A risk of material misstatement in accounts receivable associated with the rights and obligations balance-related audit objective is that "consignment goods are recorded as revenue,overstating both revenue and accounts receivable." Which of the following tests of detail of balances would respond to this risk?
A)Include confirmation of terms of sale with accounts receivable confirmations.
B)Check cash received after the year end and trace to accounts receivable master file.
C)Read the notes to the financial statements and compare to audited financial information.
D)Compare accounts receivable balances by customer last year end to this year.

Question

Quizplus · Accepted Answer

Confirming the terms of sale with accounts receivable confirmations can provide evidence of whether the sale was a consignment sale or a regular sale. If the terms indicate that it was a consignment sale, then it should not be recorded as revenue, and therefore, would not be included in accounts receivable. This test would help to detect and prevent the overstatement of both revenue and accounts receivable related to consignment goods. The other options do not directly address the specific risk identified.

A Risk of Material Misstatement in Accounts Receivable Associated with the Rights