If a client's major customer goes bankrupt in the period subsequent to cutoff and the allowance for doubtful accounts does not cover the loss,the client should adjust the allowance prior to the completion of the audit.

Question

Quizplus · Accepted Answer

If the client's major customer goes bankrupt after the cutoff period and the allowance for doubtful accounts does not cover the loss, the client should adjust the allowance prior to the completion of the audit to ensure that the financial statements accurately reflect the loss. This is because the going concern assumption may be in doubt if a major customer goes bankrupt, and the auditor should consider the implications of this event on the client's ability to continue operating in the future.

If a Client's Major Customer Goes Bankrupt in the Period