Hoang is engaged in the audit of a power company that supplies power to a residential community.All accounts receivable balances are small and the internal control structure is effective.Customers are billed twice monthly.In order to obtain evidence with regards the valuation and allocation assertion of the accounts receivable balances as at balance date, Hoang would most likely:
A)send positive confirmation requests.
B)examine evidence of subsequent cash receipts.
C)use statistical sampling instead of sending confirmation requests.
D)send negative confirmation requests.

Question

Quizplus · Accepted Answer

Since the accounts receivable balances are small and the internal control structure is effective, it would be more cost-effective to examine evidence of subsequent cash receipts to obtain evidence with regards to the valuation and allocation assertion of the accounts receivable balances. This would also provide a more direct and reliable way of testing the balances. Sending positive confirmation requests or using statistical sampling may not be necessary in this case. Sending negative confirmation requests is not appropriate as it assumes that the balances are accurate unless notified otherwise.

Hoang Is Engaged in the Audit of a Power Company