Question

When designing tests of details of balances, an important point to remember is?

1) Auditors emphasize income statement accounts.
2) The audit procedures selected depends heavily on whether planned evidence for a given objective is low, medium, or high.
3) If accounts receivable are overstated, then sales will be understated.
4) Sales cutoff is the most important test of details of accounts receivable.

Answer 1

The audit procedures selected for tests of details of balances depend on the planned evidence for a given objective. If accounts receivable are overstated, then sales will be understated.

Step-by-step explanation:

When designing tests of details of balances, an important point to remember is that the audit procedures selected depends heavily on whether planned evidence for a given objective is low, medium, or high. This means that the level of evidence needed to test a specific balance depends on the risk associated with that balance. For example, if accounts receivable are overstated, then sales will be understated. Hence, it is important to select appropriate audit procedures to detect any misstatements in the accounts receivable balance. Ultimately, the goal is to ensure that the audit provides sufficient evidence to support the accuracy of the financial statements.