In the planning phase,Denis conducted an analytical procedure to compare the allowance for doubtful accounts balance to the accounts receivable balance.In the prior years,the allowance for the doubtful accounts/accounts receivable ratio was between 2.5% to 3.5%.This year,the number is 1.25%.What should Denis do?
A)Change the assessed inherent risk
B)Conduct additional testing to justify the lower bad debt.
C)Advise management that they should increase the allowance for doubtful accounts provision.
D)Document this difference and continue with audit work to see if this is pervasive bias of management.

Question

Quizplus · Accepted Answer

Denis should conduct additional testing to justify the lower bad debt because the significant decrease in the allowance for doubtful accounts ratio compared to prior years could indicate a potential issue that needs further investigation.

In the Planning Phase,Denis Conducted an Analytical Procedure to Compare