You are auditing Rodgers and Company and have noticed that accounts receivables have increased from the previous year because of financial problems with its customers. Your likely first response would be to:
A) expand tests regarding account balance collectability.
B) increase the allowance for uncollectible accounts for the client.
C) communicate to the client that credit policy must be reviewed.
D) increase the sample size of past due accounts.

Question

Quizplus · Accepted Answer

Expanding tests regarding account balance collectability would allow for a thorough examination of the collectability of the accounts receivables. This would provide the auditor with a better understanding of the risks associated with the increase in accounts receivables and allow for appropriate adjustments to be made to the allowance for uncollectible accounts. Increasing the allowance without thorough testing could lead to an overstatement of expenses and a misstatement of the financial statements. Communicating to the client may also be necessary, but expanding tests is the best course of action in this situation. Increasing the sample size of past due accounts alone would not provide enough information regarding the collectability of the accounts receivable.

You Are Auditing Rodgers and Company and Have Noticed That