The allowance for doubtful accounts will not be precise by either the client or the auditor because of which of the following?
A)it is an accounting estimate based upon judgment.
B)GAAP is not clear on the calculation of the allowance.
C)it is merely a reserve that is reversed by the client as income is needed for profitable results.
D)the precision is determined by the results of confirmation responses.

Question

Quizplus · Accepted Answer

The allowance for doubtful accounts is an accounting estimate that involves judgment and is based on historical data, industry trends, and economic conditions. The level of precision in calculating this estimate may vary between the client and the auditor due to their different perspectives and expertise. Also, GAAP provides guidance on how to estimate the allowance, but it allows for some flexibility in the calculation. Therefore, the allowance for doubtful accounts may not be precisely determined by either the client or the auditor.

The Allowance for Doubtful Accounts Will Not Be Precise by Either