Question

List two common tests of details of balances procedures the auditor would perform when testing for the balance-related audit objective of realizable value:

Answer 1

Two tests an auditor would perform to assess realizable value are sending confirmation letters to verify receivable balances and evaluating subsequent cash receipts. These approaches help verify if the monetary values recorded are likely to be collected and accurately reflected.

Step-by-step explanation:

The question relates to auditing procedures for assessing the realizable value of account balances. Two common tests of details of balances procedures the auditor would perform in this context are:

1. Reviewing and confirming receivables by sending out confirmation letters to selected customers to verify the amounts they owe to the audit client. This helps ascertain whether the recorded receivables are likely to be collected (i.e., are realizable).
2. Evaluating subsequent cash receipts. Auditors might review cash receipts that occur after the balance sheet date but pertain to receivables as of the balance sheet date. This review can provide evidence as to whether the receivables were indeed realizable.

These audits are part of ensuring that the monetary values represented in financial statements are both accurate and able to be realized as actual cash or cash equivalents, reflecting proper comparison and arrangement of monetary units.