In which of the following circumstances is substantive testing of accounts receivable before the balance sheet date most appropriate?

Question

Quizplus · Accepted Answer

Choice "B" is correct. The higher the auditor's risk assessment, the closer to period end substantive procedures should be performed. Conversely, effective controls reduce control risk and reduce the risk of material misstatement, allowing more interim testing to occur. Choice "A" is incorrect. A new sales incentive program results in an increase in the risk of material misstatement, making it less likely that interim testing will be performed. Choice "C" is incorrect. High turnover of senior management results in an increase in the risk of material misstatement, making it less likely that interim testing will be performed. Choice "D" is incorrect. In the first engagement of a new client, the auditor will have less knowledge of the client and therefore would be less inclined to utilize interim testing, which increases audit risk.

In Which of the Following Circumstances Is Substantive Testing of Accounts