Included in the financial statements are a variety of accounting estimates (e.g., allowance for doubtful accounts, obsolete inventory warranty liability). Audit procedures should be designed to obtain evidence about the assertions of management related to all accounts, including those based on accounting estimates.

a. List three approaches to auditing accounting estimates. Provide an example of how an auditor might apply each of the three approaches in auditing the allowance for doubtful accounts, which management has established at 1 percent of credit sales.
b. Discuss the meaning of the valuation or allocation assertion as it relates to the allowance for doubtful accounts.
c. Discuss factors that bear on whether the allowance for doubtful accounts is likely to be an account with high inherent risk.

  • CreatedOctober 25, 2014
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