Question

An auditor is using ADA as a substantive test to validate accounts receivable because consumers are poor at responding to confirmations. In this case, the auditor validates the receivable by:

a) tracing shipping documents to bills of lading.
b) finding electronic evidence that the receivable is supported by subsequent cash receipt in the same amount.
c) vouching the receivable back to sales orders.
d) finding electronic evidence of strong internal controls.

Answer 1

The auditor validates the receivable by finding electronic evidence that the receivable is supported by subsequent cash receipt in the same amount.

Step-by-step explanation:

The correct answer is b) finding electronic evidence that the receivable is supported by subsequent cash receipt in the same amount.

In this case, the auditor is using ADA (Audit Data Analytics) as a substantive test to validate accounts receivable. Since consumers are poor at responding to confirmations, the auditor looks for electronic evidence that shows the receivable is supported by subsequent cash receipt in the same amount.

This is a reliable way to validate the receivable because it provides evidence that the customer actually paid the amount owed, supporting the accuracy of the accounts receivable balance.