procedure of comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years helps in identifying any overstatement or understatement of bad debt expense. If the percentage is significantly lower than in previous years, it may indicate that the company is not recognizing all the necessary bad debt expense. Conversely, if the percentage is significantly higher than in previous years, it may indicate that the company is overstating its bad debt expense. However, this procedure may not necessarily uncover misstatements related to sales, accounts receivable, or sales returns and allowances.

An Auditor Is Comparing the Write-Off of Uncollectible Accounts as a Percentage