An auditor's analytical procedures performed during the overall review stage indicated that the client's accounts receivable balance had doubled since the end of the prior year.However,the allowance for doubtful accounts as a percentage of accounts receivable remained about the same.Which of the following client explanations most likely would satisfy the auditor?
A) The client liberalized its credit standards in the current year and sold much more merchandise to customers with poor credit ratings.
B) Twice as many accounts receivable were written off in the prior year than in the current year.
C) A greater percentage of accounts receivable were currently listed in the "more than 90 days overdue" category than in the prior year.
D) The client opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.

Question

Quizplus · Accepted Answer

The opening of a second retail outlet could explain the increase in accounts receivable due to increased sales, while maintaining the same allowance percentage if the credit risk profile of customers remained similar.

An Auditor's Analytical Procedures Performed During the Overall Review Stage