Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should:

Question

Quizplus · Accepted Answer

Choice "D" is correct. When audit procedures are performed before year-end, the auditor must assess the incremental risk involved and determine whether sufficient alternative procedures exist to extend the interim conclusions to year-end. Choice "A" is incorrect. The risk of incorrect rejection relates to the efficiency of audit testing, since an item that is initially (and erroneously) rejected will be subject to additional audit testing that should correct the error. The likelihood of assessing this risk lower than it should be does not affect the auditor's decision regarding the appropriate timing of audit work. Choice "B" is incorrect. When audit procedures are performed before year-end, the auditor must assess the incremental risk involved, but this risk would not necessarily be assessed at the maximum level. Choice "C" is incorrect. Interim testing may be performed on material accounts, as long as the auditor assesses the incremental risk involved and determines whether sufficient alternative procedures exist to extend the interim conclusions to year-end. Immaterial accounts would not need to be tested.

Before Applying Principal Substantive Tests to an Entity's Accounts Receivable