When auditing prepaid insurance,
A) for many audits, significant substantive procedures are needed if the control risk is low.
B) companies often have a standard monthly journal entry to reclassify prepaid insurance as insurance expense.
C) the emphasis in the tests of details of balances is on insurance expense.
D) the auditor must prepare the insurance register.

Question

Quizplus · Accepted Answer

Companies often have a standard monthly journal entry to reclassify prepaid insurance as insurance expense, so the emphasis in the tests of details of balances is on identifying any unrecorded expenses or ensuring the insurance expense balance agrees with the insurance expense account in the financial statements. While significant substantive procedures may be needed if control risk is low, this is not always the case for every audit. The auditor typically does not prepare the insurance register, as this is the responsibility of management.

When Auditing Prepaid Insurance