24.

An auditor's analytical procedures have revealed that the accounts receivable of a client have
doubled since the end of the prior year. However, the allowance for doubtful accounts, as a percentage
of accounts receivable remained about the same. Which of the following client explanations most likely
would satisfy the auditor?
a. Credit standards were liberalized in the current year.
b. Twice as many accounts receivable were written off in the prior year as compared to this year.
c. A greater percentage of accounts were currently listed in the "more than 90 days overdue" category
than in the prior year.
d. The client opened a second retail outlet in the current year and its credit sales approximately
equaled the older, established outlet.

EXPLANATION:
Analytical procedures are used as a substantive test to obtain evidential matter about particular
assertions related to account balances or classes of transactions. In some cases, analytical procedures
can be more effective or efficient than tests of details for achieving particular substantive testing
objectives. The purpose of the analytical procedure performed at the completion phase of the audit is to
check that there is no chance of misstatement in any account. This process also provides the auditor
with an objective look and final review of the audited financial statements. As observed that there was
consistency on the balances of accounts receivable and the doubtful accounts it could be infer on the
explanation on letter d.

Homework. 2024. https://homework.study.com/explanation/what-is-the-primary-purpose-of-analytical-

procedures-performed-during-the-completion-phase-of-the-audit.

25. Which of the following generally provides the least evidence regarding the valuation of accounts
receivable?
a. Reviewing an aging of accounts receivable.
b. Examination of cash receipts subsequent to the balance sheet date.
c. Confirming current (0-30 day) year-end accounts receivable.
d. Reviewing credit files for selected account.

EXPLANATION:

Confirmation should only be performed once the auditor has already reconciled the subsidiary
ledger with the general ledger. Confirming may not provide useful information, from the choices
confirming is not that complex than the other choices like examining and reviewing, for this, you have to
plot the balance sheet of outstanding accounts receivable and determine what amount of accounts
receivable will be due within the next few months and other documents are need to arrive at the results.
While in confirming, two assertions for which the confirmation of accounts receivable balances provides
primary evidence are rights and obligations (does the client have a right to the receivable?) and
existence (does the receivable really exist?).

Asuncion et. al. 2021. Auditing and Assurance Concepts and Application. Substantive Test of Receivables
and Sales.