Johnson is engaged in the audit of a power company which supplies power to a residential community. All accounts receivable balances are small and the internal control structure is effective. Customers are billed twice monthly. In
Order to obtain evidence with regards the valuation and allocation assertion of the accounts receivable balances as
At balance date, Johnson would most likely:
A) send positive confirmation requests.
B) examine evidence of subsequent cash receipts.
C) use statistical sampling instead of sending confirmation requests.
D) send negative confirmation requests.

Question

Quizplus · Accepted Answer

As the internal control structure is effective and all accounts receivable balances are small, sending confirmation requests would be unnecessary. Instead, examining evidence of subsequent cash receipts would provide sufficient evidence for the valuation and allocation assertion of the accounts receivable balances.

Johnson Is Engaged in the Audit of a Power Company