If the client's internal control for recording sales returns and allowances is evaluated as effective:
A) all sales returns must be confirmed with the customer.
B) a sample of sales returns and allowances subsequent to closing date are examined
C) all sales returns must be traced to supporting documentation.
D) a larger sample is needed to verify cutoff.

Question

Quizplus · Accepted Answer

If the client's internal control for recording sales returns and allowances is evaluated as effective, the auditor will examine a sample of sales returns and allowances subsequent to the closing date to verify that the internal control is indeed effective. This is because an effective internal control system should ensure that all sales returns and allowances are properly recorded, and reviewing a sample of post-closing transactions helps to confirm this. Option A is incorrect because it is not always necessary to confirm sales returns with customers, especially if the internal control system is effective. Option C may be relevant, but it is not necessary for an effective internal control system to trace all sales returns to supporting documentation. Option D is also not necessary if the internal control system has been evaluated as effective.

If the Client's Internal Control for Recording Sales Returns and Allowances