It is the auditor's job to review the client's estimate to evaluate whether it has been determined in accordance with the applicable financial reporting framework.To do this,the auditor considers whether the allowance for doubtful accounts is properly valued based on
A)the accounts written off during the prior year
B)the accounts receivable balance at the end of the prior year
C)current economic conditions
D)the economic status of past customers
E)the net receivable balance that should represent the amount of cash the company expects to collect in the following year
F)both A and C
G)both C and E

Question

Quizplus · Accepted Answer

The auditor should consider both current economic conditions (choice C) and the net receivable balance that should represent the amount of cash the company expects to collect in the following year (choice E) in evaluating the client's estimate for allowance for doubtful accounts. Choice A (the accounts written off during the prior year) and B (the accounts receivable balance at the end of the prior year) may be relevant factors but are not conclusive in determining the proper valuation. Choice D (the economic status of past customers) is not a specific factor to consider and is not as relevant as choices C and E. Finally, choice F (both A and C) is not the best answer because it only includes one relevant factor (C) and one factor that may not be conclusive (A).

It Is the Auditor's Job to Review the Client's Estimate