The allowance for doubtful accounts will not be precise by either the client or the auditor because of which of the following reasons?
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 requires judgment by both the client and the auditor. Because it is an estimate, it cannot be precisely determined. Factors that might affect the allowance include changes in the economy, accounting policies, or the client's receivables management. Therefore, it is an inherently imprecise estimate.

The Allowance for Doubtful Accounts Will Not Be Precise by Either