Which of the following is a substantive test of the trade receivables balance that is always performed?
A) Testing the accounting classification of sales transactions
B) Testing the mathematical accuracy of the cash receipts ledger
C) Evaluating the adequacy of the provision for doubtful debts
D) None of the above

Question

Quizplus · Accepted Answer

Evaluating the adequacy of the provision for doubtful debts is a substantive test that is always performed to ensure that the trade receivables balance is fairly stated in accordance with accounting standards. This test assesses whether the amount of the provision is sufficient to cover potential losses from customer defaults, and may involve analyzing historic bad debt write-offs, assessing the creditworthiness of individual customers, and reviewing the ageing profile of the accounts receivable ledger. Testing the accounting classification of sales transactions and the mathematical accuracy of the cash receipts ledger are also important tests, but may not be performed in every audit as they depend on the specific risks and controls in place at the client's organization.

Which of the Following Is a Substantive Test of the Trade