$$First$,$ select the appropriate answer which indicates why an auditor reviews sales returns subsequent to$$ year$-$end.

A$.$

The auditor reviews sales returns after$$ year$-$end to evaluate whether sales returns are unusually low for the financial statements. This procedure addresses the accuracy of sales returns and allowances. Accounting standards require that sales returns and allowances be placed in a subsequent accounting period if they are within the last six months of the fiscal year. For most$$ companies, however, sales returns and allowances are recorded in the same accounting$$ period, which is not an appropriate accounting$$ practice, regardless of materiality.

B$.$

The auditor reviews sales returns after$$ year$-$end to determine if there have been material returns that should be reflected in the financial statements. This procedure addresses the completeness of sales returns. Accounting standards require that sales returns and allowances be matched with related sales if the amounts are material. For most$$ companies, however, sales returns and allowances are recorded in the accounting period in which they$$ occur, under the assumption of approximately$$ equal, offsetting amounts at the beginning and end of each accounting period. This approach is acceptable as long as the amounts are not material.

C$.$

The auditor reviews sales returns after$$ year$-$end to evaluate whether the accounts receivable balance is accurate for the financial statements. This procedure addresses the presentation and accuracy of the sales returns and allowances account. Accounting standards require that sales returns and allowances be placed in the same accounting period unless they are within the last quarter of the fiscal year. For most$$ companies, however, sales returns and allowances are lumped into the first three quarters of the financial statements. This approach is acceptable as long as none of the sales returns are reflected in the fourth quarter.

D$.$

The auditor reviews sales returns after$$ year$-$end to identify if the sales returns are unusually high for the financial statements. This procedure addresses the existence of sales returns and allowances. Accounting standards requires that sales returns and allowances be matched against the appropriate sales that took place. If the amount is$$ material, then proper documentation must be collected from the original customer to allow for the financial statements to include the sales returns in the appropriate accounting period. This approach is not required if the amounts are not material.