An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertions of:

Question

Quizplus · Accepted Answer

Choice "C" is correct. In testing the existence or occurrence assertion, the auditor is concerned that fictitious or overstated receivables may have been recorded. Observing the mailing of monthly statements and reviewing evidence of follow-up on errors reported by customers provides evidence that procedures are in place to identify and correct such errors. Choice "A" is incorrect. Follow up of errors in monthly statements does not provide any evidence to support understandability and classification. Choice "B" is incorrect. Follow up of errors in monthly statements does not provide any evidence to support understandability and classification, but does provide evidence regarding the existence of receivables. Choice "D" is incorrect. Follow up of errors in monthly statements does provide evidence regarding the existence of receivables, since customers will be likely to report discrepancies.

An Auditor Observes the Mailing of Monthly Statements to a Client's